AGED CARE Alert: ACFA report provides a rich source of data for approved providers

Jun 29 2015

Publications

On Wednesday, 3 June 2015, the Aged Care Financing Authority (ACFA) released its report, ‘Factors Influencing the Financial Performance of Residential Aged Care Providers’ (Report).

The wealth of data presented in the Report is sure to provoke a dialogue amongst approved providers as to where they sit on the spectrum of financial success and whether their operations can be improved. It provides a useful point of reference for providers to consider when analysing performance.  

The Report was undertaken by PricewaterhouseCoopers and RSM Bird Cameron who were tasked with analysing both qualitative (survey responses) and quantitative (financial data at approved provider level obtained from general-purpose financial reports) to determine what drives the performance of financially successful providers and what can be done to improve performance of those less well performing providers.

While the Report is based on financial information covering only 2012-13, and therefore does not take account of the Living Longer, Living Better changes which took effect from 1 July 2014, the findings are largely still applicable in the post LLLB environment.

The Report grouped providers into four groups separated according to their level of operating EBITDA (OEBITDA). Group 1 comprised the top 20% of all providers in terms of OEBITDA, with group 4 comprising the bottom 20% of providers in terms of OEBITDA. Operators in group 1 generated OEBITDA of $25,731 on average per resident per annum. In contrast, the average OEBITDA of providers in group 4 was on average -$2,072.   

By grouping providers together according to their financial success, the Report was able to identify features that were correlated with this financial performance. These features identified included:

  • A strong disciplined management including a strategic focus on residential care and at least some board members who had a background in the aged care industry.
    Clear market positioning and a clear strategic plan that was consistently reviewed. Group 1 providers tended to have a target resident profile and a recently updated brand and logo (updated in the last three years). They also tended to operate only one type of service (i.e. just residential care, rather than a combination of residential care other services such as home care or community care).
  • A larger scale facility was associated with better financial performance, although the Report noted that there were a number of smaller facilities that had strong performance. The providers in group 1 operated an average of 80 beds per facility, compared to an industry average of 68 beds. However, having multiple facilities was not indicative of strong financial performance, and 70% of single facility providers were in groups 1, 2 and 3.
  • A city location. City providers make up only 58% of the total number of providers, yet represented 80% of providers in group 1. The Report noted that this was partially due to these facilities receiving higher revenue from accommodation fees which are influenced by higher house prices in city areas.
  • Higher performers had higher levels of revenue, both from accommodation payments and ACFI payments. The higher accommodation income was noted to be likely linked to house values and correlates with ‘city’ providers being over-represented in the better performing groups.
  • Higher performers maintained lower liquidity, and used more debt.
  • Regularly refurbished facilities were associated with better financial performers, with group 1 providers on average refurbishing their facilities every 9 years.
  • Greater use of outsourcing of functions was evident in better performing groups. The Report singled out laundry, IT and payroll facilities as those that were often outsourced in the group 1 providers.
  • For-profit providers tended to perform financially better. That is, a greater proportion of the well performing facilities were for-profit providers, and a lesser number were not-for-profits or government organisations. However, the Report acknowledged that the not-for-profit sector serves a crucial role in the aged care system by providing capacity in commercially undesirable areas for altruistic reasons. The finding that the facilities in group 4 tended to indicate a desire to stay in the industry, or even expand their operations, indicated that their financial performance was not the primary reason for their operations. The Report noted that these providers obtained additional income from donations and cross-subsidising by other facilities to support operations;
  • While the majority of providers (87%) had a risk management policy in place, the facilities in the higher performing groups monitored their risk management place more often.

While we note that the Report may prompt some providers to modify their operations to emulate the features identified as being associated with financially successful providers, it can’t be forgotten that the aggregation of data can hide innovative and successful facilities that operate against the grain.

 

 

Written by:
Lucinda Smith | Partner | +61 2 9020 5748 | lsmith@tglaw.com.au
Alexandra Adams | Lawyer | +61 2 8248 3466 | aadams@tglaw.com.au