This week I went to the annual Stewart Brown benchmark briefing to hear about their latest survey results of residential aged care and community aged care providers. Why should you benchmark?
- Understand industry trends you may not be keeping up with
- Compare your performance with actual data of others
- Discover what’s driving best practice
- Make informed strategic decisions
The big message that came through repeatedly? For consumers, care is assumed. It is the amenity of your accommodation and understanding that aged care has retail aspects that will differentiate you.
The Aged Care Roadmap was touched on, looking at the short, medium and long term of the future of aged care – mind you, the long term is expressed as 5-7 years! In April 2015, the Australian Government tasked the Aged Care Sector Committee with developing a roadmap that sets out future reform directions for aged care. The roadmap explores actions required to transform the current aged care system into a sustainable, consumer driven and market based system.
Short term will see the merging of CHSP and home care packages. This could be expected to increase red tape significantly. Within the next 5 years, it is expected that providers of one aged care service will be able to provide services across the spectrum. Funding will follow the consumer and government will reduce individual funding further in response to increased consumer contributions. Longer term, it is predicted that there will be a continuum of care from Level 1 to Level 10, with care being the constant in changing care locations: Home – ILU – Residential Care.
We are already seeing the impact of the changing consumer – the Boomers and their family are now the decision maker. They have high expectations, want choice/control and have little or no brand loyalty. Often this contrasts with the current person in care, who is grateful to be receiving care, has fairly low expectations and requirements, trust authority and is unquestioning that government should carry the cost burden.
Older entry and shorter stay
We are seeing 2 distinctive streams of residents entering residential care – Short-term acute care where stays are less than 1 year, and residents with dementia whose average is a 2-3 year stay. This fits with the trend of remaining in the community longer, and entering residential care later. While the average age of entry into residential care is currently 83 years, I am talking to many providers who say their average is 87-88 years.
People are also moving into retirement and lifestyle villages later – in their 80s and 90s. No longer at 55 years. The subsequent shift to residential care will be for end of life care and/or dementia. With dementia cases set to rise to 1 million by 2050, we are not building enough residential places to meet the demand. With increasing higher care and dementia, small facilities, particularly those in rural and remote, are likely to close or become “providers of last resort” underpinned by a community of NFP and goodwill. This will lead to a shortage of residential places, forcing care out into the community and, more worryingly, into hospitals.
Revenue and costs
ACFI reductions starting on 1 July have shaken many providers I have spoken to. Some have started petitions and are lobbying government to review the cuts. Others are getting on with how they can generate revenue and manage their costs to remain viable, competitive and a provider of choice. ACFI changes will particularly impact on the viability of rural and remote providers, especially small, stand-alone providers who cannot spread the losses. The viability supplement may be lost to many come January 2017 when the new system will be introduced. Staffing will also be impacted with squeezing rosters and reducing allied health. This may be a risky solution without strong strategic planning to prepare for and manage the change.
Very few facilities in Australia are charging for optional services. This is a source of additional revenue. Many providers are already providing products and services at no cost that could be charged for. To thrive in the future, providers will require a commercial and strategic head and hone their business and finance skills. They will need to explore how to increase revenue and manage costs. For example, the graph below shows the impact of reduced occupancy on EBITDA.
Building design is one way to ensure maximum efficiency and productivity. Building refurbs should happen more frequently than at present (remember aged care is taking on aspects of retail so refurbishment should occur every 10 years or so), and depreciation over a shorter period (about 5.5% per year) to ensure the effective life of the building lasts over the full schedule time.
While the meal service and dining experience is a marketing differentiator, occupies a large portion of the resident’s time, and can be a major bone of contention for family, the survey found food costs are still very low and even reduced a further 5% from the previous year. Reducing waste and managing constraints will be increasingly important.
The red flag in home care is the amount of unspent funds. When a person leaves a service, the unspent funds will not be given to the provider but returned to the government and/or consumer in the ratio of their payments. The message: use it or lose it, so you should stress to clients to spend their allocated funding, rather than save it for a rainy day as any of the government portion will be lost to them.
For those solely providing CHSP, now is the time to focus on that and shore up your offering to remain viable and competitive. Alternatively, we will continue to see more partnering up with a provider who offers services across the aged care continuum.
Now is the time to review your brand, values and offering to separate yourself from the competition. How will you differentiate yourself? If there is no perceived point of differentiation, family and consumers will go with the cheapest option. Remember, care is assumed. This should not be your marketing differentiator. If price is the only differentiator then it becomes a race to the bottom where extinction is the likely outcome for many providers.
Providers will find the future tough and unforgiving if they do not change their traditional thinking. “Digital by design” must be introduced to keep on top of IT requirements. Small providers with a lot of competition will struggle, as will consumers in areas where there is only one provider – or none.
The survivors and thrivers will be the large nor for profits and public companies. They will focus on their brand strength and unlock their balance sheet to build more beds. We will continue to see more consolidation and partnering to remain viable. The future will require courage and providers who are not risk adverse.