Home care profitability slides

There’s been a decrease in the profitability of home care providers over the last three years, and almost one in three providers are not profitable, a research paper commissioned by the aged care royal commission shows.

The analysis focussed on profitability and viability across the aged care industry based on an analysis of data supplied to the health department by aged care providers, including from 733 home care providers.

 “The analysis over the past three years indicates that there has been a decrease in profitability in the home care sector over time with the profit margin decreasing from 10.7 percent in FY2017 to 3.7  per cent in FY2019,” the report says.

Total income for home care in 2018 was $2.1 billion, with $2 billion expenses and $74 million profit (a margin of 3.6 per cent), the data reveals.

Unspent funds totalled $500,000 in 2018, representing 26 per cent of total income.

Twenty-nine per cent of home care providers had a cash balance less than the unspent funds they were holding.

Expenses outstrip income

Not surprisingly, the report notes a significant growth in the home care sector since the home care packages program began in August 2013, with the number of providers reporting to government more than doubling between 2014-2019 from 445 to 918.

But while home care income has grown at around 16.1 per cent each year, that’s being outstripped by expenses which are increasing at  17.8 per cent.

The ten biggest providers operated at a loss in 2018-19 and for-profit providers had the most marked decrease in profit.

The researchers found that a total of 216 home care providers weren’t profitable, and said those were most likely to be the smaller operations.

For-profit providers had the hightest rate not being profitable.

The report wasn’t able to comment on the viability of home care services because of an absence of balance sheet information provided to the government.

Information gap

The report notes that home care providers aren’t required to report financial information in the same way that the residential sector is, describing this as a “key issue”.

“The lack of balance sheet items reported at the Home Care level makes it difficult to assess the profitability and viability of the Home Care services and also the viability of providers,” it says.

The information gap also makes it hard to get a sense of the size of the sector and the activities it provides.

The authors recommend that home care providers should have to provide information in the interests of better transparency and deeper insights into the state of the sector.

“We note more comprehensive information about the sector’s performance may be useful to investors and potential investors and may have a positive effect on the supply of services,” the report says.

The report also says the current aged care model favours providers that are able to manage diverser portfolios and capital structures.

“Theoretically, allowing providers the flexibility to utilise complex structures to maximise returns may imply that the Australian Government has to fund the sector less than it would otherwise,” the report says.

 “In our view, it is perfectly reasonable to allow approved providers to use group structures.”