Home care sector changes continue to cause pain for providers
The overall performance of home care providers declined in 2017-18 and financial pressures are continuing, a key sector report says.
The overall performance of home care providers declined in 2017-18 and financial pressures are continuing, a key sector report says.
The Aged Care Financing Authority’s annual report on the funding and financing of the aged care industry says changes to home care that took effect in 2016 and 17, including the introduction of CDC, continued to influence the industry in 2018-19.
“The overall performace of home care providers declined in 2017-18 and financial pressures are continuing,” the report says. “The main influence was increased competition caused by the introduction of CDC.”
The report finds “a significant deterioration” in the financial performance of home care providers in 2017-18.
After several years of relatively stable returns, before-tax earnings per consumer for home care providers fell by over 60 per cent. For the first time in three years, for-profit providers reported a larger fall in financial performance than the not-for profit sector.
The report says government policies have had a significant impact on financial performance, especially the introduction of CDC which has resulted in an increase in the number of approved providers from 496 in 2015-16 to 873 in 2017-18.
“In turn greater competition between providers … has resulted in a decline in profit margins,” the report says.
Expenses per consumer for home care providers increased by 7 per cent in 2017-18 while income per consumer decreased by around 1 per cent compared with 2016-17.
Leading Age Services Australia said the latest indicator came in the wake of the government’s recent funding increase of 1.4 per cent and a 3 per cent minimum wage increase, compounding pressure on the sector.
A period of transition
ACFA says home care is in a period of transition and many providers are still adjusting their business models to meet the needs of consumers.
“The reforms have increased costs for providers and the increased competition, including price competition, has significantly squeezed margins,” the report says.
It says the increased competition is attracting new consumers with only a small number of people moving between providers.
However it also notes concerns that some providers are not only reducing their prices, but also the quality of their services, as a result of increased competition.
The report says demand for aged care services will intensify with the aging of the population, and consumers are likely to become more demanding in the range of aged care services they seek.
ACFA says there is a significant under-supply of home care services, with 127,748 people waiting for a home care package or a package at their assessed package level last December.
The home care sector continues to be predominately not-for-profit with 53 per cent of providers from this group, although this represents a drop from 65 per cent in 2016-17.
The report shows the proportion of home care consumers aged 65-74 has been increasing since 2014-15 and the proportion of those aged 75-84 increased noticeably in 2017-18, as it did in 2016-17, likely reflecting the expansion of home care packages in recent years.
The proportion of those aged 85 and over decreased slightly for the third year in a row.
The demand for aged care services will expand with the ageing of the population, ACFA says, although it adds it is not currently possible to accurately measure demand or to reliably establish consumer preference for residential and home care, because of existing supply constraints.
Aged care in 2017-18 at a glance
- 1.3 million Australians received subsidised aged care services with the figure expected to hit 1. 5 million by 2020-2021
- Total expenditure was $18.1 billion, up from 17.1 billion in 2016-2017
- There were 1456 CHSP providers, down from 1523
- There were 873 home care providers, up from 702
- There were 366,000 aged care workers and 68,000 volunteers
- There were 116,843 home care consumers, a 20 per cent increase from the previous year
The report says the number of Australians aged over 70 will increase by around 1 million people each decade. Meanwhile the 85-years and over cohort will increase from just under 500,000 people in 2019 to just over 1 million people by 2039.
I disagree. The main reason that profits have fallen for Home Care Providers is principally down to the change in treatment of Unspent Funds when a consumer leaves a Home Care Package. For example in the past if a consumer went into permanent care and had a surplus HCP balance of $20k, the provider would retain these funds and it would be treated as income in the P/L of the provider. This would have inflated the Net Profit results of this provider. However ,this changed as from Feb 2017, where now the surplus of $20k gets returned to the Department and not treated as income in the accounts of the provider.
Additionally rising wage costs that continually outstrip the annual increase in subsidy funding contribute significantly to the fall in profits of these providers.
Increased competition (which is a good thing) is not materially affecting the profit levels in my opinion.
I agree with the previous respondent regarding “unspent funds”. Providers have scant knowledge of the difference between funding and income and this lack of knowledge has caused them to make decisions on pricing that are not based on facts and accurate costing.
In addition, and for similar reasons, many are failing to charge a co-contribution and in some cases even recovering the Income Tested Fee. No wonder they are not operating profitably. Not to mention such actions could lead to further more difficult issues of the department determining that the industry is over subsidised and/or underservicing.
There needs to be significant education provided to the sector and its providers, particularly “start up” providers. Otherwise, the unintended consequences of the actions of a number of ill informed providers will not only damage the industry financially but also bring the level of service down and draw more public ire and criticism as the standard of service falls to keep pace with the artificially reduced income received by providers.
The industry needs to be better informed about the basics of managing community services. Also become aware of the fact that real competition does not reside in a system where the Department restricts provider flexibility whilst attempting to allow consumers to enjoy the benefits of a pseudo ‘market driven’ environment.
Obviously if you have a fixed market and the amount of providers nearly doubles in two years, then yes the increase in competition will affect profit margins. Consumer choice now means that you get one chance and if you get it wrong, the consumer now has plenty of choice to walk to another provider who is willing to put consumer preference first and there are many of them. Gone are the days of you day what we offer and that’s it. It’s just common sense. If providers were relying on unspent funds to report profit then that was just false economy. You want to survive in the market you now have to be at the top.
I wonder how much money is now being spent on marketing and advertising because of the competitive market? This must be having an impact on bottom line too?
I know of one person who said they pay $85 for one hour of care thru NDIS and the worker gets $26 hour so how can they not be making a profit