6th Apr 2018
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Charities find aged-care profits elusive, while shareholders rake it in
Author: Olga Galacho
Charities find aged-care profits elusive, while shareholders rake it in

While the three listed aged-care providers pocketed a combined $100 million in net profit last year, this week a report claimed that hundreds of nursing homes run by charities are heading towards financial ruin.

Lobbyists for aged-care services said the report by accounting firm StewartBrown indicated that Federal Government cutbacks to the sector are hitting their mark. These lobbyists are now calling for the May Budget to provide an emergency injection of aged-care funds.

StewartBrown, which specialises in the sector, audited the results of the 915 nursing homes run by 222 organisations and found that there is “a major concern for the sector and its ongoing financial viability”. It said 41 per cent of them had balance sheets bleeding with red ink, compared with 31 per cent last year.

“Consistent with our forecasting made earlier in the financial year, the performance for residential care has declined considerably for the six months ended 31 December 2017,” the report said.

“This decline is directly attributable to the freeze on the COPE (Commonwealth Own Purpose Expenditure) indexation for the 2018 financial year and other amendments to ACFI (Aged Care Funding Instrument), effective from 1 January 2018.”

There are a couple of important factors to note here: of the 222 organisations reviewed, just 14 of them are for-profit companies. This means that the vast majority of providers analysed are charities or churches.

For-profit companies are not crying poor even though the Government funding they receive is apportioned in the same way as it is for the not-for profits.

The figures reported by StewartBrown were expressed as EBITDA (earnings before interest, taxes, depreciation and amortisation), which is essentially the ‘headline’ number. The ‘bottomline’ number, either a net profit or loss, is a better indication of whether a company is viable after writing off allowable deductions.

And, as confirmed by StewartBrown Survey Administrator, Vicky Stimson, a cash loss expressed as an EBITDA could still turn up as a profit, once the bean counters have woven their magic.

However, there is still no doubt that the 21 per cent of facilities experiencing a cash loss are doing much worse than before the Government’s clampdown on subsidies for aged care services.

The report said: “Whilst the highest portion of the facilities recording a (cash) loss are those located in the outer regional/rural/very remote geographic areas, significant declines in performance also occurred in the inner regional and metropolitan demographics.”

Asked why outlying homes would underperform ones closer to the city, Ms Stimson told YourLifeChoices that their locations meant they had a smaller pool of workers to draw from and, as a result, are likely to be paying higher rates to staff.

“Also, among some of the larger aged-care providers, there are more opportunities to pool resources if they have a few facilities close to each other in metropolitan areas. They may perhaps have just one kitchen making all the food for four or five facilities, rather than a kitchen in each one,” she said.

Additionally, the Government’s promotion of ‘ageing in place’ has helped many elderly people stay at home with a bit of assistance, rather than move into aged care.

Ms Stimson said home-based care packages were far cheaper than government-subsidised places in a nursing home.

Before the significant rollout of home-based packages, facilities were able to rely on more funds from the larger number of elderly people unable to live independently at home.

“What you have today, however, is homes full of people with very high care needs because of dementia. This puts a financial strain on the provider because they need to hire more staff per resident than previously, but fewer residents are coming through the door.

“Imagine at meal times where staff have to sit down and spoon feed nearly everyone because they are incapable of feeding themselves? Once upon a time, facilities had a bigger mix of residents and many were still able to eat independently.”

Despite the rise in more dependant residents, the Government is systematically reducing funding for individuals.

StewartBrown reported that between October and December last year, 823 reassessments across 135 facilities were conducted by the Government. The results saw the downgrading of funding for 29 per cent of the individuals. Only half a per cent of the reassessments resulted in an upgrade.

The firm said that a “declining performance will continue into the next two quarters (through to June 2018) leading to a very concerning fiscal year for many residential aged care facilities”.

Since the Government’s shake-up of aged-care funding, for-profit aged-care providers listed on the Australian Securities Exchange have had their share prices hammered. But they are still paying dividends to private shareholders. That indicates they are indeed profitable.

One of the large publicly listed aged-care providers, Estia Health, posted a 47 per cent increase to its 2017 net profit to a record $40.7 million. It can choose to return this to shareholders, reinvest in the business, or a bit of both.

In February, another nursing home titan, Japara Healthcare, posted a second-half profit of $10.3 million. It was down considerably on the previous corresponding period, but it certainly kept the provider in the black.

Also that month, Regis Healthcare, which has 55 nursing homes around Australia, posted a net profit of $28 million for the last six months of 2017.

No doubt, some of the other larger players are also raking in the dollars, but because they are not publicly listed in Australia, their financial information is difficult to locate.

Clearly, there are companies that know how to profit from providing aged-care services, largely using taxpayer-funded subsidies, they just don’t seem to have been captured by the StewartBrown survey.

Do you think the Government should keep a closer eye on how private providers spend aged-care subsidies that are provided by taxpayers? 

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    COMMENTS

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    Travellersjoy
    6th Apr 2018
    11:10am
    Our present government is only interested in helping the already affluent to harvest the wealth of the vulnerable. They have no interest in supporting community not-for-profits that might place a premium on quality over profits.

    Don't look to the LNP to consider your needs in old age - unless you are one of the financially secure able to profit from screwing less fortunate people.

    Nor does our present government respect any service that doesn't intend to make a profit out of the misfortune of others. Charities beware.

    If you hate Australia, vote LNP.
    Tib
    6th Apr 2018
    11:27am
    I'm not sure about the hate Australia comment but I agree with the rest.
    ray from Bondi
    6th Apr 2018
    11:30am
    yes, the libs will do nothing but laugh as people ARE FORCED to use for-profit organisations where the only thing of concern is profit, OH there may be another concern, more profit.
    Curious
    6th Apr 2018
    12:39pm
    Just because a private enterprise makes a profit, it does not automatically indicate it performs well in its business. All it means, it reduces cost over revenue. Anyone can do that. The charter of its business does not specify the performance indicators as to how well it should perform. Government subsidies for organisations earning a profit is definitely a no-no. With reputation of some operators in the health care industry, I would like to see what performance indicators have been given to these operators.

    The ways some of these operators treat the elderly senior citizens are absolutely a disgrace. Governments should lift their games up, ensuring the elderly are not being bullied or mistreated.

    As to the no-for-profit organisations for health care, charity and religion ones, they can't rely on EBITDA to gauge its profitability or performance. For the start, they don't pay taxes, therefore depreciation and amortisation are not on the same concept as those profit organisations. Depreciation and amortisation are not an issue because the capital for their assets are based on donations and government subsidies. We are talking chalk and cheese here.
    Olga Galacho
    6th Apr 2018
    2:32pm
    Hi Curious: Olga here. I would like to follow through with this story at some point. If you would like to expand on your observation I would be happy to hear from you at olga@yourlifechoices.com.au
    Cheers
    Curious
    6th Apr 2018
    8:40pm
    Hi Olga, what do you want to know from me? I can talk openly @yourlifechoice.

    Thanks,

    6th Apr 2018
    2:52pm
    I am a former staff member (at management level) of a church based aged care provider in NSW - for reasons that will become obvious I wont name the organization, but it has facilities all over NSW from the far north coast to the lower southern Riverina, and I can assure you it is an extremely viable financial entity, off the back of its aged care operations, so I am not sure where YLC is getting its information from.
    Puglet
    6th Apr 2018
    2:54pm
    If they are to return large dividends Retirement villages/nursing homes owned and run for shareholders cannot/will not provide best-practice services for residents - it’s one or the other! I’d never buy into one unless of course I was a shareholder. Most but not all of the most recent scandals derive from these big businesses. The really expensive retirement businesss have whiz bang ‘community services’ - gyms, big pools, beautiful gardens and of course luxury CEO offices. To reduce costs they reduce staff to a minimum and tend to employ inadequately trained people and of course charge residents exhorbitant prices for basic services. Facilities for the frail including people with Alzheimer’s is often cruel and inhumane. It costs a lot of money to staff these instutions with highly qualified staff dedicated to care of the frail elderly. I doubt governments have the will to fund such places.
    disillusioned
    6th Apr 2018
    3:23pm
    What a horrible indictment on our current government that the elderly and vulnerable in our society are looked on as money-making opportunities for share-holders, when often the staff ratio of registered nurses to patients is so low that many residents are neglected, all in the name of "making a business profit"! Of course, our pollies are too busy feathering their own and their mates' nests to give a darn about the elderly! I will NEVER vote LNP again!!
    Knows-a-lot
    6th Apr 2018
    3:51pm
    What a mess.
    Charlie
    6th Apr 2018
    4:46pm
    It makes assisted dying seem a better proposition. What is the good of a better health care system that only extends life but provides none of the qualities of being alive.
    Roses
    6th Apr 2018
    8:42pm
    I agree Charlie...can't understand why governments don't pass bills for Voluntary Euthanasia... one way to save money spent on the aged. Whoops, this might get the anti-Euthanasia groups up in arms!
    Florgan
    6th Apr 2018
    5:25pm
    I would like to hope that aged care facilities that are making a profit are Not receiving any government subsidies .
    Florgan
    6th Apr 2018
    5:42pm
    And if they are receiving subsidies , they should be paid back.
    So should all people / in business and companies who receive a grant or hand out or subsidy, when they make a profit or sell, the government should get it back !
    Joy Anne
    6th Apr 2018
    6:19pm
    Travellerjoy I totally agree with u. The LNP have always been that way and are making it worst bu cutting back on aged car er. I see the politicians dont cut back. They are mongrels.
    Circum
    6th Apr 2018
    9:49pm
    Seems the ALP felt left out and have joined the party being mongrels.And yes,the politicians don't cut back but expect everyone else too..especially retirees
    Blossom
    7th Apr 2018
    9:44pm
    Many Aged Care facilities are understaffed where residents have to be handled - not able to walk around or get in and out of bed safely. For safety 2 staff handle a resident not one. The Govt regulation is a ratio of 1 to x number of residents. It does not take into account that 2 may be require to help a resident in a "high dependency" area. People in that area pay more than their pension for their care even if they have no other income.


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