Aged Care Financing Authority – update – 5th report on funding the aged care Sector July 2017

The aged care sector is one of the fastest growing sectors in Australia, currently servicing 1.3 million Australians. It employs 366,000 paid workers and 68,000 volunteers. A major aim of government reform in the sector is to ensure its financial sustainability by limiting the expansion of its cost – running at $16.2 billion in 2016.

The introduction of consumer-directed care in home care has seen an increase in new providers seeking approved provider status. By 2022 the government intends to increase the provision of home care places from 27 per 1,000 people over 70 years to 45. This is a substantial increase and it remains to be seen whether it keeps pace with the demand which currently exceeds supply, especially for higher level packages.

The government intended to combine the Commonwealth Home Support program (CHSP) with Home Care Packages by July 2018, but this will not occur now until 2020.

A telling statistic is the fall in operating profit of 6% for providers in the last year and the fact that 25% of provider made a loss last year. By contrast, residential aged care providers increased operating profit by 9% past year, yet of the $1,1 billion profit made, $1.3 billion was non-operating income (probably asset revaluations and interest). As ACFI income of providers declines in future years it is likely that the many small operators will increasingly make losses. At present not-for-profit providers have higher expenses in the provision of home care than the for-profit providers.

If you are looking for a place with an operator with only one or two facilities, check that they are cash flow positive (i.e. cash on hand is rising each year from operations). Currently 65% of providers (616) operate only one home. Provider numbers are and will continue to fall as providers consolidate their operations to keep their costs down.

In the last year the residential aged care sector increased its net worth by only $42 million. This is small beer when you observe the sector’s asset base of $49 billion giving a 0.1% return on assets!

The ACFA estimates that an additional 83,500 places will be needed in the next decade (around 700 new aged care homes). 33,700 places were created in the past decade so investment needs to be ramped up just when providers incomes will likely be falling.

The average length of stay of residents in nursing homes is falling and is now just under 3 years. This may decrease further as home care is extended and utilised more effectively and residents will need a high level of care.

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