What’s the right way to react to the threats and opportunities in the Aged Care sector?

Over the years, I’ve observed that most leaders and owners in business are optimists, I guess you have to be to stay there, and this is doubly true in aged care at present. Of course, being optimistic doesn’t mean you will be right, although being pessimistic tends to be self-fulfilling. In this Pride Insight, we provide some guidance on how to react to the threats and opportunities in the aged care sector.

We’ve worked with many Providers who are seeking to discover how they should react to the current challenges and opportunities in the sector, here are three case studies which demonstrate the diversity of issues to be considered.

BRUCE BAILEY
Director

Case Study One

Case one involves a Standalone regional NFP provider, who, like 45% of the sector this Provider was unprofitable. When we looked at the situation we identified issues in excessive staffing, low ACFI and a failure to engage in opportunities to boost revenue (significant refurbishment and additional services). There were some other systemic issues around skills and capacity and the ability of the facility to attract and retain key staff.

We came up with an action plan to fix the immediate operational issues however, solving the issues around skills and attracting staff were more deep-seated. We suggested that in this situation it might be appropriate to consider seeking a merger with a larger organisation that would provide access to what was lacking.

Initially the board, with our help, decided they’d like to work through the issues. We worked with the board over several months and as often happens the challenges increased rather than eased. After a time the board decided that from a sustainability perspective and considering the best interests of the community that a merger was perhaps the better option. We then assisted in bringing about a merger that ticked all the boxes for the board.

Issues

Excessive staffing
Low ACFI
Retention of key staff

Actions

Merger proposed initially
Worked on internal capabilities for following few months
Settled on merger that pleased all involved

Result

Following the decision to merge, we assisted in searching for a merger partner who satisfied the board and understood the community needs.

Case Study Two

Case two was another standalone provider, this time, a for-profit owner. There were profit issues and occupancy was a challenge. When we investigated we found that the owner had not been reinvesting in the facility and it had become very tired.

We came up with a redevelopment plan and some short-term actions to address occupancy and profitability. In this case, the owner thought about and quickly concluded that overseeing a redevelopment was not for him. This led him to the decision to sell.

We worked with the provider, found an approach that enhanced his after-tax outcome by $2M and developed a divestment plan. This was much more than a sales plan. It included short-term actions to enhance the attraction of the facility, engagement with his accountants and lawyers to work out the best approach and our commitment to oversee the process and manage all the compliance issues. The result – a sale at a very acceptable price through a process that minimised stress on all concerned.

Issues

Declining profit
Unstable occupancy rates
Older style facility

Actions

Drafted reinvestment and redevelopment plan
Declined draft in favour of divestment strategy
Compliance management and guidance

Result

Increased after-tax sale outcome of $2M
Implemented a divestment plan to most effectively exit the market

Case Study Three

Case three was another standalone NFP provider where some of the stakeholders felt they needed to amalgamate to remain sustainable.

In this case, we undertook a thorough review of the operational model, places for expansion and the governance system. What we found was that this provider had a very sustainable model, its EBITDA was strong, there was strong local community support, and the board was well balanced with excellent depth of knowledge and understanding of the sector.

In this case, we couldn’t see any advantage in a merger and indeed it was likely that it would damage the strong sense of ownership within the community. The provider currently continues to operate as a standalone facility.

Issues

Internal disagreement on future strategy
Doubt surrounding positioning in market

Actions

Thorough internal review performed
Operational model, possible expansion, and governance analysed
Performance and positioning benchmarked

Result

Review revealed strong EBITDA as well as sustainable operational and governance models
Recommended to continue as standalone facility given stature and predicted success

The Pride Living approach

Owners and directors of Aged care organisations have one overriding responsibility – to ensure the sustainability of the service they are providing. The above case studies demonstrate that there is no single approach to achieve this. What we found in each of these situations was a need for:

  1. Open to Change: there was a sense that continuing to do what had always been done might not be the right way to go
  2. Understand the Context: we analysed each situation considering the internal and external context. This clarified the issues from both the short term and long term perspective
  3. Collaboration: our collaborative approach allowed each provider to come to the decision that was right for them
  4. Comfort: Once the provider was comfortable with how to respond, we worked with them to achieve the goal they had established.
If you’re wrestling with how to respond to the challenges and opportunities in aged care – Act Confidently Chose PrideLiving’s Merger and Acquisition Support Service. Our approach is focussed and effective:

In our experience wrestling with the big question of sustainability can take between six and eighteen months, the greatest threat to a positive outcome is impatience.

To find out more on how we can help you, contact Bruce Bailey on 02 9239 9004 or email bruce.bailey@prideliving.com.au