With 75% of regional and rural providers losing money, you would expect interest in the Federal Government’s $50 million Business Improvement Fund (BIF) targeting smaller operators in those areas to be high – but Pride Living’s Bruce Bailey tells us there are many out there who still don’t understand the funding is directed at them.
Bruce speaks from experience.
The Founding Director of aged care management specialist Pride Living, he has spent over 25 years in aged care as a partner in RSM Australia and National Head of Aged Care and Retirement in RMS Australia.
During this time, Bruce led a major study undertaken for the Aged Care Financial Authority (ACFA) into the factors influencing the financial performance of residential aged care providers.
Grants designed to improve business, merge or close
As we covered here, the BIF – which was recently extended from a six-week application window to a 12-month program – offers three streams: improve the business, merge with another provider or close.
Bruce has penned a piece – titled ‘Finding and Funding your pathway to the future’ – to explain providers’ eligibility and advise on what makes a successful application.
You can read it here.
The adviser believes many providers will be reluctant to take up the second stream because of the strong perception among smaller, community-run providers that merging with a larger organisation represents a ‘failure’.
“In our working with providers in those spaces, the concept of giving that away is that we failed our community if we do that,” he said. “There’s a whole lot of responsibility issues to overcome before they can engage in the process in that second stream.”
Decision to merge or improve not always straightforward
He says the reality is that no one will choose the third option – but the choice between the first two is not always clear-cut.
For example, low ACFI may be a problem for a provider – they are only being funded $145 per resident per day compared to the industry average of around $180.
The solution is that they need to find a quality ACFI coordinator.
“This might not be possible to find in a smaller facility,” he said. “While a solution may be easily identifiable, it is not always viable.”
Choose the stream that will produce the right outcome
Bruce says in many cases, a merger may be the better option – if operators can overcome their perception of transferring ownership as a ‘failure’.
He gave the example of a stand-alone operator that spent 18 months working towards merging with a larger provider that could supply the access to expertise that the community needed.
“The big question from the front end is really drilling in to understand which stream is actually going to produce the right outcome.”
“If you don’t do that right, if you have the emotive response which is stream one despite all of the theory, you might not get the outcome that is being sought which will waste time, energy and money.”
Use evidence to make your case
Bruce advises providers considering applying for the BIF to provide evidence-based statements to make their case.
“You get one chance to make a first impression,” he said.
He uses the example of a provider simply saying they have a fantastic lifestyle program – showcasing stories of residents who have directly benefited from the program in their health and mental wellbeing is much more powerful.
Mergers tipped to be more successful at ensuring viability
Despite the BIF only currently offering $50 million in grants, Bruce believes if the program proves successful by providing a long-term solution to providers’ viability, the Government will re-invest in it.
However, he thinks the merger option will prove to be more successful in the longer-term than the business improvement stream because of fundamental challenges that regional and rural providers face in accessing staff and lack of scale.
“People who are looking to move up the career path tend to not be in those smaller organisations so it’s harder to find replacements of the calibre and quality you need in the very challenging business environment of this sector.”
Consolidation on the horizon – but cash reserves needed
Bruce predicts there will be more mergers and consolidation in the sector, but points out that many operators leave it late to transfer ownership – which limits the number of larger operators willing to come in and take it on.
“If they have used up all their cash, it is hard to get someone to come in,” he said, saying it could easily cost $3 million to buy a struggling facility and another $2 million to bring it up to scratch.
People are what makes the difference
Bruce adds that while more operators are slowly getting into that position, stand-alone organisations are entitled to maintain their independence – and many do so profitably.
He cites an aged care home with fewer than 45 beds that is producing a great EBITDA.
“It goes to the quality of the management,” he said. “It’s always about the people.”
Bruce says he is happy to have a no-obligation conversation with providers if they are unsure if they would meet the criteria – you can contact him here.