Sector profitability holds steady as labour expenses keep growing

The percentage of profitable residential care providers increased considerably during the first three months of 2024, with the Government’s latest Quarterly Financial Snapshot showcasing positive performance in both residential and home care sectors.

Key points

• Year-to-date EBITDA improved by $25.26 per resident per day, totalling $43.08, while net profit before tax improved by $23.18 per resident per day, totalling $8.50
• In residential care, quarter-by-quarter comparisons show that net profit before tax decreased by just 25 cents, while the percentage of profitable providers increased by .3 percentage points
• Home care profitably saw far more growth with 80% returning a net profit, while the daily profit per recipient per day improved by 55 cents
• EBITDA saw a dramatic increase in both the 12-month and previous quarter comparisons, rising to 80.2%, while 81.9% of home care providers had a positive EBITDA year-to-date
• Total sector average care minutes improved by 2.27 minutes, while Registered Nurse Minutes improved by 1.45 minutes and Enrolled Nurse contributions dropped by less than a minute

The profitability divide

When the Government released its Quarter 2 snapshot (October-December 2023), we highlighted the profitability divide between not-for-profit (NFP) and for-profit providers, with the latter outperforming their NFP counterparts.

Overall, residential care performed admirably with bumper year-to-date performances with both net profit before tax (up by 16.3 percentage points) and a positive EBITDA (up by 11.7 percentage points.

The Quarter 3 snapshot (January-March 2024), however, revealed a slight downturn in performance in for-profit residential care providers. Exactly 70% of for-profit residential care providers recorded a net profit before tax, compared to 70.9 in quarter 3. The cohort with a positive EBITDA also dropped from 88.1% to 85.4%.

Conversely, 62% of NFP residential care providers were profitable, up by .9 percentage points from Quarter 2. EBITDA results were similar, though, as the percentage of providers in the black dropped from 80.9% to 77.2%.

As for home care, it was essentially one-way traffic across both statistics with for-profit and NFP service providers recording strong results. Year-to-date performance saw a 5.5 percentage point improvement in net profit before tax and a 5.9 percentage point improvement in EBITDA. 

Labour costs driving expense growth

One of the contributing factors to for-profit profitability had been a lingering surplus in direct care wages as Government funding covered providers who had yet to meet their expected targets.

With the sector-level total care minutes and RN minutes increase, staff expenses increased and that profitability margin decreased. However, the Government still warned that significant improvements are required to ensure individual services are compliant with their care minute responsibilities.

“While the average total care minutes for the sector increased in the quarter, only 35.6% of reporting services met both their service-specific total care minutes targets and registered nurse care minutes targets. This is, however, an improvement on quarter 2 2023-24, when 32.4% of services met both targets,” the report stated.

“Not-for-profit providers delivered an average of 206.34 total care minutes (above the sector target), while for-profit providers delivered an average of 197.87 total care minutes (below the sector target). This variance in care minutes delivery by provider type is a likely contributor to the stronger financial results reported by for-profit providers.”

That said, despite the sector median labour cost rising to $221.66 per resident per day – a $43 increase compared to the previous year – a significant increase in revenue meant providers could still deliver that year-to-date net profit of $440.8 million. This was helped by a $1.2 billion boost in AN-ACC funding, totalling $5.1 billion in Quarter 3 alone.

Some savings have also occurred in agency expenses as agency staff costs dropped to less than 10% of total direct care labour costs. Agency staff hours represented 6.8% of the total direct care labour hours in the sector. 

Home care’s unspent funds

Home care provider revenue growth highlighted a strong three months for the sector as revenue increased to $72.54 per care recipient per day. This is a $4.30 year-to-date increase and it even encompassed a $2.10 increase in expenses per recipient per day.

An 8.2% increase in claim days contributed to the increase in revenue, driven by a reduction in the proportion of available packages not yet taken up by care recipients.

However, in a recurring theme, unspent Home Care Package funds increased yet again. As of March 31 2024, $3.5 billion remains unspent, compared to $2.78 billion in December 2023. 

This includes $3.0 billion (up $1.0 billion) of unspent funds in Home Care Accounts held by Services Australia, and $0.5 billion (down $0.2 billion) in the Provider Held Portion of Australian Government unspent funds.

The Government remains confident that provider-held unspent funds will decrease while Government-held Home Care Account unspent funds will accumulate based on the utilisation rates of available package funds by each care recipient.

Click here to view the Quarter 3 Quarterly Financial Snapshot in full.