Shock profitability drop: Can residential care afford to delay change?

The latest Quarterly Financial Snapshot (QFS) report for the aged care sector delivered some shock results for residential care providers, at least on the surface.

Comparing quarter 1 2024-25 with quarter 1 2023-24, profits per resident per day dropped by 41 cents to $9.95, while the overall percentage of profitable providers fell by 1.4 percentage points to 63%. 

An even larger 5.6 percentage point decrease was recorded for profitable providers with a positive EBITDA, with that figure sitting at 75.5%. That equates to a backwards step of $9.14 lost per resident per day.

The Department of Health and Aged Care said the profitability decline had been foreshadowed by recent QFS reports, particularly because the timing of the AN-ACC price increase shifted from July 1 to October 1. 

Yet at the same time, growth in operating expenses were driven by high labour costs as providers continue to be challenged by care minutes targets that also increased as of October 1, 2024. 

“At a sector level, it is expected that labour costs will continue to increase as more services start to meet their care minutes targets, noting that in quarter 1 2024-25 only 45.4% of services met both their service-level total care and registered nurse care minute targets. To improve profitability while ensuring care funding is spent on care delivery, provider accommodation and hotelling results will need to improve,” the QFS report stated.

With less than half of the residential care sector meeting both care minutes targets, financial sustainability hinges on more than just the AN-ACC price. 

For SMPLS INNOVATION Chief Executive Officer Dmitry Shibanov, providers looking to reduce pressure on their finances must look for opportunities within their existing workforce. 

Having worked as a registered nurse across all health and aged care settings, he also has firsthand insight into the sometimes unnecessary duties nurses are burdened with. 

“There are providers complaining about reduced revenues or the fact they don’t have staff to cover shifts and provide care. Then they blame the government rather than trying to think outside of the box and bring something new to the business,” Mr Shibanov told Hello Leaders. 

“Nurses and carers are involved in so much admin work and documentation they have no time to provide the care and to engage with clients. I’ve been there, done that, and at least 40 to 50% of your time as a registered nurse goes into admin tasks. 

“It comes out of a provider’s bottom line. But there’s a good chance we can do something with technology and improve services without adding any burden to the bottom line of a provider.”

Mr Shibanov offers a unique perspective as an external consultant, but also an aged care insider through his current role as Board Chair for Beata Homecare and past stints with MiCare, Lifeview Residential Care and Belgravia Health & Fitness. 

Like so many, he believes artificial intelligence is the future for aged care. He said it is a critical technology feature that does not compromise the quality of care or human interaction, and the investment is worth it. 

“We always say we can replace a couple of FTEs with technology, it’s up to you whether you remove the FTE or you redeploy it. 99% choose to redeploy it into direct care. This helps residential aged care because it’s adding to your care minutes without recruiting additional FTEs,” he said.

“It does involve an initial investment but this investment is minimal. For example, with a one off $25,000 payment we can replace about four FTE of admin staff. You can redeploy staff to different areas.”

He added that technology also removes any bias when collecting data, helping to accurately predict deterioration or a falls risk. Another benefit is that documentation can be translated into multiple languages so all staff can understand policies and procedures or upload resident care notes and information without running the risk of misinterpretation. 

“We’re trying to complete this puzzle for each provider. Each one has different opinions, different risks, appetite, different boards with different opinions and different budgets,” he added.

Overcoming sector hesitancy

Residential care providers in metro locations will face a daunting new challenge in just over 12 months. Poor compliance with care minutes will result in reduced funding with individual services basically penalised through the Base Care Tariff from April 1, 2026. 

Providers who fail to achieve 85% or more of their registered nurse minutes and total care minutes will receive nothing under the BCT, with a sliding scale of calculations applicable for all other possibilities. 

This is why he says now is the time to make the right investments into technology that will reduce administration burden and costs while improving direct care. 

Unfortunately, there is still widespread hesitancy over quick action. He lays some of the blame on rigid boards and executives focused on finances and not outcomes. It’s why he told Hello Leaders the sector requires innovative thinking and fresh outsider perspectives. 

“I know 80% of the executives in the aged care industry. I’ve been friends with them for many years. But if we don’t have any influx of experts from outside the sector it’s very difficult to evolve,” he said.

“Yes, you need clinical experience, but you also need people who know how a business runs. We think we know everything and have already formed our opinions on certain things. We don’t see how it can be done differently.”

One example he shared was of organisations bringing in hotel managers to focus on service delivery and hospitality. 

“Imagine facilities run with the precision of a five-star hotel and the heart of a home,” Mr Shibanov added. 

“One provider put hotel managers in charge of the facilities because hotel services need to be provided by someone who is familiar with this business model. It’s changed the quality of care and we saw the difference straight away.”

Progress such as this calls for courage and Mr Shibanov remains incredibly optimistic despite pockets of reluctance. He referred to several organisations that are leading the way with forward thinking, including NewDirection Care and Apollo Care, praising adventurous and out-of-the-box thinking.

Getting the timing right

For many providers, though, the current stage of reform might not be the right time for change. Finances are tight and digital transformation in particular can be costly at scale. 

As information trickles down from the government, Mr Shibanov warns providers not to wait too long to embrace digital change.

“If you understand how a system operates you can guess, more or less, what is on the way. At least you can build your framework around it. If there’s any changes it will be much easier to adjust to changes while your framework is already done,” he said.

“If you’re waiting until you have all the information you’re going to lose money and staff because they feel uncertain and they will go to someone who looks more confident.”

That said, there are still plenty of unknowns to overcome, even for board members like Mr Shibanov. Take the department’s recent callout to providers to explain how much they will charge older people from July 1. 

Mr Shibanov told Hello Leaders that not enough information has been released by the department itself to guide those decisions.

This highlights the precarious position aged care providers operate in, and why he’s adamant his peers focus on what they can control, not what they cannot. He’s happy to show others how to achieve this change, too.