Nov 11, 2021

“Unsustainable”: Growth in aged care costs continue to outpace growth in revenue

Growth in aged care costs continue to outpace growth in revenue

StewartBrown’s financial report for the 2021 financial year, which is based on surveys of 1,277 aged care homes and 53,559 home care packages from all around Australia, reveals a sector in continued decline, with real questions about sustainability.

“Homes in all locations, including metropolitan, regional and remote locations are making operating losses, which is unsustainable in the longer term,” the report states. Next year is also shaping up to be “challenging”, the report’s authors predict.

“Additional specific targeted funding and structural reform is required,” they said.

The average operating loss for all residential aged care homes was $8.43 per bed per day (pbd), excluding net COVID-19 funding support which is unlikely to continue. The result compares with an operating loss of $6.90 pbd during the 2020 financial year, meaning a deterioration of $1.53 pbd over the year.

In the 2021 financial year, the direct costs of providing everyday living services (excluding administration costs) exceeded the revenue by $9.78 pbd (compared to $9.20 pbd in 2020). However, with administration costs included – such as procurement, payroll, rosters, accounts, quality control, insurances, human resources and corporate costs – the loss increases to a worrying $22.29 pbd.

However, a portion of these funds will be required for the additional costs of showing the requirements of the supplement have been met: providers must show that the quality and nutritional component of their food is meeting expectations and is improving.

Metropolitan homes also received lower COVID-19 funding, and regional and remote homes benefited from the 30% viability supplement.

Metropolitan homes made an operating loss of $8.83 per bed day, compared to an operating loss of $8.00 per bed day for inner regional and $6.32 per bed day for rural and remote homes.

The growth in revenue did not keep pace with rising costs.

The government’s indexation increase of 1.1% was not enough to cover the 0.5% increase in the Superannuation Guarantee Scheme, wage award increases of between 1.75% and 3.5%, and an inflation rate of 3.8% for June year. 

An increased compliance burden is also adding to providers’ costs, and are likely to continue to do so in 2022 due to the increased compliance burden of the Quality and Safety Standards, Serious Incident Response Scheme, COVID-19, ACFR reporting, and greater scrutiny of direct care staffing costs.

Medium-sized homes performed best. Homes with more than 100 beds recorded a loss of $10.35 pbd, compared with a loss of $6.01 for 80-100 bed homes and $8.47 for 60-80 bed homes. This may in part be due to the fact that larger homes tend to accept a greater range of residents, whereas smaller homes may focus on residents of a specific cohort.

The worst-performing homes are performing worse than ever, with the bottom 75% of homes (based on financial performance, a worrying 872 homes) recording an average loss of $18.38 per bed day, a deterioration of $1.19 per bed day compared to the previous year.

However, more is needed. The government has mandated a minimum of 200 minutes of direct care per resident per day, which will require an increase of 24.19 minutes of staffing per day from 2021 staffing levels – a 13.8% increase.

“To achieve this mandated level will require additional direct care staff to be employed,” the report states. “This will be a significant challenge for the sector, particularly in regional, rural and remote locations where registered nurse availability is at a premium.”

Nearly $13 per day spent on food

An average of $33.09 per resident per day is spent on food, food preparation and the serving of food, up from $32.00 in 2020.

The surveys found that 63% of providers operate their own kitchen, while 12% use contract food suppliers with their own on-site kitchen to prepare meals.

Home care

In the home care sector, operating results improved during the 2021 financial year, however, this was largely driven by reduced direct care staff costs and lower hours of care. 

Revenue per client per day rose to $72.08 from $71.08 in 2020. The operating results per client per day increased to $6.05, up from $3.59 the previous year.

Unspent funds remain a significant problem in the home care sector, soaring to an average of $9,855 per consumer and a shocking $1.6 billion in total, representing funds tied up and unable to be used for care.

The large differences in funding between each package is “a major contributor to the exponential increase in unspent (unutilised) subsidy funding,” the report notes. The matter requires urgent reform, the report’s authors note.

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  1. I fail to see how homes can be making a loss. The staffing levels are abysmal and the food is not usually great quality. Someone is making profit from them. My friend receives little care in her home. They do not seem to have good communication and staff are overworked.

    1. Ignorance is bliss.
      The federal government axed funding in 2015/16 by around $40 per resident per day and caused considerable damage to how nursing homes were operated. Six years later the same government, ignoring the royal commission funding finding, put forward $10 per resident per day which hasn’t touched the sides of the losses incurred. The cost to deliver service has sky rocketed, electricity,gas, insurance,food,wages alone take up 75-80% of funding alone…and the list goes on.
      This is not news to anyone with any idea how poor the funding has deteriorated and how much costs have risen.
      It stuns me that ill informed individuals can question every independent audit that publishes the facts but that being said take the time to read the ACFA report from last year, the governments own body that clearly says that the sector is unsustainable and has been for several years.
      I understand that it appears like big dollars go to the aged care sector but folk need to comprehend the enormous costs associated.

      Scott Morrison as treasurer made the cuts, he was reluctant to have a royal commission and now as PM continues to attack an essential service doing a job that families can’t or won’t do.

    2. There are some simply maths quoted by the Royal Commission that said Government[s] had reduced real funding in aged care by over $10bn – that’s BILLION per year. And the current government has put back $10 per day [$730m] for which they introduced a whole host of additional reporting requirements the administration of which probably absorbs about half. That’s a reduction in real terms of over $9 Billion each and every year. Maybe that might give you an indication of why things are so dire and staff are leaving in droves. The lazy media habit of believing government press releases rather than simply looking at the facts and asking hard questions [as that would be too difficult apparently] does nothing to help real improvements.

  2. I agree entirely with the views of Anton. On top of the operating losses there is the inescapable fact that there is significant funds tied up in construction and ownership of residential aged care buildings. There are frequent articles of providers spending up to $100 million on one building alone. In a business that operates at a cash loss the return on investment is a very negative one. So the outcome is that less and less investment is made in aged care, and choices for consumers become less and less. How does that support the needs of our elders and the increasingly aging population. Secondarily the reason States governments have been divesting themselves of their aged care facilities is their inability to operate in a financially efficient way, and to comply with the quality outcomes. If we believe that the outcomes at Oakden were the genesis of the current debate and the Royal Commission there is evidence that quality care does not derive solely from money, as it was a State run facility.


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