Recent financial reports reveal the impact of funding changes on providers’ bottom lines, writes Max Hopkins.

The Dec 08 / Jan 09 issue of INsite carried the headline results of the Stewart Brown benchmark survey for the 2009 financial year, revealing a further deterioration of facility results.

The more recent survey report on the September quarter showed a seasonal improvement in performance, due mainly to the higher subsidy rates. We await the December survey results before making further comment on the latest trends.

What was interesting in the June survey report was the impact of the funding changes on the results of the five income bands over the past three years.

The high care bands (1 and 2) showed an improvement in 2008, though had returned to the poor 2007 results again in 2009. We hope to see a slight improvement in 2010 due to the impact of the higher maximum subsidy ceiling, though it does remain to be seen how much of this additional income will be spent on increased costs.

The mixed facilities (band 3) showed the biggest drop in results in 2009, from being the best performed band in 2008, to being below the other low care bands in 2009. A modest 3 per cent increase income was no match for a 9 per cent increase in expenses. Administration cost was the worst offender.

The other low care bands (4 and 5) showed operating losses much worse than in 2007, though band 4 was still the best performing band overall in 2009. We wonder how long this will last as the existing residents are gradually replaced – without the protection of the RCS saved rates.

The top 25 per cent benchmark groups showed a fall in results in 2009 similar to the overall survey average, though perhaps not as dramatic. They still managed to record an operating profit in all income bands.

Some of the 2009 benchmark group are relatively new to our survey (as comes with the rapid expansion in survey participation).

Others have managed to join this benchmark group through steadily improving their results over time. This improvement appears to have come from better management of the fundamentals, including:

• maximising income collection through effective subsidy claiming processes

• minimising care costs through better matching of staff to resident care needs and more efficient staff rostering

• effective management of other costs, particularly administration and catering.

We have been concerned about the increase in administration costs in high care since 2006, and more recently in low care. A detailed study of administration in our March survey showed significant increases in administration staff costs were due to the increased compliance burden.

Interestingly, we also found that those facilities which had invested in new business systems had a lower increase in administration costs over the past two years than others.

As providers strive to secure their future, information systems will become increasingly important to managing financial performance.

We found some evidence of economies of scale, with generally lower administration costs per activity with an increase in the number of activities.

This adds to the concern for the small independent operators and their ability to remain viable in this changing funding environment.

We look forward to the year ahead with a vastly increased data pool to analyse. With this we will be able to do more in depth analysis of facility results and bring further insights to assist improved financial performance.

Here’s hoping that the results improve as well.

Max Hopkins is a director, aged care, with Stewart Brown. Full reports available at sbbsolutions.com.au.