The trusted aged care accountants, who have been a leading voice in the debate on new liquidity standards to start with the new Aged Care Act on 1 November, have warned the Aged Care Quality and Safety Commission's amended liquidity ratios could still constrain investment in new aged care beds - though bed shortages are arguably the most pressing issue facing the sector today.
In a 22-page report, released on Wednesday and provided to The Weekly Source, StewartBrown concludes the Commission's proposed liquidity settings would increase the cost of capital for providers, and discourage planned capital expenditure on new construction in both residential aged care and retirement living.
When the sector needs to build 10,000 new beds every year for the next 20 years to meet demand, creating foundations for the sector to be "investible" is essential.
StewartBrown modelling, based on surveys of 54% of approved providers, shows that providers would need to nearly double their retention of liquid assets from the current 24% to 48%. See below.
It said it had concerns in relation to the modelling used by the Commission.
"The modelling was performed on the FY18 - FY22 period and should be updated to consider the latest financial performance. The direct care funding model was changed (ACFI to AN-ACC) in that period, occupancy levels have dramatically risen and the funding reforms as contained in the new Aged Care Act 2024 are specifically designed to improve revenue flows and sector profitability. In this sense, the funding reforms are revenue driven with no additional impact on recurrent costs," said StewartBrown.
As proposed in their submission earlier submission, made in March, StewartBrown recommends liquidity ratios of:
- 25% of residential aged care providers' previous quarter operating expenses (the ACQSC's current proposed ratio is 35%),
- 5% of Refundable Accommodation Deposit liabilities (10%), and
- for operators that have Independent Living Units, 2% of their refundable liabilities (equal to the ACQSC's current proposal, which has already been reduced from the initially proposed 10%).
StewartBrown says it's also important providers retain the ability to submit an alternate liquidity management strategy.
StewartBrown would like to see more thought given to the liquidity ratios before they are introduced.
"Given the important reform and financial juncture that the sector is currently in, we feel that having a further workshop with a representative attendance from providers, financial institutions, accounting firms, analysts, the Department and the Commission would be beneficial to further consider the implication of the new Liquidity Standard," they said.
