Residential aged care reports $736M loss in 2019-20: ACFA warns of further “structural adjustment” in final report ahead of Govt reforms

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After ending its nine-year role advising the Government on aged care financing matters on 30 June, the Aged Care Financing Authority (ACFA) has produced its final annual report – and it showcases the mixed fortunes across the sector.

The 198-page Ninth Report on the Funding and Financing of the Aged Care Industry – based financial performance of providers for 2019-20 – finds that in home care, 72% of providers achieved a net profit in 2019-20, up from 69% in 2018-19 – an average EBITDA of $1,369 per consumer, up from $1,211 in 2018-19 and $1,217 in 2017-18.

However, this is still significantly lower than the three years up to 2016-17 which saw EBITDA of around $3,000 per consumer prior to the introduction of Consumer-Directed Care (CDC), which saw the number of home care providers increase by 85%.

For Profit home care providers worse off

For Profit home care providers – previously the best performers before CDC – reported “by far the worst results for the third year in a row, albeit with improved performance compared with 2018-19,” the report states.

“The For Profit providers recorded average EBITDA per consumer of $1,063 ($728 in 2018-19) compared with $1,463 reported by the Not For Profit providers ($1,320 in 2018-19).”

Residential care also continued to suffer.

Despite generating total revenue of $20.5 billion in 2019-20, up from $19.3 billion in 2018-19, an increase of 6.4%, or revenue of $296.64 per resident per day, total expenses were $21.3 billion or $307.27 per resident per day, a 9.9% increase on the previous financial year.

“The increase in costs continues to outstrip the increase in revenue, evident in financial reports since 2017-18,” the report finds.

Residential care falls to a loss

As a whole, residential providers reported an overall loss of $736 million in 2019-20, compared with a total profit of $264 million in 2018-19 – the third year in a row of falling financial performance, with average EBITDA having decreased by almost 44% since 2017-18.

“The decline in EBITDA over the years since 2016-17 has been far greater for providers in the bottom two quartiles (62% and 132% respectively) compared with those in the top two quartiles (17% and 23% respectively), indicating that the better performing providers have weathered the financial pressures of recent years far better.”

Planned building activity also remained significantly lower for the third year in a row compared with the previous years, with $5.7 billion of building works either completed or in-progress as at 30 June 2020, compared with $5.3 billion at 30 June 2019.

“The deteriorating financial performance of providers as well as uncertainty associated with the Royal Commission into aged care has likely contributed to depressed investment intentions.”

Providers will have to adapt or exit

The report concludes the availability of workers combined with the increasingly competitive aged care service environment and greater transparency and accountability will increase pressures already evident for structural adjustment.

“ACFA has previously noted that some structural adjustment of the sector was likely as a result of reforms already in train, and indeed needed.”

ACFA Acting Chair Nicolas Mersiades warns the Government’s planned aged care reforms are likely to continue this trend.

“Providers with the capacity to adapt to the new operating environment can expect to do well under the new arrangements. Providers who are slow to adjust to the new environment, or fail to improve their performance, will have to reconsider their future role in the sector,” he stated.

“Overall, the outlook for aged care providers is demanding but holds significant promise for efficient providers who deliver quality aged care services.”

In short, those who are efficient and effective will likely do well in the new system – others will need to re-think their future.