Royal Commission Monday wrap up – banks favour larger, diverse operators, rate of return, trust and incentives for innovation

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Monday was a big day at the Royal Commission, so we thought it’d be useful to provide a run down of some of the session’s key takeaways.

The penultimate day of the Royal Commission’s funding, financing and prudential regulation hearings had a range of witnesses including representatives from the Big Four banks.

Larger operators with diverse portfolios favoured

John McCarthy, the Head of Corporate Health at National Australia Bank, said banks have seen a decline in profitability in aged care clients and larger providers would now have a clear advantage when it comes to securing finance.

“It is becoming tougher for the smaller site operators to deliver sustainable business model and deliver – and with that delivering the high quality of care,” Mr McCarthy said.

“I can see that continuing into the future and I do see it being particularly challenging for the smaller operators to continue to thrive and flourish within the sector.”

What’s a reasonable rate of return?

The panelists said providers would need to recover costs and ideally make a profit, but weren’t willing to put a number on what this figure might be.

Chris Williams, the Executive General Manager for the Major Client Group in Business Banking at Commonwealth Bank of Australia, said it was for “others” to determine.

“I suppose I will answer it in this way in that it needs to be sufficient to encourage investment and I think that’s the key and that sufficiency needs to cover both the cost of the operations and the capital invested and the risk associated with investing in the sector,” he said.

Trust and competition is needed

CEOs and senior management from some of the sector’s largest providers also appeared, calling for measures to improve trust and competition in the sector.

Estia’s Ian Thorley led calls for an uncapping of aged care beds, while Regis’ Dr Linda Mellors says there was a pressing need for a definition of high-quality care to set sector benchmarks.

$30 billion house of cards

Chris Mamarelis, CEO of Not For Profit Whiddon, also fronted the Commission, saying the risk posed by a shift from RADs to DAPs is very real.

“I’m really surprised that the Commission is not knocking on providers’ doors right now saying ‘We want to see some KPIs that give us a good indicator of how your liquidity is’,” he said.

“And we’ve also acquired a number of homes over the last couple of years who have had great challenges, and it’s not a proactive process of managing liquidity, it’s a reactive, and right now, with the right conditions, the right economic conditions, the right changes socially, the right changes to perception, there is a house of cards, a $30 billion house of cards that we are sitting on.”