A combination of forces is reshaping the landscape of the aged care industry in Australia. Domini Stuart considers where the sector is headed and how it is adapting to change. 

    Three years ago, as part of a conference presentation, Paul Ostrowski GAICD, chief executive officer (CEO) of Care Connect in-home care providers, predicted that older Australians would soon be able to find their carers directly using web-based services. His audience was sceptical but there are already five organisations in this country offering precisely this option.

    “It works on exactly the same peer-to-peer principle as Uber and it offers the same kinds of opportunities for cutting costs,” says Ostrowski. “In this case, the online providers are offering savings of around 30 per cent. This is something directors of traditional aged-care providers should have on their radar because it could represent a profound challenge to their service and business models.”

    It is also just one rock in a landslide of changes that are reshaping the aged-care landscape.

    “No less than six Productivity Commission and Commonwealth Government reports and associated policies have all come together at the same time,” says Michael Goldsworthy MAICD, principal consultant at Australian Strategic Services. “This is creating a new paradigm of individualised care and a new environment in which aged care, hospital, allied healthcare and related providers will need to adapt and operate.”

    Radical change

    In residential aged care, some of the change is being driven by the Living Longer Living Better aged-care reform package. “For example, new residents can now opt to make daily accommodation payments as opposed to the traditional lump-sum payment,” says Arna Richardson, industry analyst and author of the 2015 IBISWorld report Aged Care Residential Services in Australia. “Operators could face considerable challenges in implementing new pricing strategies and entry arrangements to accommodate this.”

    Providers of home care must negotiate the quantum leap from a government-funded welfare model to a customer-driven competitive marketplace. “Soon, clients will receive a certain amount of funding to spend on the service and provider of their choice, just as they choose their dentist or doctor,” says Goldsworthy.

    This demands a radically different approach to marketing. “Traditionally, organisations have secured funding by promoting themselves to governments, which you could describe as marketing with a small ‘m’,” says Ostrowski.

    “Promoting to consumers is all about ‘big m’ marketing, and that takes a very different set of skills and resources. The big questions directors should be asking now are whether they have a compelling value proposition, whether they’re delivering that value proposition at a competitive rate and, if so, whether that cost-competitive value proposition is being marketed effectively to their target communities.”

    The baby boomers entering retirement age are also placing new demands on providers.  “They’re better educated than the previous generation and much more used to making their own decisions,” says Goldsworthy. “They have access to high levels of information, much higher expectations and little or no brand loyalty.”

    This could influence the industry’s operating environment. “A growing number of residents across the socio-economic spectrum will expect an increased service offering along the entire care continuum,” says Richardson. “Others may expect greater professional care. Therefore, we expect wages to trend upwards as the industry increasingly employs more professional nursing staff rather than personal care workers.”

    However, Malcolm Pittendrigh GAICD, executive manager for corporate services at The Salvation Army Aged Care Plus, wonders whether there will be enough skilled workers to meet the rising demand.

    “As more people hit the age bracket where they require care, I think we could see a serious skills shortage, particularly in qualified care support personnel,” he says. “This could be one of the more serious challenges for the sector.”

    Spending longer at home

    There are already just over one million people receiving various levels of care in their own homes. This number will continue to rise as the government focuses on keeping people out of residential care and hospitals for as long as possible.

    “Home care is a much cheaper option and I think it’s fair to say that most people prefer to stay in familiar surroundings,” says Goldsworthy. This will inevitably lead to shorter stays in residential facilities and more palliative and end-of-life care. 

    “We’re already seeing changes in the nature of the services we need to deliver as the people coming to us now are older with more chronic diseases,” says Liesel Wett FAICD, chairman of Goodwin, a not-for-profit (NFP) provider of aged-care services and accommodation across the Australian Capital Territory. “From a governance perspective, we’re having to change our model of care to accommodate new demands around cash flow, staffing levels, equipment and consumables.”

    Goodwin is also redesigning the services it provides at the other end of the aged-care spectrum.

    “Our most recent development in the northern suburbs of Canberra is designed for active and socially orientated people in their 60s who want to age well within a community, but who also want the security of knowing additional care and support is there if they need it,” she says.

    More organisations are providing residential aged-care services that cover the spectrum of low care, higher care and specialist care for conditions such as dementia. New business models may also incorporate partnerships between industry operators and allied health organisations in order to provide a fully integrated service.

    “The strategic partnership between diversified property group Stockland and Opal Specialist Aged Care will see the construction of an aged-care facility operated by Opal and built in Stockland’s new Cardinal Freeman retirement village in Sydney,” says Richardson. “The intention is to allow residents to move seamlessly along the care continuum as required.”

    Imminent consolidation

    The residential aged-care sector is remarkably fragmented. “The top four operators account for less than 20 per cent of industry revenue and no operator commands a market share of more than 5 per cent,” says Richardson.

    A high degree of consolidation is likely as providers search out economies of scale. “I expect to see a number of NFP and family-owned operators bought out as private equity groups and other providers seek to acquire bed licences,” says Pittendrigh. “I think the trend will be for operators with one or two thousand beds to scale up to five or even 10 thousand beds over the next decade.”

    The home-care sector is also fragmented, with 500 operators providing about 70,000 home-care packages across the country. The largest has only 3,100 packages and on average, the rest have between 100 and 150 packages each.

    “Once consumers have freedom of choice I think we could see very rapid growth in the providers offering what is perceived to be higher-quality service,” says Ostrowski. “Those that aren’t could very quickly fall by the wayside. As directors we should be asking ourselves right now whether we have a strategy that is unique and differentiated and will be sustainable in a fully consumer-controlled environment. If the answer is ‘yes’ we then need to make sure we have access to the capital and other resources that will enable us to grow quickly,” he says.

    Mission versus margin

    Aged care is not generally a high-margin business but for-profit entrants are finding ways to increase returns for their shareholders. “The government now allows residential aged-care providers to add premium services ranging from hairdressing salons and restaurant-standard meals to pay TV,” says Richardson. “These generate more revenue because they’re covered by extra service fees so we’re expecting to see a growing number of premium, hotel-style options designed to cater for affluent residents.”

    The concept of profiting from the aged divides opinion. Ostrowski, who has worked for both for-profit and NFP care providers, does not believe that profit and care are mutually exclusive. “You only have to look to the private hospital sector to see reasonably profitable organisations delivering exceptional care,” he says. However, he is curious to see what will happen if the listed players start making more substantial profits. “When the government runs the ruler over their published results, I wonder whether it will reach the point of deciding that the sector could survive with less support,” he says. “This happened in the US about 10 years ago when the respiratory home care sector consolidated and listed, which meant its financials were a lot more transparent. When the government saw the figures, it reduced its reimbursement by quite a significant amount.”

    For most NFPs, finding the right balance between profitability and care, or mission and margin, is an ongoing challenge. “We accept that you can’t do one well without the other so, for us, balance is a matter of setting realistic budget targets and maintaining a discipline around this,” says Pittendrigh.

    “It’s all about investing in our people and processes, ensuring they have robust governance frameworks in which to operate and the ongoing training necessary to provide the highest levels of care delivery.”

    He is confident that, overall, the influx of listed, for-profit organisations will have a positive impact on the quality of aged care. “I expect to see a high level of investment in technological advances, new efficiencies and new approaches to health issues like dementia that will revitalise and benefit the sector as a whole,” he says.

    However, his greatest concern is for the most vulnerable in society. “We must be true to our mission, which is to ensure the marginalised receive appropriate care,” he continues. “We have to make sure this stays on the policy agenda of Canberra so that the people who have little or no capacity are as well supported as any other group.”

     Directors entering the aged-care sector for the first time are often shocked by its complexity. “We once asked management to document all of the regulation and legislation we had to abide by for our audit and risk committee,” says Wett. “They came back with a 50-page tome.”

    If anything goes wrong there can be very serious consequences. “You do take on high levels of risk and responsibility,” says Goldsworthy. “But I believe these can be balanced by the reward of helping to improve the lives of ageing Australians.”

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