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Providers under growing financial pressure and in need of Govt assistance: Sadler

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Aged care providers are facing growing financial pressure according to the latest StewartBrown figures which show more than two thirds of providers are operating at a loss.

Sixty-four per cent of residential aged care facilities (RACFs) recorded an operating loss in the nine months to March 2022, with an average operative loss of $12.85 per resident per day, a position which has progressively worsened since 2018.

Paul Sadler, Aged & Community Care Providers Association (ACCPA) Interim CEO, says the StewartBrown data confirms the feedback from ACCPA members of increasing financial pressure.

“Based on these figures many providers could be forced to leave aged care unless there is additional funding to allow providers to meet the increasing costs of providing quality care and support,” he says.

“It’s really tough.”

ACCPA Interim CEO Paul Sadler says, “We look forward to working with Ministers Butler and Wells on practical solutions which maintain important aged care and support services for older people.”

Sadler tells Aged Care News that this current situation has been brought about by government cuts and lack of accurate indexing to inflation, as well as the unforeseen financial strain borne by the COVID-19 pandemic.

“So since the previous Federal Government, under Scott Morrison as treasurer, started those cuts to the ACFI, we’ve seen a gradual decline in the financial performance of the sector over the last five to six years.

“However, it’s got really significantly pressured in the last two years, and that’s obviously linked to the impact of the pandemic on the sector.”

The pandemic specifically, Sadler says, has hit the sector’s performance on two fronts.

Firstly, occupancy rates in RACFs are down in all states, with the national average now 91.4 per cent (down 1.1 per cent), with Victoria, one of the hardest hit and longest locked-down states, currently having the lowest occupancy rate of 89.3 per cent.

Government funding has not covered the full costs of prevention of COVID … and then in the last few months we’ve seen inflation skyrocket: general costs, food, electricity are all going up.

Paul Sadler

“We’ve been getting lots of anecdotal feedback from older people and their families who are deferring entry into residential care because they’re afraid that, once they get in, there’ll be a lockdown and they can’t see their loved ones,” Sadler says.

Secondly, a combination of added costs for COVID supplies and inflation ramping up the costs of all general supplies, is blowing budgets out beyond what’s reaped through government subsidies.

“Government funding has not covered the full costs of prevention of COVID … and then in the last few months we’ve seen inflation skyrocket: general costs, food, electricity are all going up.”

With the former Government rejecting a royal commission recommendation to raise subsidy indexation, last financial year’s rate was only 1.1 per cent compared to last year’s 2.5 per cent award wage increase and 0.5 per cent Superannuation Guarantee increase.

“We are expecting an even bigger gap this year between the increase in wage costs and indexation unless the Government adopts the royal commission recommendations 110 and 111 to increase indexation,” Sadler says.

As Aged Care News has reported, home care providers are similarly reporting pressure to balance their books due to inflation and added workforce costs.

Last year, the value of a level 4 home care package declined by 1.5 per cent after inflation outpaced the meagre increase in subsidy rates.  

There are not rivers of gold running to aged care providers at the moment and there’s real risks that we’re going see more and more closures of aged care homes. It’s about time the advocates realise that that’s the reality of the aged care sector at the moment.

Paul Sadler

However, the latest StewartBrown report found that home care providers are still just in the black, with the survey finding an average operating result of $4.29 per client, per day.

Aged Care News asks Sadler, on behalf of advocates’ cited concerns, whether exorbitant executive salaries and bonuses are contributing to on-paper operating losses for aged care businesses.

“There are not rivers of gold running to aged care providers at the moment and there’s real risks that we’re going see more and more closures of aged care homes,” he replies.  

“It’s about time the advocates realise that that’s the reality of the aged care sector at the moment.

“As there are in all organisations, there are senior staff who are on packages; that will be true in non-profit organisations as it is in for-profit organisations.

“But what I would say is that they’re a minute amount of the overall expenditure on wages.

“The vast majority of the wages cost is on the care staff, the maintenance staff, the other people who provide the day-to-day care and support for older people.”

Sadler says that none of this excuses the urgent need to improve pay and working conditions for the aged care workforce, but calls into question how such reforms can be implemented without increased government subsidies.

… there are senior staff who are on packages … But … they’re a minute amount of the overall expenditure on wages. The vast majority of the wages cost is on the care staff, the maintenance staff, the other people who provide the day-to-day care and support for older people.

Paul Sadler

“It is clear that aged care workers need a significant pay rise, but without additional support, aged care providers will be unable to attract more workers and to realise improvements in the quality of care.”

With the new residential aged care funding model, the Australian National Aged Care Classification (AN-ACC) coming into effect in October, Sadler says there is still uncertainty as to whether government subsidies will adequately cover new care requirements.

“What we’ve also been hearing from some providers is that their costs to increase staffing to the 215 care minutes, plus the 40 minutes of registered nurse costs, is going to cost them more than the increase in the funding that they’re likely to receive through the AN-ACC.

“The Government believes that the number of providers that might impact will be relatively small, and they are guaranteeing they have funds put aside that will cover any organisations that don’t get an increase in funding in the first year or two.

“So there will be some level of protection mechanisms — I think — in there, but it remains to be seen whether the additional funding from AN-ACC covers all of the additional costs to increase the staffing levels.”

So, where to from here?

Sadler says that ACCPA had recently raised with the Albanese Government two solutions to the immediate problem:

  1. An indexation adjustment to increase subsidies to providers; and,
  2. Legislation to introduce an independent pricing authority as recommended by the aged care royal commission.

“We look forward to working with Ministers Butler and Wells on practical solutions which maintain important aged care and support services for older people,” Sadler says.

Increased resident co-contributions have not been ruled out, nor added tax-payer subsidies — the latter recommended by a recent report from the University of Technology Sydney.

“We need all options on the table here,” Sadler says.

“We look forward to working with the new Government to address this issue and other unfinished business from the royal commission.”

StewartBrown is predicting that losses will continue to grow in the last three months of the 2022-23 financial year, reaching $15.59 per resident per day by the end of June 2022.

The StewartBrown Survey covered 47.4 per cent of residential homes across the country, and home care providers delivering 29.4 per cent of the country’s home care packages.

Operating results are calculated by excluding all non-recurrent revenue (investment income; donations; gains on sale of assets; revaluations) and non-recurrent expenses (finance costs; impairment losses; loss on sale of assets) to show the actual operating performance of the sector. 

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