UTS Ageing Research Collaborative’s mid-year report: Ongoing financial sustainability issues

Australias'Aged Care Sector Mid Year Report 2023-24: Homes, on average, are achieving a modest deficit, which comprises a large surplus from direct care consumed by losses in everyday living and accommodation.

The June 2024 edition of Australia’s Aged Care Sector, published by the UTS Ageing Research Collaborative (UARC), presents an in-depth analysis of the current state of Australian aged care, focusing on the 2024-25 Budget, provider viability, capital financing challenges, and other key issues.

Despite some modest improvements, the report signals some significant concerns about the financial sustainability of the sector, including its ability to attract investment.

Budget Improvements and rising costs

The Government’s latest Budget introduces modest enhancements to the quality and quantity of subsidised aged care services. However, it fails to address the rising public costs associated with these services. The report indicates that the financial uplift seen in residential care over the past year is likely temporary and primarily due to a surplus in taxpayer-funded residential direct care. In contrast, everyday living services and accommodation have shown only modest gains, continuing to be major loss-making activities.

Staffing shortfalls and financial implications

A critical issue highlighted is the failure of many providers to meet their mandatory care minutes, with the report citing that only 36.1% of residential care homes have met their care minutes targets, despite AN-ACC funding being based on these requirements.

Workforce shortages across the economy significantly contribute to this shortfall, with some providers retaining sizeable surpluses from government funding for direct care services.

The UARC stresses the need for the Government to ensure that funding commitments aimed at increasing the number of aged care workers and their wages are effectively utilised to improve direct care staffing, as opposed to the increased use of expensive agency staff to meet the shortfall.

Persistent financial losses

Despite substantial increases in funding over the past five years, half of all residential aged care homes reported financial losses in 2023-24. The Aged Care Taskforce recommends maintaining government responsibility for direct care services while requiring higher co-contributions for everyday living services and accommodation from those who can afford it.

A notable finding in the residential care analysis is the average Operating Result between the top 25% of homes compared to the remaining 75%. The difference was $47.66 per resident per day in the first half of 2019–20, which grew to $75.41 in 2022-23, coinciding with the introduction of AN-ACC. The gap between these homes has since experienced a slight decline and, as of 2023–24, is $70.81 per resident per day.

Direct care services are causing the largest disparities in homes’ financial results.

Homes in the bottom quartile spent more on direct care than they were funded for (108.1% of direct care revenue), whereas homes in the top quartile spent far less than they received (83.8%).

Home care packages and new programs

The Budget’s expansion of the home care packages program addresses the increasing wait times for older Australians to receive appropriate care. However, the growing amount of unspent funds in current packages highlights the need for a timely transition to the new Support at Home program and a reformed single assessment regime.

The Aged Care Taskforce supports a fee-for-service model, where client contributions vary based on the service type, advocating for its swift adoption.

In the first half of 2023–24, the financial performance of home care providers declined, with the average operating result dropping to $1.77 per client per day from $3.15 in 2022-23, resulting in a slim profit margin of 2.4%.

Revenues increased due to price rises reflecting higher government subsidies from the Aged Care Work Value case, averaging $74.04 per client per day. However, provider costs, including higher wages, rose more significantly to $72.27 per client per day, worsening overall financial performance. Revenue utilization remains low at 84.0%, with unspent funds averaging $13,397 per package.

Additionally, the use of third-party services to deliver care increased, accounting for 39.1% of direct care costs in the first half of 2023–24.

Awaiting the new Aged Care Act

Older Australians and providers alike are awaiting the new Aged Care Act, which promises to ensure residents’ rights and introduce new Quality Standards. This Act will allow residents greater choice and control over their care and living arrangements. The report acknowledges recent stakeholder consultations and calls for resolving constitutional challenges to facilitate effective public policy.

Capital financing challenges

The report also discusses significant capital financing challenges in the aged care sector, including the need for policy adjustments to ensure equitable access to residential care.

For the residential aged care sector to attract enough capital investment, its returns must at least match the cost of capital and be competitive with other health-related investments. (above)

The proportion of equity-held assets has dropped significantly due to ongoing losses, with Refundable Accommodation Deposits (RADs) now funding two-thirds of the sector’s assets.

The Aged Care Taskforce’s proposal to phase out RADs by 2035, pending a capital sustainability review in 2030, aims to stabilise operating income but poses challenges for recapitalisation.

There is growing demand for refurbishing existing facilities and developing new ones, with expected expenditure between $55–72 billion over the next decade. However, policy uncertainty and poor financial performance make raising sufficient capital to meet future needs very challenging.

To read the full report visit: https://www.uts.edu.au/uarc/research-themes-programs-and-projects/australias-aged-care-sector-reports


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