In February 2019, The Australian Department of Health (the Department) released the discussion paper “Managing Prudential Risk in Residential Aged Care” in consultation with the residential aged care sector and the broader community on the issue of managing prudential risk in residential aged care. The existing framework in place under the Aged Care Act 1997 (the Act) supports this objective, however two recent reviews have recommended that the prudential framework be strengthened (Ernst and Young and the Tune Review). The Department has invited submissions from all interested stakeholders to gather the sector’s views on the options for better managing prudential risk in residential aged care. Please see below for the StewartBrown submission on managing prudential risk in residential aged care. Click here to download the submission.

The listed aged care providers Estia, Regis and Japara have recently released their six months results to 31 December 2018. StewartBrown has reviewed the Listed Providers Financial Reports and a summary of this analysis can be found in this report. This listed aged care providers financial performance update focuses solely on the three listed providers in order to provide a timely snapshot and commentary on their results. Click here to download the report.

Click here to download a PDF version of the report below.

On 17 December 2018 the Government provided its Mid-Year Economic and Fiscal Outlook update for the 2018/19 year. In making the announcement it also included several measures that impacts directly on the aged care sector. Government Announcements in detail The Government will provide $454.9 million over four years from 2018 19 to support older Australians with improvements to residential and home care arrangements, including: $287.3 million over three years from 2018 19 for 5,000 level 3 and 5,000 level 4 home care packages; $56.4 million over four years from 2018 19 to assist people in home care by reducing the maximum basic daily fee that service providers can charge; and $111.2 million over four years from 2018 19 to increase the residential care viability and homeless supplements by 30 per cent to support people in residential aged care in regional, rural and remote areas of Australia and those at risk of homelessness. In addition, the Government will provide $81.7 million over four years from 2018 19 to support older Australians through better quality of services, improved regulatory arrangements for aged care service providers, and new workforce arrangements for people employed in aged care, including: $39.3 million over four years from 2018 19 to create an additional 300 Transition Care Places in Western Australia by 2020 21, to support up to 1,300 older people each year to return to their homes after a hospital stay; $30.5 million in 2018 19 to introduce an accommodation management payment in the Continuity of Support program; $15.6 million over four years from 2018 19 to the Department of Health, the Australian Aged Care Quality Agency and the Aged Care Quality and Safety Commission to improve regulatory arrangements and the quality of aged care services for people receiving Commonwealth funded home care and residential aged care, including expanded audit and compliance processes; $4.0 million in capital funding in 2018 19 to contribute to the expansion of facilities at Clare Holland House in Canberra to improve the provision of palliative care services; $3.9 million over three years from 2018 19 to contribute to the expansion of the Strathalbyn Aged Care Facility to increase aged care services by an additional 12 beds; and $0.6 million in 2018 19 to support implementation with aged care providers of workforce improvements recommended in the Aged Care Workforce Taskforce report, A matter of care — Australia’s aged care workforce strategy. The cost of this measure will be partially met from within the existing resources of the Department of Health. Other health measures with an impact on residential aged care facilities included: Provision of $98.0 million over four years from 2018 19 to increase the Medicare Benefits Schedule (MBS) fees for General Practitioners (GPs) attending a residential aged care facility to help ensure that GPs have appropriate incentives to provide care in aged care facilities; The following is an extract from the foreword to the MYEFO papers: The Government is continuing to invest in aged care, with total spending expected to reach a record $23.5 billion in 2021-22. This includes supporting older Australians to access quality aged care services and improving regulatory settings in the sector. An additional $287.3 million has been provided to bring forward by one year to 2018-19 the release of 5,000 level 3 and 5,000 level 4 home care packages to connect more older Australians with high-level home care support. The Government is also providing $56.4 million to assist people in home care by reducing the maximum basic daily fee service providers can charge. In addition, the Government will provide $111.2 million to increase the residential aged care viability and homeless supplements by 30 per cent to support people in residential aged care in regional, rural and remote areas of Australia and those at risk of homelessness. The Government has established a Royal Commission into Aged Care Quality and Safety to examine the quality and safety of care provided to senior Australians in residential and home-based aged care and to young Australians with disabilities living in aged care. The Government will provide $104.3 million over four years from 2018-19 for the Royal Commission and $17.2 million over two years from 2018-19 to the Department of Health, the Australian Aged Care Quality Agency and the Australian Aged Care Quality and Safety Commission to support activities associated with the Royal Commission. Commentary and Economic Context of the Announcements The various measures announced yesterday, while welcomed, are unlikely to improve the financial situation that many aged care providers currently find themselves in. The latest StewartBrown Financial Performance Survey for the September 2018 quarter shows that many aged care providers are continuing to struggle financially. Residential Care While there have been modest traditional seasonal uplifts in the results of residential aged care providers, the September 2018 results are still well below those for the same period in the previous financial year. Except for the increase in the viability supplement there was no increase in funding for the residential aged care facilities in the announcements today. Facility Result at September As part of our analysis of the June 2018 survey results and the settings that we were observing for the current 2019 financial year, we forecast what we believed would be the average results for residential aged care facilities and the results are shown in the graph below. While the increase in the viability supplement should improve the results of a relatively small number of providers, we do not see these forecasts changing significantly as a result of measures announced yesterday. Forecast Facility Result For those facilities that do qualify for a viability supplement, they will see them increase by 30% as a result of announcements made yesterday. This will be welcomed and as shown in the graph below is desperately needed by those facilities operating in rural and remote areas. Facilities with negitive facility EBT by remoteness Home Care With respect to home care providers, the announcements of additional packages will be welcomed. The increase in the number of high care packages should improve the financial performance of providers who will provide the services to these packages as margins are generally higher for high care packages. This measure should also help to alleviate the waiting lists for high care packages in the community. The September Survey has seen a general decline in financial returns for providers compared to the same quarter in 2017. Home Care EBT per client per day The announcements of an additional 10,000 high care packages from Calendar year 2019 is aimed at addressing the increasing waiting lists for those packages as shown in the graph below. Number-of-persons-on-home-care-package-waiting-list.png The measure to reduce the fee for low care packages (topped-up to the provider by the government) is interesting. We are yet to see the detail of how this measure is to be applied but it may have been better if it was accompanied by an announcement that the daily fee, even at the reduced level, was a compulsory charge, in the same way that it is in residential care and as recommended in the Tune recommendations. At present there is very little consistency in how providers are charging clients, if at all and this is affecting the viability of providers and, in some cases, their ability to compete against those that do not charge this fee at all. It may also make it more difficult for providers to charge the higher fee when they transition someone from a low care package to a high care package. We do not know, based on the information released, whether this will affect clients that have been assessed for a high care package but are currently allocated a low care package. On the positive side, this measure might encourage more people to transfer from CHSP services to the low care home care packages. It should be noted that there was no additional funding or other announcements in respect of CHSP. Click here to Download the report.

The StewartBrown June 2018 Aged Care Financial Performance Survey (ACFPS) incorporates detailed financial and supporting data from over 974 residential aged care facilities and over 24,952 home care packages across Australia. The quarterly survey is the largest benchmark within the aged care sector and provides an invaluable insight into the trends and drivers of financial performance at the sector level and at the facility or program level. Click here to access the sector report for June 2018. For more information on the Aged Care Financial Benchmark Survey click here.

Aged Care On 16 September the Prime Minister announced the establishment of a Royal Commission into the aged care sector. Consultation is underway until 25 September to develop the Terms of Reference, which the Government anticipates will include: The quality of care provided to older Australians, and the extent of substandard care; The challenge of providing care to Australians with disabilities living in residential aged care, particularly younger people with disabilities; The challenge of supporting the increasing number of Australians suffering dementia and addressing their care needs as they age; The future challenges and opportunities for delivering aged care services in the context of changing demographics, including in remote, rural and regional Australia; and Other matters that the Royal Commission considers necessary. The announcement preceded the release of a two-part investigative piece on aged care by the ABCs Four Corners programme, with the first episode airing on 17 September. This has generated a significant amount of press relating to the aged care sector from all areas of the media. StewartBrown is referenced in several of these articles, so it is worthwhile confirming the professional services we provide to the aged care sector and how we engage with it. For the benefit of interested stakeholders in the aged care sector, including the media who are not aware of StewartBrown, a brief profile is below: StewartBrown StewartBrown provides these professional services nationally to a diverse range of clients, however, we have a speciality expertise in aged care and community services, social services, independent schools, children’s services and disability services. With respect to aged care and community services, StewartBrown has more than 35 professional staff actively providing significant professional services to the sector nationally including: Audit and assurance Financial modelling and forecast assignments Governance reviews (including Board and Executive) Finance systems and process reviews Strategic reviews and workshops Preparation of general purpose financial statements Annual Prudential Compliance audits Community Acquittals Community Acquittals Conference presentations and sector workshops Briefings to Department of Health and the Aged Care Financing Authority Aged Care Financial Performance Survey (2018: 197 providers comprising 996 residential facilities; 468 community programmes incorporating 24,032 HCP packages) These services are provided across the spectrum of aged care providers (for-profit, not-for-profit and government) as well as consultations with government departments and industry peak bodies. StewartBrown undertakes the largest financial performance benchmarking survey covering the aged and community care sector in Australia. This survey includes detailed operational, equity and staffing data on a quarterly basis for residential aged care facilities and home care packages. The Aged Care Financial Performance Survey (ACFPS) commenced in 1995 and has grown exponentially due to the requirement for Boards and executive management for forecasting, trend analysis, revenue and expense management and capital strategies. Over the years, the format of the results of our survey has become more granular in content and an integral part of the budgeting, forecasting and review processes within many participant organisations. With respect to participation in the survey, it is generally representative of the sector as a whole with respect to location and has participants in the survey from across the provider spectrum. The profile of the participants based on the residential aged care geographic spread is: Residential Particpants Subscribers to our ACFPS include some of the largest providers nationally, including independent stand-alone providers, faith-based and community providers, culturally specific providers, as well as government bodies, including the Department of Health (DOH), Aged Care Financing Authority (ACFA), aged services sector peak bodies, consumer bodies and other service providers. Our ACFPS surveys quarterly financial and non-financial data for residential (by facility) and home care (by program) at a granular level. In addition, the survey obtains specific segment information and key balance sheet information at organisation (approved provider) level every six months. Our involvement in the aged care sector over many years has provided us with a unique and comprehensive knowledge of the financial performance of providers and of the financial performance and viability of the aged care sector. In recent times StewartBrown has made public submissions to the Senate Economics References Committee Inquiry into the “Financial and Tax Practices of For-profit Aged Care Providers” and also appeared before the enquiry. StewartBrown also made a submission to the Aged Care Workforce Strategy Taskforce. StewartBrown welcomes the Royal Commission, and has a hope that at the end of the process the sector, including Government, is provided with a blueprint for a viable and sustainable aged care sector equipped to care for some of the most vulnerable in society.

Overall, the financial results reflect the sector trends of pressure on revenue due to the FY18 freeze on ACFI indexation and ACFI scoring changes; occupancy pressures; and increases in staff costs. As in prior periods, Estia and Regis both have a net tangible liability which is due to the fact the intangible assets are greater than the net tangible assets. The ratio of liquid cash assets as a percentage of debt has decreased for all three providers due to the lower levels of cash and cash equivalents held. Click here to download the 2018 Listed aged care provider analysis.

StewartBrown was invited to make a submission to the Aged Care Workforce Strategy Taskforce by the Chairman, Professor John Pollaers. The Submission includes: a summary of benchmarking survey results, commentary on the industry and an organisational analysis. Click here to read the StewartBrown submission so the Aged Care Strategy TaskForce

The StewartBrown March 2018 Aged Care Financial Performance Survey (ACFPS) incorporates detailed financial and supporting data from over 911 residential aged care facilities and over 21,700 home care packages (412 home care programs) across Australia. The quarterly survey is the largest benchmark within the aged care sector and provides an invaluable insight into the trends and drivers of financial performance at the sector level and at the facility or program level. Click here to access the Residential sector report for March 2018. Click here to access the Home Care sector report for March 2018. For more information on the Aged Care Financial Benchmark Survey click here.

On 10 May 2018 the Australian Senate referred an Inquiry titled “the financial and tax practices of for‐profit aged care providers” to the Economics References Committee, with a report due by 14 August 2018. In particular, the Inquiry is to cover: the use of any tax avoidance or aggressive tax minimisation strategies; the associated impacts on the quality of service delivery, the sustainability of the sector, or value for money for government; the adequacy of accountability and probity mechanisms for the expenditure of taxpayer money; whether current practices meet public expectations; and any other related matters. Click here to read StewartBrown's Submission to the Senate Inquiry into Financial and Tax Practices of For-Profit aged care Providers.

The StewartBrown December 2017 Aged Care Financial Performance Survey (ACFPS) incorporates detailed financial and supporting data from over 915 residential aged care facilities and over 21,400 home care packages (401 home care programs) across Australia. The quarterly survey is the largest financial benchmark within the aged care sector and provides invaluable insight into the trends and drivers of financial performance at the sector level and at the facility or program level. Click here to access the Residential sector report for December 2017 Click here to access the Home Care sector report for December 2017 For more information on the Aged Care Financial Benchmark Survey click here.

The listed aged care providers Estia, Regis and Japara have recently released their results for the six months to 31 December 2017. StewartBrown has reviewed the Listed Providers Financial Reports and Investor Presentations and a summary of this analysis can be found in the Listed Providers Analysis Report (December 2017). This report focuses solely on the three listed providers in order to provide a timely snapshot and commentary on their results. The results and analysis for those providers in the StewartBrown Aged Care Financial Performance Survey will be made available within the next few weeks. The key highlights from the report are summarised below. The comparison period is June 2017. Occupancy Estia experienced a slight increase in average occupancy however Japara’s average occupancy decreased from 94.6% to 92.3% due to “abnormally severe influenza outbreaks” whilst Regis average occupancy fell from 94.9% to 93.1% due to “more virulent influenza and gastroenteritis than usual”. Number of operational places Across the three listed companies, the number of operational places increased slightly in FY17 and to December 2017, mostly due to operational places being released as new facilities were opened or existing ones upgraded. ACFI The average ACFI per bed day increased for Estia and Japara whilst staying the same for Regis. Staff costs Staff costs are the most significant of all expenses aged care operators face. All three listed providers experienced an increase in staff costs as a percentage of operating revenue. EBITDA EBITDA is defined as earnings before interest, tax, depreciation and amortisation. The EBITDA per bed per annum has decreased for both Regis and Japara due to impacted by lower occupancy from influenza outbreaks, the effect of the cuts to residential aged care funding, and staff costs increasing at a greater rate than revenue. The EBITDA per bed per annum has increased for Estia due to growing occupancy rate and higher government revenue. EBT Whilst, the sector primarily uses EBITDA as a measure of financial performance, this measure doesn’t consider depreciation and as this is a significant expense for residential aged care facilities, we consider that EBT (earnings before tax) should also be given equal consideration when assessing overall financial performance. The EBT per bed per annum varies considerably between the three listed entities, with a decrease occurring for each of them. Click here to access the Listed Providers Analysis Report for December 2017. For more information on the Aged Care Financial Benchmark click here.