The latest survey is further evidence the industry is in financial trouble, writes David Sinclair.

While community care programs maintained their satisfactory financial performance, residential facilities’ results continued to deteriorate. That’s one of the major findings from the Stewart Brown Aged Care Financial Performance Survey for the year ended 30 June 2009.

The survey included data from 333 residential facilities and 148 community care programs – the largest participation rate to date. It comprises mainly not-for-profit organisations and represents 14.5 per cent of residential aged care places.

For the first time the overall net result across all the facilities in the survey was an average loss of $0.35 per bed day. This is after all sources of income and expenditure have been taken into account. The average Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) for residential facilities is still positive, indicating that on average a residential facility is likely to be generating a cash surplus before capital expenditure. Unfortunately, given that the average EBITDA is only $2,401 per bed per annum, this is unlikely to be enough to cover the annual capital expenditure needs of the average facility.

It was hoped ACFI would mean funding is better aligned with care expenditure levels. On balance this does not appear to be the case. The only area of care that appears to have benefited from the new funding arrangements is where a facility incorporates a dedicated dementia care unit or wing. Results show that these facilities are now performing better on average. This is a turnaround from previous years.

Interestingly, the operating performance of the top quartile of facilities has followed the same trend as the operating performance of the average of all the facilities. This would appear to indicate that the declining results have been influenced to a greater extent by external factors than they have by internal management practices. This is because even those facilities that have been consistently performing well have declining operating results consistent with the rest of the survey participants.

This is not to say that improvements cannot be made to the operating performance of many of the facilities in the survey. It is our experience that a well managed facility can make an operating profit. What this survey shows is that the number of facilities that are making profits is shrinking and is becoming less representative. Only 21.8 per cent of the high care facilities and 39.5 per cent of the low care facilities achieved operating profits in this survey. To put that in context, 48.9 per cent of the high care facilities and 71 per cent of the low care facilities achieved operating profits in our June 2004 survey. In fact things have deteriorated to the extent that four of the facilities in the top quartile of the high care facilities actually incurred an operating loss.

The survey also collected information on a number of building design aspects. It would appear that if the majority of rooms in a high care facility are single-bed rooms then the facility will have a lower average operating result than those facilities with a majority of multi-bed rooms. Multi level facilities also perform worse on average than single level facilities. A high care facility with between 80 and 100 places appears to perform better on average than other sized facilities. Low care facilities with between 40 and 60 places consistently perform better on average than other sized facilities.

Lastly, the survey collected information regarding the ratio of concessional/supported residents in the aged care facilities. The results confirmed how important the not-for-profit sector is to providing care for those without significant sources of income or assets. Over 50 per cent of the high care facilities and 43 per cent of the low care facilities had concessional/supported resident ratio of greater than 40 per cent. Unfortunately for this sector, the results also appear to show that the higher this ratio becomes, the lower the total profit of the facility becomes. This indicates that the capital income stream provided through accommodation charges and payments is still no substitute for the income stream generated by accommodation bonds.

David Sinclair is manager, aged care, at Stewart Brown.