The collapse in the price of aged care companies listed on the stock exchange is really bad news for everyone – residents, operators, staff and suppliers.
The residential aged care sector is a very high fixed cost, very low profit margin business with very little room to vary levels of service. And it is very capital intensive – bricks and mortar buildings plus equipment that require refurbishment and replacement.
The crash of the Estia, Japara and Regis share prices across two weeks shows how nervous the professional investors were about any hiccups in their business plans. These nerves mean they are unlikely to invest again in the sector for a very long time. Low-cost expansion capital is now gone.
And the banks have been told by the markets in no uncertain terms that this is a risk business – so lending to even the best operators just got harder – and more expensive.
Think of Not For Profit boards as well. They will think twice as hard before agreeing to a major new development – or even a major refurbishment.
Residents will not get new or upgraded facilities. Staff will not get better working environments. Suppliers will find making new sales harder. Quality candidates will not be attracted to the sector – Private or Not For Profit.
Optimism is vital for good health. If you are not growing, you are dying. But the optimism has been dealt repeated hits by shock government fiddling with funding and rules.
Two major ACFI funding cuts, payroll tax changes and last Friday’s announcement on additional fees to name a few. All blunt instruments to the head rather than quietly – and slowly – taken actions that operators could plan and adjust for. (For instance, the majors had legal advice before they introduced the new accommodation fees but this did not stop the Government dropping its own blunt ruling. The legal fight will now be had after the damage has been done).
It is all so short-sighted. Remember the last round of ACAR bed licences handed out by the Government? The big private operators won the most we were led to believe because they have access to capital – we have to build 130 new beds every week for the next 10 years to keep pace with demand. Well, you can now forget that.
So what is Plan B? The Aged Care Roadmap is a solid plan but the funding economics have again been ‘disrupted’.
As a sector we all have to get behind the peak bodies to give them the strength to represent us – and the consumer.
Remember, when you cut income and you close off any additional revenue channels – even ‘user pays’ – then operators have no choice but to cut services and quality. So it’s the residents that will suffer. Government needs to understand this.
Image: Number of operational residential aged care places required, 2014 – 2025. Source: Aged Care Financing Authority.
