The government’s COVID-19 support packages have propped up the aged care sector’s financial performance, but the gains made will not last, according to new research from an aged care accountancy firm.
Independent accounting firm StewartBrown has released its assessment of the financial health of the aged care sector in the September quarter of 2020, when Victoria was in the grip of COVID-19.
The report shows government support was holding the sector aloft, at least financially, as it struggled to deal with the deadly virus.
COVID-19 revenue exceeded COVID-19 expenditure in residential aged care homes by an average of $7.66 per bed day during the September quarter.
The operating result for the September quarter was $2.62 per bed day including COVID-19 funding, but a loss of $5.06 excluding the support.
From a “purely financial” perspective, Grant Corderoy, said that, for providers that didn’t experience an outbreak, the government’s response “more than compensated” for the “significant” additional costs of tackling COVID-19, such as paying for personal protective equipment, staff training, managing lockdowns and having staff quarantine.
“There are probably circumstances where those additional costs haven’t been met by the subsidy, but looking at the overall sector, what’s been funded for COVID-19 has actually been greater than what their additional costs were,” said Corderoy.
“It’s been an unintended, or perhaps intended… benefit of the COVID-19 funding,” he said.
The StewartBrown analysis excluded the government’s COVID-19 funding in order to create comparable data with other periods, and revealed a sector in trouble. Overall, 51.9% of aged care homes recorded an operating loss for the quarter, compared with 50.5% in the September quarter of 2019. In regional and remote areas, 55% of homes recorded a loss.
A “significant issue” for the sector is the fact that the cost of providing essential everyday living services exceeds the revenue received by $9.19 per resident per day on average.
Both StewartBrown and Counsel Assisting the Royal Commission into Aged Care Quality and Safety have recommended the government increases the subsidy for the basic daily fee by $10 per bed per day to rectify the situation.
“If we don’t get additional funding for everyday living, it means the quality of [those services] could decline,” Corderoy said, meaning there is the potential for fewer hours of direct care and poorer quality services.
Aged care homes in regional and remote areas continue to experience a deterioration in their financial performance. These homes have an average operating loss of $1,680 per bed per annum or a loss of $5.07 loss per resident per day.
In these areas, 65% of homes have recorded an operating loss. “These percentages will deteriorate over the next nine months,” the report forecasts.
Some of these homes will close, Corderoy says, because for-profit providers tend to focus on homes in metropolitan areas, and not-for-profits themselves are “struggling”.
“I think closure is going to be more likely than consolidation in a number of regional areas.” Consolidation in the sector has “really slowed”, he said.
Not-for-profit homes “have enough issues on their own without trying to take over a little, regional provider,” Corderoy told HelloCare.
The StewartBrown survey, which included responses from 1,140 aged care homes and 52,534 home care providers, is likely to have painted a rosier picture than is expected for later in the year when conditions could deteriorate “quite substantially if there’s no additional funding”.
The COVID-19 support measures have, on the whole, ended, and historically September is always the strongest quarter because COPE increases flow from 1 July while expenses increase progressively over the year.
The home care sector also saw a deterioration in its financial performance during the three months to September 2020.
The average net profit before tax for home care providers was a surplus of $3.68 per client day, a significant decrease compared to the result for September 2019, which was a surplus of $6.35 pcd.
Revenue fell 4.5%, but costs also declined, by 0.9% due mainly to a reduction in staff costs.
Direct hours of care to recipients declined to 3.76 hours (on average) per week for the three months to September 2020, compared with 4.28 hours for the corresponding period in 2019.
“The drop in hours is a worry,” says Corderoy.
Care hours have declined progressively since 2016. “That’s keeping home care slightly profitable, but we’d have to think there comes a time where the number of hours delivered is too little.”
“Just dropping pricing to attract business is not necessarily good business,” he said.
Another serious issue facing home care is the level of unspent funds, which has ballooned to $1.25 billion – funding that is just sitting idle.
“This level has kept rising each quarter, and now averages $9,151 per client,” the report states.
“We’ve got more than $1.2 billion sitting in unspent funds which could be better utilised by having more packages,” Corderoy said.
If the unspent funds were redirected, it could deliver an extra 15,000 packages, he estimated.
Corderoy suggests there could be more assessments undertaken and six to eight levels of home care introduced to allow for more graduated packages.
“The [current] transition from one level to another level is a big increase in funding which is often not utilised,” he said.
Despite the report’s gloomy tone, Corderoy says he is “hopeful” of better times in 2021.
There needs to be a better understanding of what consumers need, and how much it costs to provide services. The public needs to understand how much aged care costs, and how they can better prepare for it, Corderoy said.
He believes consumers might have to accept they will have to pay more to receive the services they want in future. “Sadly, we see too many occasions where families have considerable assets and wealth, but they’re not prepared to pay” more for aged care, he said.
Corderoy is cautiously optimistic about the royal commission’s final report, which is due next month.
He hopes counsel assisting’s 124 recommendations are condensed into a more manageable, smaller number of “really key” reforms at both an operational, clinical point of view and also from a finance and funding perspective. “If we can do that, I’m hopeful,” he said.
“But if we’re debating 124 recommendations, like we debated nearly 40 with the Tune Review, then we’re just going to be more of the same,” he said.
Image: Art Marie, iStock.