Grant Corderoy says the sector needs a reasonable return on investment. Commissioner Briggs questions ‘profitability’

Published on

The Senior Partner of StewartBrown spent 100 minutes in the witness seat and held the closest attention of the Commissioners.

The premise emerged that if an operator was making a profit, was that at the expense of providing quality care? Should that profit have been expended on more care for the individuals?

Mr Corderoy was questioned on what is an acceptable return in the sector.

He said providers should have a return on assets of 4 and 4.5% per annum pre-tax – that’s at least $10,000 minimum a year on a $250,000 aged care bed, based on the costs of building an aged care bed ranges from $250,000 to $350,000.

He pointed out that aged care has a lower effective building life than other industries – around 25 years because of changing expectations around care.

“Therefore, you’d be depreciating your asset over 25 years, not 40 years or 50 years and therefore we’ve got the rate of return, an asset being an accommodation asset, a capital asset, is probably going to have a lower effective life than, say, many other industry sectors.”

Commissioner Lynelle Briggs was interested in the concept – perhaps showing that she is in the camp that aged care providers’ profits should be subject to scrutiny.

“Might it be desirable to have a separate revenue stream for profits themselves so that the expected profits would be transparent and that would give quite a lot of level of certainty,” she questioned. “But also, it might incentivise improved standards of care or it could be used, for example, with a higher profit incentive payment for higher levels of care, for example?”

Is ‘profit’ a dirty word in aged care? It brings to mind one of the most successful Not For Profit operators over the past 20 years was Southern Cross Care NSW under the leadership of John Ireland (also an ex-president of ACSA) who would open every discussion with the mantra ‘no mission without margin’.

Without profit (or margin) it is close to impossible for an organisation to move forward with optimism and testing new services to improve resident outcomes. Why isn’t the sector fighting this battle?

You can read Lauren Broomham’s full report on funding in the next Thursday SOURCE.

Share.

About Author

The Weekly SOURCE is the leading media for retirement living and aged care businesses, delivering sector-specific news through four mastheads. Operating as part of The DCM Group, The Weekly SOURCE also provides a directory of proven sector specialists and an insights exchange.