In this guest post, Bruce Bailey, Managing Director of Pride Aged Living, suggests that 2025 offers aged care providers a clean slate to reimagine strategies, focusing on labour productivity, capital efficiency, and profitability.
If 2024’s theme was defined by uncertainty around the Taskforce recommendations and the new Aged Care Act, then 2025 is your opportunity to reimagine the future with a clean slate. At Pride Aged Living, we encourage you to ask:
What exciting landscape can I create with a clean slate now that the new Act has been passed?
To help you develop your plans within the new context, let me challenge your strategic mindset by talking about productivity and efficiency – two critical factors that can drive success in aged care.
Labour Productivity – A core challenge
According to ABS, “Labour productivity is a driver of economic growth, real wages, and
overall living standards”.
However, improving productivity is especially complex in a service-driven sector like
aged care, where employment costs are the greatest element of costs—64% of revenue
in residential care and 60% in home care.
In consultancy, we measure productivity through gross revenue per Full Time
Equivalent (FTE). Over the past 40 years, I’ve observed a clear relationship between
revenue/profit per FTE and the need to carefully balance team size to deliver the
benefits of productivity.
In aged care, profits are typically measured differently: residential care profits are
expressed per bed, while home care profits are expressed per client. My challenge to
providers in 2025 is to ensure you think strategically rather than operationally about
your profit per bed/client. Key to this is understanding what is happening with labour
productivity and where you want or need it to be.
Capital Efficiency
Regulations around care minutes in both residential and home care significantly limit the
ability to optimise productivity by reducing labour input. This means providers must
focus on other levers, such as capital efficiency and revenue optimisation, to drive
profitability and ensure sustainability.
There are two main ways to manage capital: use less or increase its utilisation
(turnover). Both approaches lead to higher profits relative to capital input, which can
then be redirected towards enhancing provider profitability, increasing staff wages, or
improving consumers’ quality of life.
Historically, the sector has not focused on capital management; instead, it has chosen
to look at EBITDA, which explicitly excludes a key component of the cost of capital –
depreciation.
If you want to prioritise capital efficiency, there are four obvious levers to pull:
- Cost-efficient design – spend less on your infrastructure
- Accommodation pricing – generate a greater return
- Excess RAD management– minimise it and invest what you hold well
- Occupancy optimisation – match capacity with demand
Here are two questions to challenge your current approach to capital management:
Q1: If you have RAD invested, should your targeted return be:
a) Best-term deposit rate
b) CPI + a percentage
c) Current MPIR + a percentage
d) Long-term average MPIR + a percentage
Q2: What should your investment return hurdle be when investing in a residential
facility:
a) Cash inflow from RAD exceeding development costs
b) $X EBITDA per bed for the facility as a whole
c) $X EBITDA from accommodation, excluding RAD investment income
d) Net profit (after depreciation) before tax, excluding revenue from invested
RAD
e) Long-term average MPIR + a percentage
f) Other
Your 2025 success starts here
We understand the complexities of aged care and the importance of staying ahead in a
changing landscape. That’s why our 2025 webinar series with Inside Ageing will focus
on the key strategic and operational decisions providers must make to succeed under
the new Aged Care Act.
With significant changes on the horizon – including the introduction of Higher Everyday
Living Fees, new RAD/DAP rules, Strengthened Quality Standards and the Support at
Home program – this series will provide insights to help you navigate the transition.
If you benefited from our 2024 series, we invite you to join us again and stay tuned as
we announce the upcoming sessions! Editor: To be advised when registrations open for the webinars please enter your details here.
