Priorities for Climbing the Quartile Ladder

In our recent guest article on Inside Ageing, we demonstrated how productivity and efficiency drive financial and operational sustainability. In this Insight, we break down the latest StewartBrown Aged Care Financial Performance Survey (ACFPS September 2024) results to provide our followers with a clear set of priorities if you want to shift from your current quartile to a higher one. 

We analysed the key cost and revenue differences across quartiles and their impact on financial outcomes. The most revealing thing was that for different quartiles, the issues and therefore priorities are different.

Key Priorities by Quartile

While there are some common areas of difference - such as rostering, administration, and staffing mix - the relative upside of these changes should influence how you prioritise them, depending on the quartile you are in.

Staffing and Occupancy

Staffing Costs: Cost and Quantity

Staffing cost is influenced by two key factors:

• The quantity of staff (rostered minutes) 
• The unit cost (hourly rate)

Addressing one without the other minimises the impact. 

Occupancy

We found it interesting that only in Quartile 4 is occupancy the most significant factor impacting financial outcome. 

There are many factors that can influence occupancy:

• Facility quality
• Population shifts affecting demand
• Reputation and market positioning
• Sales and admission capability

Facility Size

Administrative efficiency is another key area. When we overlayed quartile data with facility size, it was clear there are material efficiency gains for Quartile 3 and Quartile 4 providers. We did not look at organisation size in terms of administrative efficiency.

We also looked at facility size compared to Quartile 1 performance and found:

1. Occupancy is the most challenging for facilities with fewer than 60 places or more than 100 places, suggesting an efficient facility size of 60-80 places. 
2. Administrative efficiency improves as facility size increases.
3. Rostering minutes improves with facility size.
4. The cost of rosters improves with facility size.
5. Care income is maximised in smaller facilities, likely due to the structure of AN-ACC and the location of these facilities.
6. Accommodation income declines with facility size, possibly reflecting a greater reliance on RAD/self-funded residents.

Looking at these factors suggests there is an inherent disadvantage in being a smaller facility in the area of administration and staff management.

If there is embedded disadvantage in facility size and if you operate one or a few facilities, this suggests that the pathway to financial sustainability is narrow and treacherous. This also suggests that where you cannot embed capability within your organisation, then judicious utilisation of external support should be part of your operating model.

Optimising Revenue Streams

Additional Services and HELF

At Pride Aged Living, we’ve been working with providers to assist them embed rostering and consumer revenue optimisation to minimise the inherent scale inefficiencies. 

It was interesting to see that the ACFPS September 2024 noted the consistent increase in facilities charging Additional Services (37%). This is slightly lower than our data suggests, which likely reflects the high proportion of not-for-profit providers in the survey. The survey also highlighted that Additional Services provides $8.76 marginal EBITDA to providers, though our experience shows higher potential. 

Higher Everyday Living Fees (HELF) are now embedded within the funding mix. If you are not charging these, then you are placing your facility at a significant disadvantage in the area of financial sustainability.

Capital Efficiency: Managing RAD Effectively

We’ve been talking about the negative impact on EBITDA of poor capital management for a long time, the ACFPS also looks at this. We’ve developed a Capital Analysis Model that allows providers to show:

• The level of excess RAD they hold and
• the impact of holding excess RAD on your EBITDA 

We’ve also developed a suite of tools that allows providers to actively manage the level of RAD they hold to minimise the negative impact of too much RAD.

Final Thoughts: Focus on Priorities that Drive Impact 

A wise man once told me, “Everyone can do one thing well, most people can do two things well, very few people can do three things well” – I’ve found to this be very true throughout my career.

While we’ve given three priorities, we suggest that you focus on the first two. Only after making significant impact in these should you focus on the third priority.

As we commence 2025 and prepare for the long-term impacts of the New Aged Care Act, we encourage all our readers to take a fresh strategic approach to the drivers of differing financial performance.

As always, our consultants are here to help you if you are looking at a new strategic plan or addressing the key challenges and opportunities highlighted in this - our first Insight of 2025.