Imagine running a business where breaking even is the best-case scenario. Welcome to residential aged care under the Albanese Government’s Australian National Aged Care Classification (AN-ACC) funding model.
The latest AN-ACC prices and weightings, released late last Friday, confirmed what many feared: after an initial uplift, the clawback has begun. Operators who saw gains since AN-ACC’s 2023 launch now face funding being stripped back.
This year’s 42% boost to the hotelling supplement will help to cushion the blow. But next year, with no similar offset, the squeeze will tighten.
StewartBrown had already warned that compliance with care minute targets would begin to erode margins – and that point appears to have arrived sooner than expected.
Zero margin by design
The Government’s expectation is clear: providers should not make money from care. But aged care is now the only Government-funded service in Australia where operators are forced to run at 0% margin on care delivery.
Doctors charge gap fees, private hospitals cover shortfalls with insurers – aged care alone is told to break even.
Historically, providers have relied on surpluses from care to cross-subsidise other areas.
Now, everyday living and accommodation revenue streams are meant to underpin sustainability – but they will take four to five years to fully filter through.
In the meantime, margins are being cut too quickly, leaving providers exposed.
Uninvestable future?
The implications are stark. Without surplus, how do operators refurbish or build? Construction costs have blown out from $300,000 per bed pre-COVID to more than $500,000 today.
New liquidity rules also require providers to hold cash, forcing them to borrow to finance development.
Health, Disability and Ageing Minister Mark Butler insists new beds are coming, pointing to a rise in development activity. Yet projects only “stack up” in wealthy metro suburbs. Outside those postcodes, business cases too often collapse.
If margins continue to decline, the sector will remain uninvestable – despite Government promises. The private aged care model may become the only way operators can manage risk and deliver viable new product on the ground.
And it won’t be providers who pay the price. Hospitals are already clogged with patients unable to access aged care. This week alone, I’ve heard of three families unable to find a bed for their loved one. They won’t be the last.
Because as the saying goes, there is no mission without margin – and there is no margin.
