Is it too soon to prepare for the unknown in aged care’s reform journey?

Just over six months remain until the new Aged Care Act and Support at Home program come into effect, and time is ticking as service providers prepare for once-in-a-generation changes.

As the end of 2024 nears, the government remains tight-lipped about many key elements affecting daily operations. 

Yes, providers know their funding will be boosted in some way by consumer co-contributions and increased accommodation prices. Home care providers also know they can continue setting their prices until July 2026. 

However, much of the how remains unclear, as do the finer details. This information should be released in early 2025, yet much of it could be shared weeks out from the July 1 milestone day.

“Anything that might be potentially bad news for a voter will be pushed back till after the election. That’s been the history,” G5 Strategic Principal Consultant Stephen Rooke told Hello Leaders. 

“We would expect to receive final rules, numbers and amounts soon but we already know we won’t get some of it until June because that’s when the Consumer Price Index is updated. Some of the associated wording might be that late as well. That would be very problematic for many people in the sector.”

These delays may leave many providers thinking about how soon is too soon to prepare for the change. 

With the sector operating in a precarious financial position – StewartBrown’s latest Financial Performance Analysis reinforced that the average financial performance remains unsustainable for many providers – Mr Rooke said there’s little incentive to invest in growth opportunities. 

Despite this, he believes some short-term decisions can be made and acted on regardless of the uncertainties. 

“If you said ‘I want to wait for the rules to come out before I make any movement’, you’ll be in a lot of pain because you’ll have too much catching up to do,” Mr Rooke said.  

“From an operational point of view in residential care, there isn’t going to be a change to how you run your business on the first of July 2025 in residential care. Financially, you’re going to have roughly the same margins going forward.

“If you’re a home care operator, you won’t have an immediate financial impact but there’s some big question marks about any participant who is not grandfathered and is a new client after that date.”

For home care operators, a focal point must be preparing for co-contributions and establishing systems catering to four different billing pools. Even Commonwealth Home Support Program (CHSP) providers can start planning for their eventual departure from block funding. 

As for residential care providers, continued digital transformation is critical. Mr Rooke said that even for providers without a long-term IT strategy, there’s enough information now to indicate that centralised data, interoperability and reporting efficiency are some of the essential requirements.

“A data warehouse is the first step in that process. We’ve done quite a few projects with people where the end point of the project is a data warehouse with clinical and financial systems talking to each other, but the organisation hasn’t committed everything They might replace old software over the next five or six years while waiting for more details but the first step sets them up for success,” Mr Rooke explained. 

Fatigue hinders progress

Aged care’s strained financial position is nothing new to those within the sector. As StewartBrown reported, residential care providers returned an average operating loss of $536 per bed per annum across 2023-24. Most losses occur through the delivery of everyday living and accommodation services. 

Even AN-ACC’s influence has limits, while the jury’s out on the true impact of nursing and care minute requirements that dictate workforce needs. For many, the cost is considerable. 

Organisations will have to adapt, however, and investment is necessary. Mr Rooke said providers must have a good workforce management system in place for 2025 accounting for all workforce requirements. 

Unfortunately, progress is slow because of financial restraints. Many providers require cost-effective solutions and could miss out on opportunities due to change fatigue. 

Mr Rooke shared an example of an organisation that has not reviewed its rosters since AN-ACC was introduced because it cannot commit any resources while adapting to other changes. 

“That’s an indication of the level of fatigue – the lack of capacity to hire strategic management personnel. That’s what the industry is dealing with. The new Act will be pretty last minute, too, and there aren’t enough resources in the sector to make the required change. People are just reacting to what’s in front of them,” he added. 

“That consolidation period people always wish for in between change hasn’t occurred in aged care for several years. If you don’t have the resilience to adapt to new changes every year, you now have a problem.”

To exit or not to exit?

With many providers operating on very thin margins the likelihood of more sector exits in 2025 is high. However, organisations may not be waiting in the wings to scoop up existing assets.

Mr Rooke warns that older residential care homes are unlikely to attract buyers if redevelopment requirements are too much.  

“Many people have a plan B which is ‘Don’t worry, we can always sell and take the lump sum and support the community through some other way’. You can’t sell a building that’s 30 or 40 years old with large capital works in its future. There’s no money coming in the future to fund those works,” Mr Rooke said.

“Even bigger providers have no appetite to buy more residential aged care. Only a limited number of people will acquire a residential aged care facility unless it’s less than five years old and has a large waitlist.”

Therefore, he said any provider considering an exit must plan carefully. Smaller providers in particular should get on the front foot to explore their options. Alternatively, one option is remaining in aged care and diversifying income streams. 

“If you don’t have a diverse and separate income stream coming in to supplement your aged care, you’re going to run at a loss in at least some of the next few years,” he added.

“If you have any funds available or any spare land you’re not using, the question would be, how is that going to generate an income stream to not only recover investments but also to create spare income to top up aged care?”

As the sector waits for more information ahead of 2025’s transformational reform journey, now could be the perfect time to ask and answer key questions that will allow you to set up for whatever change may come.