Bentleys National Aged Care Survey

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Aged Care Reform: What have we learnt so far?

One year on from the introduction of major reform across the aged care sector, it’s timely to review some key financial performance measures for providers.


The Bentleys National Aged Care Survey collated the financial and operational information for the six months ending 31 December 2014 from a sample group of aged care providers. The data was compared to information collected from the same group at 30 June 2014 – providing us with some key indicators of the impacts of reform.


What have the key industry impacts been?

 

Impact 1:

Current Assets to Current Liabilities Ratio has increased

On average across the group, the ability of providers to meet short term debt (which includes a notional 20% of resident liabilities as current) is slightly stronger than it was before the introduction of new funding arrangements.

 

This appears to be directly correlated with the ability to collect lump sum funding from high care places post 1 July. While market forces are still at play, it seems that “bond flight risk” post 1 July may have been a misconception.


The Bentleys survey shows on average 52% of residents entering care the six months after 1 July 2014 opted to pay a full RAD (compared to 42% in the ACFA Dec 2014 Report).

 

Ongoing uptake of RADs will increasingly improve the Current Assets to Current Liabilities Ratio.  Strengthening of liquidity across the sector offers a positive outlook for future development and growth in the industry.

 

 

Impact 2:

Accommodation Bonds / RADS as a % of total financing is steady, but needs to continue increasing

There was marginal change over the six months to 31 December to the proportion of long term financing funded by resident liabilities. This funding – made available via Refundable Accommodation Deposits (RADs) – is an essential component of aged care provider capital structuring.


Providers that achieve and sustain growth in this area are showing strong signs that they are being positively impacted by the reform initiatives. Forward thinking providers have developed strong concierge, customer relationship management (CRM) and sales and marketing strategies to support this multi-million dollar consumer debt funding decision.


It is expected that consumer capital as a proportion of financing will experience significant growth in coming years - climbing to at least 40% of the capital pool for leading providers.

 

Growth in this area has been a key driver of development and activity in the aged care sector in the past decade - this funding source represented just 16.8% of the average provider’s total financing in 2006 (as per the Federal Government’s inaugural CAP analysis).

 

 

Impact 3:

Net Profit Margin has increased

Net Profit Margin is the average profitability (after structuring, investment and financing decisions) generated on each $1 of revenue. 

 

The results from the same pool group indicate that, at the provider level, the Net Profit Margin has increased over the past six months.


Analysing the results at the service level shows profitability has also increased. While operating expenses have remained steady over the six months to 31 December 2014, total income has increased by 5%.

 

While there are indicators that the increase may in part be driven by reform changes, such as the collection of DAPs, the upswing appears to be mainly due to services collecting higher ACFI subsidies for increasingly frail residents. Services with dedicated staff who closely monitor changes in residents (ie. ACFI Managers) are the ones maximising this funding.


In addition to revenue, a number of factors affect the profitability of a service including building configuration, location, staffing mix, resident mix, service offerings, use of accommodation bonds and the underlying condition of building stock.

 

To nurture future growth and long term industry sustainability, aged care providers should be aiming for a Net Profit Margin above 10%.

 


Impact 4:

Staffing costs are stable, but need consideration around ways to achieve efficiencies

Employee expenses come in at around 69% of total expenses for an aged care provider. Efficient providers are maximising their staffing mix to deliver care and services in a way that improves the bottom line, without compromising care standards.

 

This approach includes breaking staffing costs down into the categories of accommodation (maintenance staff), care (nursing and care staff) and services (catering, cleaning, laundry, etc) so staffing costs can be better aligned to their relevant stream.

 

Understanding the true costs of care is the first vital step in identifying efficiency opportunities.