Royal Commission Submission

Pride Living has made the following submission to the Royal Commission into Aged Care Quality and Safety. We believe that quality and safety are directly linked to viability and sustainability.

Increasing viability allows providers to invest in the systems, processes, training and staff to enhance the safety and quality of care provided to consumers. Conversely, a declining EBITDA – reflective of lost viability – significantly adds to long-term risk and is a major driver of provider failure.

Reduced profitability increases the risk of quality failures, in turn, imposing a catastrophic cost on provider
Reduced profitability impacts providers ability to secure traditional finance to repay RAD, stunting growth and future development

BRUCE BAILEY
Director

Our four recommendations for policy change

1. Base accommodation supplement on regional ratios instead of arbitrary 40%
2. Set accommodation supplement to a level that provides adequate ROI for investors
3. Support providers in offering additional services to promote differentiation and consumer-centricity
4. Grant providers ability to control accommodation payment preference
1. Base accommodation supplement on regional ratios instead of arbitrary 40%

Issue: The regional supported resident ratio is based on social-economic factors and it varies between regions from a minimum of 16 percent to a maximum of 40 percent. While it is acknowledged that the required level of supported places vary across ACPRs, a minimum 40% ratio is enforced nationwide. Failure to satisfy this ratio results in a 25% reduction of the accommodation supplement. Centrally, this drives the following issues:

Increases Govt. outlays because of the bias for providers to achieve the 40% ratio
Reduces capacity of providers to derive higher revenue from self-funded residents
The combined effect of the above is to reduce provider viability

Recommendation: In order to address this, we recommend the removal of the 40% supported ratio, replaced by the implementation of a ratio that aligns access/funding to local need.


2. Set accommodation supplement to a level that provides adequate ROI for investors
 

Issue: From our forecasts, if current investment trends were to continue, there will likely be a deficit in places for years to come. One investment deterrent is the constrained accommodation supplement providing minimal ROE.

As at July 2019, the supported supplement was $57.146 this translates to $20,856 ($19,604 at 94% occupancy) per resident per annum. The RAD equivalent of this daily supplement is $376,4647.

While the per place cost of developing an aged care facility varies, in our experience, the normal range is between $350,000 and $450,000 per place. Based on the current supplement a provider who is considering developing a new aged care facility can anticipate a return on investment of 3 – 6% from the accommodation revenue from a supported resident.

Anticipated and required investment is expected to be vastly disproportionate – compromising future sustainability
The current accommodation supplement is set at a level that appears to be unsupportive of continued new investment in the sector

Recommendation: An increase in the accomodation supplement would ensure investors’ attraction to the sector. This would secure the sector’s current and future growth.

Significant refurbishment is an excellent strategy to maintain viability.

Download our Significant Refurbishment guide here.


3. Support providers in offering additional services to promote differentiation and consumer-centricity
 

Issue: Supporting a single price point for specified services irrespective of quality does not foster innovation or choice within the industry. The regulatory constraints on variable revenue from additional services have constrained the adoption of the service.

The current lack of support for additional services fails to fulfill the Consumer Directed Care Model
The promotion of additional services allows providers to deliver higher-tiered quality services
Residents seeking luxury and premium services are better accommodated and cared for

Recommendation: Based on work done by Pride Living with our clients the potential to increase EBITDA and NPBT per bed ranges from $1,200 – $2,000 per bed per annum. This is a strong strategy to further ensure sustainability and provider viability.

Questions about additional services and how they can benefit you?

Download our brochure here.


4. Grant providers ability to control accommodation payment preference
 

Issue: A study by RSM Australia, 2014-2018, found that higher performance was associated with better liquidity management. This is concerning, as current structures are forcing providers to hold large sums of RAD lump sum payments.

Over a period of five years, RAD increased by $11.9Bn while cash reserves increased by $5.5Bn
This means less than 50% of new RAD is deployed into new or improved stock

Recommendation: If providers rather than residents were able to determine how residents paid their accommodation, then providers could match their accommodation charges to their individual need for capital or earnings.

To continue to supporting consumer choice, residents would be able to choose between alternative providers based on their payment preference. Allowing providers to manage their capital including the source and quantum of debt is fundamental managing return on investment which drives investment decisions.

To optimise your accommodation pricing, get in contact for an assessment 

Industry reports, such as the ACFA report, consistently present a picture of an industry where financial performance is highly variable; with a significant percentage of the sector at risk of financial failure. Across both the in-home and residential sectors there is undeniable pressure on margins and profitability which threatens both the short- and long-term survival of many service providers. These pressures translate into a higher incidence of failure to meet quality and safety standards. Our recommendations set out strategies to reduce these risks and address the growing stress on the industry. Read our submission to the Royal Commission into Aged Care Quality and Safety.

Looking to get in contact? Call us on 02 9239 9004 or email client.service@prideliving.com.au