Insights

Getting The Profit And Care Mix Right In The Aged Care Industry


What’s stopping Australia’s aged care providers from generating higher profits and quality resident care?

According to Mr Rod Young, CEO of the Aged Care Association of Australia, the aged care industry will need to invest $21 billion in additional capacity over the next ten years to cater for Australia’s ageing population.

Yet a 2010 study by professional services firm Deloitte found that 61% of aged care providers have no intention of building new facilities in the immediate future.

And to underline the gravity of the situation, the average net profit margin for more than 340 participating Australian aged care facilities was just 4.46% (Bentleys, National Aged Care Financial Survey 2009).

CONFLICTING RESULTS

Basically, many aged care providers are short on cash with significant capital requirements to meet growing demand.

This cash shortage is a function of the fact that many providers are performing at below acceptable profit margins, or worse at a loss.

New capacity aside, many providers also need to renew their facilities with little capital to do so.

And yet there are some aged care providers in Australia doing well, both financially and in their ability to maintain high standards of resident care.  At Vantage Performance, we identified one aged care provider with an EBIT rate (Earnings before Interest & Tax) of 15% and above.

To support our belief that the under-performers in aged care can improve their performance, we interviewed one very successful facility manager in Sydney – RN and MBA qualified – who told us she had effectively turned around the two facilities she manages by utilising similar concepts to what we use at Vantage Performance. The other 7 facilities in her group, under different management, were underperforming.

Why such a large differential in profitability and performance between providers?

HEART OF THE PROBLEM

Our research into the sector has surfaced 4 interrelated factors causing low levels of profitability & quality of care.  They are (in order of priority):

  1. Absence of meaningful strategy;
  2. Ineffective performance management (linked to strategy);
  3. Poor oversight of improvement ideas;
  4. Disengagement from management to facility; and
  5. Lacking management skills at the facility.

We have only scratched the surface we know so let us know what you think is stopping aged care from generating good profits and high quality resident care.

Jeremy de Constantin was a former director of Vantage Performance and leader of its NSW practice. A thought-leader in performance improvement, with 17 years experience in the field, Jeremy has recently led several high profile healthcare transformations in Australian private hospitals, including an award winning project for St Vincent’s Private Hospital in Sydney. Vantage Performance specialises in turnaround, improvement and capital  raising in both the for-profit and not-for-profit sectors.

 

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