Report

A capital model for the aged care sector

By:
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The aged care sector is undergoing significant changes due to regulatory reform, market shifts, an ageing Australia, and competition for the labour and capital required to sustain it. Whilst demand for aged care services is increasing, the sector is competing against more lucrative industries for labour and capital.
Contents

Constant regulatory, policy, and legislative reform, and underfunding of the capital model create ongoing uncertainty for investors and lenders, and therefore consumers.

Demographic forecasts indicate that the number of older people will increase from 3.9m in 2019 to 8.8m in 2058 – significantly increasing the demand and requirements for aged care, including residential and home care, and home support providers.

Under the current investment model, there will be a 50 per cent increase in demand by 2031. The modelling relied on by the Aged Care Financing Authority (ACFA) to develop the ACFA forecasts was prepared in 2018, therefore did not account for the softening of residential care occupancy, the Royal Commission into Aged Care Quality and Safety recommendations, the response from governments on the recommendations or the impacts of COVID-19.

According to our review, $72.3b will be required over the next seven years to adequately fund the development and refurbishment of residential care facilities in Australia.

The Minister for Aged Care has taken proactive measures by instituting the Aged Care Taskforce with the primary objective of reviewing existing funding arrangements in the aged care sector, designing a fair and equitable system for all Australians and incorporating the recommendations of the Royal Commission into Aged Care Quality and Safety.

In its endeavour to evaluate aged care funding mechanisms, the Taskforce’s core focus remains on ensuring the sustainability of the system.

Key considerations for a capital model to support sustainability in the aged care sector

In consultation with the sector, banks, private equity firms and our corporate finance, restructuring and financial advisory specialists, this report was submitted to the Taskforce to provide information regarding the capital model of the aged care sector for their consideration. It seeks to describe the aged care sector in terms of its capital needs and suggest ways to make it an attractive investment sector compared to other industries.

The report covers:

  • Models that shape capital investment
  • Comparing the aged care sector to successful industry models
  • What makes an approved provider attractive to investors and lenders?
  • Quantifying the aged care capital model
  • Government funding as a source of revenue for providers
  • Key considerations for the future of refundable accommodation
  • deposits
  • Policy domains impacting the aged care sector

What can you do now?

While policy will inform the future direction of the sector, there are many things providers can do now to improve their performance and ensure a sustainable future. Consider your business model, funding opportunities and appetite for diversification. Does your governance framework and systems help or hinder you? What does the future of the aged care sector look like for you? What are the steps you can take now to get you there?

The uncertainty which exists clouds any ability to forecast with confidence. Having said that, for many operators this uncertainty and pressure will create opportunities – to acquire, to grow and to diversify.

We are here to help. As a national team, we are able to mobilise easily to assist both local and national clients across a range of issues. Together with the expertise of our colleagues in strategy, financial modelling, technology, workforce utilisation, insolvency, organisational culture and more, we are here are support you.  

Learn more about how our Health & Aged Care services can help you
Learn more about how our Health & Aged Care services can help you
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