Financial benchmarking explained and why it’s important for your business

In the aged care sector, a range of complex financial information is closely linked to the delivery of care and care outcomes for residents and in-home service clients. 

When you’re looking to assess your standing within the sector and scope out potential growth opportunities, a tool such as financial benchmarking offers a number of positive benefits.

Benchmarking delivers a clear understanding of where your organisation sits within the aged care industry. It allows you to measure quality, performance and growth with both internal and external lenses, depending on your goals.

Using a strict data set, you can assess financial metrics and structures, revenue streams, key performance indicators (KPIs) and care performance outcomes. 

Accurate data comparisons enable managers and leaders to map out trends in performance, revenue and expenses to develop new strategies and elevate your business.

Senior Partner at StewartBrown, Grant Corderoy, understands the aged care sector better than anyone, regularly creating the quarterly Aged Care Financial Performance Survey (ACFPS), providing insight into trends and performance of the industry. 

Mr Corderoy spoke to Hello Leaders to explain financial benchmarking and its benefits for your business. 

What’s involved in benchmarking?

Benchmarking relies on asking the right questions and sourcing the appropriate data to truly understand key performance outcomes of your organisation. 

The process begins by identifying what you want to know and the qualitative and quantitative data available for analysis. Potential questions to base your research on include:

• What are the overall operating results for the organisation, and in each facility?
• What are the occupancy levels in relationship to Home Care Package (HCP) services?
• How do your accommodation rates compare to local property values?
• How much are you spending on catering?
• What are your average direct care minutes per resident per day?
• What is the percentage of Enrolled Nurses (EN), Registered Nurses (RN)  and Personal Care Workers (PCW) as part of your total direct care workforce?

Each question on its own will provide you with a direct answer, but together you can use them to identify trends and potential strategic outcomes for the future.

Internal or external comparisons

Depending on your objectives you can either conduct internal or external benchmarking.

Internal benchmarking is best suited to assess your own facility and service performance, historical data and major trends. It can be integrated into existing practices as the ongoing assessment will help to set annual goals – and ensure they’re being met.

“Internal benchmarking is important for setting budgets and forecasts for each home or care program, you want to measure how you’re going against those forecasts,” said Mr Corderoy.

“But if you take a step back, you do want to use a larger data set to see what similar homes and programs are doing across the sector. 

“You can use that in budget forecasting models to have a much greater range of information.” 

External benchmarking provides that large data set and competitive viewpoint as it uses market research to collect data and information from across the sector. 

External comparisons often rely on a third party to source and analyse data from the industry. As a result, you have the opportunity to see how your business aligns with industry standards and trends.

In addition to comparing average revenue, average staff hours and direct care costs at an overall business level, Mr Corderoy said the greatest benefits come from comparing individual facility performances. 

“If you have 20 homes, you can look at them internally but each one may have different constraints,” said Mr Corderoy.

“One might be in a regional area with 40 beds and is 20 years old. There might not be a direct comparison with other homes in the same organisation.

“External benchmarking allows you to compare 50 other homes of a similar style based on unique characteristics.”

External analysis is particularly useful as you can look at data from similar facilities or service providers in a similar location, but also similar markets interstate. That’s beneficial for regional or rural operators who can look interstate for a larger data set to base appropriate performance goals.

Considering the care factor 

Positive care outcomes are one of the unique characteristics of aged care and it needs to be factored into the financial benchmarking process. 

Mr Corderoy said you have to focus on more than just a profit margin when providing person-centred care.

“It’s not a production line by any means, there has to be a focus on not just the profit-loss but what’s involved to deliver meaningful outcomes,” explained Mr Corderoy.

“Here your revenue line is totally different for every resident or home care consumer so it has to be a much more sophisticated view to understand those areas and to then see how that impacts performance and the delivery of care.”

Mr Corderoy said this can be achieved by marrying your costs with the acuity levels and financial means of your residents. The majority of residents are likely to receive low acuity care, but a specialist dementia ward could mean there is a small portion of residents with high acuity. 

These factors will play a role in assessing crucial KPIs like occupancy levels and staffing costs.

For example, when you have to balance staff wages and rostering for the care of high-acuity residents, are your direct care costs attracting more revenue and value for money?

Gaining insights

Through financial benchmarking in aged care you can assess performance, identify trends and see what levers need to be pulled for growth and success, such as increasing capital expenditure or reviewing rosters.

There are a number of KPIs to focus on when gathering data. It’s critical that strict data definitions are used for accurate comparisons and analysis, and this data should be collected directly from general ledgers and relevant sources to avoid misinterpretation. 

Data used can provide key metrics such as:

• Occupancy levels in comparison with facilities nearby or in similar market sizes
• Food and meal costs, including quality and variety
• Administration costs, corporate costs and any unfunded day-to-day expenses
• Accommodation costs, including maintenance costs
• Accommodation pricing and its relationship to the average unit, home or rental prices in the area, including competitor pricing

Analysis of the above data can occur at a deeper level, too, as Mr Corderoy explained how the Australian National Aged Care Classification (AN-ACC) funding model influences operators due to varying subsidy levels.

“If you have an AN-ACC funding model you want to see what your average subsidy is per day within a particular home and how your costs compare to that,” explained Mr Corderoy.

“For example, analyse your direct care costs of RNs, ENs and PCWs and what the cost of their employment is as a percentage of the revenue, such as staff costs, staff mix, superannuation and overtime.”

Mr Corderoy said there are additional KPIs for home care service providers, including revenue utilisation and staff productivity. 

“Each home care consumer is assessed at one of four levels and you need to be aware of how much of that funding you are using,” said Mr Corderoy.

“At the moment the sector is using about 85%, which is really too low. If you have a larger mix of level one or level two consumers, you really need to increase the number of level three and four consumers to balance it out.

“For staff productivity, you want staff to spend at least 90% of their time providing a service because if it’s a lot less than that, you’re paying staff but not getting the revenue in.”

HCP metrics can also be used against facility statistics, such as the relationship between residential occupancy and the number of HCP to identify how one may influence the other.

Benefits and future outcomes

Once you have a detailed analysis of key metrics, the next step is to identify benefits and outcomes. You want to have clear answers on which you can base your conclusions and future objectives.

There are a number of key benefits to financial benchmarking, including:

• Outlining of revenue streams
• Clarification of successful business process
• Identification of financial shortfalls or overspending
• Strengthening of competitive positioning
• Data-driven validation of performance results
• Creation of data for future investment decisions
• Improvement of financial management

This information will provide you with the opportunity to set new goals, such as investing unspent HCP funds into staffing costs, or readjusting accommodation prices to maximise Refundable Accommodation Deposit (RAD) and Daily Accommodation Payment (DAP) returns.

Key financial data must also be married to non-financial data to determine if you’re investing enough resources into quality care. The relationship between performance and financial data is more than just revenue and expenses. 

It’s about providing appropriate care and maximising financial stability, which is why integrated financial benchmarking can provide you with the necessary information to set performance outcomes tailored to your business.

If you would like to find out more about how to start benchmarking, keep an eye out for next week’s newsletter.

How have you used financial benchmarking to improve your aged care services? Tell us in the comments below.