Aged care needs an accommodation reset, StewartBrown says

The aged care reforms, now one month old, will not make the sector “investable”, according to specialist aged care accountants StewartBrown – even after the three to four years it will take for the full financial benefits to flow through.

With concern mounting that the sector is falling well short of building the residential aged care beds needed to meet rising demand, StewartBrown has outlined several changes in its submission to the Government’s Residential Aged Care Accommodation Pricing Review aimed at attracting new capital into the system.

Margins must be “baked into” accommodation revenue

Accommodation payments must cover costs and generate a “reasonable” return on assets if the sector is to draw investment, StewartBrown argues.

With the gap between supported and non-supported residents now sitting at around $90 per bed per day, the firm recommends a sliding scale for the accommodation supplement.

A higher supplement would encourage providers to accept supported residents – an important shift as occupancy approaches 100%. The supplement could be adjusted based on:

• the age of the home
• the proportion of supported residents, and
• location.

To give operators and lenders greater certainty, StewartBrown says the Maximum Permitted Interest Rate should be replaced with either a discounted commercial return or the weighted average cost of capital (WACC). The rate should be reviewed annually rather than quarterly and include a floor.

A return to “rent-style” aged care payments

StewartBrown has supported ‘rent’-style accommodation payments since at least 2020. In its latest submission, it proposes reversing the current approach: setting rent – with DAPs as the default – based on a return on capital sufficient to make operations investable, around 4.5%.

The firm has long encouraged providers to lift accommodation pricing, particularly since the approval threshold increased to $750,000 at the start of the year.

Read our analysis of Ageing Australia and Catholic Health Australia’s submissions to the Accommodation Pricing Review via the links.