Aged care finance and operations management must stand out – not stand still
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Regulations, expectations and competition in aged care will continue to increase. It’s up to providers to also raise the bar in their management of high-quality, sustainable services, throughout much-needed but disruptive reforms.
If implemented, the recommendations of the Royal Commission into Aged Care Quality and Safety (the aged care royal commission) are going to directly affect bottom lines. That’s the headline for aged care operators when it comes to finance, management and operations.
At the same time, greater community expectations and increased market competition will also add significant incremental costs, and providers will need to operate efficiently and effectively, in order to survive.
Best practice finance management and operations teams will position themselves in areas where they can effectively compete, and where they can attract appropriate levels of funding. Because, when it comes to finance and operations, if you’re not standing out, you’re standing still.
Request a self assessment against PwC's Aged Care Transformed framework
So what does an effective finance and operations function look like?
1) Efficiency
Prior to the aged care royal commission, there were already some providers operating efficiently and readily transforming themselves to keep up with evolving consumer preferences. However, many providers were only marginally profitable, while others were making a loss. Now, new industry costs will put many operators out of business unless there is a significant boost in funding. As outlined in the 2021-22 Federal Budget, $17.7 billion has been allocated to support change in the sector, including an immediate boost of $10 per resident per day intended to support delivery of quality care and to protect the needs of residents. In the long run, however, providers need to know exactly what services they’re providing – and how – in order to assess their baseline operations. While alternate funding models have been proposed, it is an understanding of delivery costs that will best prepare providers for changes implemented by the government. Providers will be under pressure to do more with the same or less resources, and efficient operations will become the name of the game.
Successful providers will be those that have a strong understanding of their service offerings, including the costs associated with delivering those services, plus the relative value of those services in the marketplace.
They will also have clear oversight of their balance sheet and know the best ways to access capital markets and fund new investments. Agile providers will be able to assess the attributes of new funding announcements and make quick decisions about future activities and investments.
Currently, balance sheet strength is based on providers’ ability to leverage refundable accommodation deposits (RADs). Providers need to understand their existing capital structure and have plans for accessing alternative capital in case their current structure becomes unsustainable.
Expect: specific changes, such as new funding streams and changes to indexation parameters in the immediate term.
Then: be prepared for sweeping changes to funding models. Sophisticated providers will have a portfolio model and will engage in scenario planning to stress test funding models.
2) Know your business
PwC believes the best defence for aged care providers right now is a deep knowledge of their operations. From calculating exactly how many hours of direct care each resident needs, through to evaluating the overall scale of operations; providers must understand financial viability, manage risks and leverage opportunities. For this, information is key.
Knowing your business also means knowing your market. This will help inform decisions about what services are valued (and therefore require further investment), and which services should be changed or discontinued.
The best systems will track both the quality of care being delivered, and the associated costs. This enables organisations to leverage data and insights to achieve operational efficiencies and will give providers who invest in these systems a competitive advantage. For example, any new regulations around staffing are going to have a major impact on finances, and using business insights to identify a sustainable staffing model will be vital to enable uplift in quality, experience and financial performance. Providers should review their operating models to ensure workers are operating at the upper end of their skillset and, if this is not the case, consider redesigning business processes. By doing so operators can maximise output while supporting the careers of their workforce.
3) Provide alternative care models
A one-size-fits-all model of care no longer cuts it in the aged care sector. Innovative care models are emerging in Australia, hot on the heels of a similar trend internationally. Care recipients are seeking personalisation, and the operators that can provide choice are a step ahead in the highly competitive aged care market.
Multidisciplinary homes, smaller group homes and sites that cater for specific social, cultural or care needs are just some of the ways providers have moved away from conventional models of residential aged care.
One example is the Rumbalara Elders Facility operated by the Rumbalara Aboriginal Cooperative (RAC) in Victoria1. The RAC has been operating its 30-bed residential homes since 2012. The site includes independent living apartments, full-time care suites and a dedicated palliative care unit. Residents are able to retain a connection with Country and with their families while receiving culturally appropriate care that befits their elder status. RAC also provides a range of in-home care packages.
While new care models create opportunities for providers, it’s critical to balance efficiencies of scale with the limitations of targeting particular demographics and specific care needs.
4) Strong systems and governance
The aged care royal commission made it clear that it’s no longer enough to be doing the right thing but that organisations must also be able to demonstrate compliance. Cue: a need for stronger systems.
Providers must put technology and processes in place to guide, monitor and report on all areas of performance. This includes operational, care and governance performance and providers will need to demonstrate continuous improvement, learning and adaptation if they’re to meet regulatory (and market) requirements.
Technology has a large role to play in reducing the complexity and burden of regulatory requirements, as well as arming the organisation with timely and accurate information for making critical decisions. Organisations need strong compliance, reporting and risk management functions and there is a need to invest in strong governance and systems that drive continuous improvement. A focus particularly around care delivery and care outcomes will boost capability and also increase capacity. Robust processes and controls that have the care recipient at the centre will provide the greatest value.
Request a self assessment against PwC's Aged Care Transformed framework
Standing still is not an option
In our view, the best aged care providers will know their finance and operations inside out, including the cost of delivering services and the relative value placed on these services by the market. Moreover, by investing in comprehensive governance and care systems, providers will be agile in responding to new funding announcements, and efficient when making decisions about future activities and investments.
For some providers, this will mean achieving scale via mergers or acquisitions. For others, it will mean going it alone. Regardless, standing still is no longer an option for Australia’s aged care providers.
Ask yourself:
- Do we understand the cost to deliver our core services?
- Are our core services profitable?
- To what extent can our core services sustain the additional costs of the aged care royal commission recommendations?
- What insights has COVID-19 provided into the adequacy of our capital structure?
- Are we too reliant on RADs? Can we sustain a period of below-average occupancy?
- Do we have access to adequate alternate capital?
- Is our scale sufficient for a post-aged care royal commission world?
- Are we prepared for a merger or sale opportunity?
Aligning your finance and operations to deliver quality, safe care with strong results
Do your governance structure, processes and data drive your performance?
A strong governance structure is one that has defined accountabilities which enables alignment of your organisational strategy to service offerings, and optimises performance.
This is informed by data related to finance, customer satisfaction, and safety and quality, to ensure processes are efficient and effective and deliver on operational objectives.
PwC’s Aged Care Transformed framework can help you to align your operations to drive financial sustainability through optimised funding and processes, enhancing performance to deliver quality results.
References
1 Victorian Aboriginal Community Controlled Health Organisation Inc., Royal Commission into Aged Care Quality and Safety Submission from the Victorian Aboriginal Community Controlled Health Organisation, viewed 17 March 2021
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