Will the war/oil crisis break the retirement village business model?
Two months before the war with Iran, St Vincent’s Health Australia CEO Chris Blake said home and residential care will be unfundable in as little as three years. Now we have the war.
Chris is speaking at the LEADERS SUMMIT tomorrow (24 March) in Sydney and he will say the 75% increase in Baby Boomers turning 80 next year will swamp home and residential care funding. The Government doesn’t have the cash.
The headline above is from Saturday’s Financial Review. Economists say the war could cost Australia $100 billion in increased Government debt – that is twice the cost of aged care – which we can’t fund.
The impact for villages we predict will be dire. As James Wiltshire wrote in this column last week, village residents are becoming ‘village locked’; they are not leaving for residential care.
Chris Blake says St Vincent’s will deliver aged care and hospital care into the home. Good for the resident, terrible for the village business model. Chris will keep residents in acceptable shape longer.
If residents stay two years longer, the operator loses 40% of their sales – and delays the DMF income by 24 months, This means missed budgets and it is happening now – before the war.
If the Government hasn’t got the cash to fund Support at Home or residential care, who has?
Either no-one or the customer. For most village residents who have been in the village for nine to 11 years, they have no real cash, but they have equity in their home. The only way to release that (given the complexities of legal documents etc) is if the operator floats the resident.
How much? A top Package is $75,000-plus each year, so two years is $150,000. If a village with 100 ILUs has 10% turnover and 50% of those residents delay and need funding for two years, the operator will be paying out 5 x $75,000 x 2 years = $750,000. That is Year One – then they add half of that again for new people needing support. That is a total of $1.125 million.
The question is: is this happening now given the long wait list to get a Home Care Package?
The answer is no – the residents are stoic and will hold on without services. But that is not a good answer, and when the system does collapse, as predicted by Chris Blake before the war, residents and their families will be saying, ‘come on operator, you have a responsibility to look after my Mum. Don’t you?’
In our LEADERS SUMMIT presentation, we predict the end of the village business model as it has operated for 50 years, and that it will transfer over to private aged care, like LDK Seniors’ Living.
Interesting, Aveo CEO Tony Randello will also be speaking at the SUMMIT. He says the fact that he has transferred 33% of his recent contracts over to upfront DMFs was why Scape paid top dollar for Aveo recently. Tony was ahead in de-risking the business.
What about you?
