Report highlights how private aged care companies make more money than charities.
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?