Residential aged care operators would need to retain more than double the amount of liquid assets that they already hold under the proposed new Financial and Prudential Standards, according to new modelling released by the aged care accountants this afternoon (Friday 14 March).
As The SOURCE has reported, the Aged Care Quality and Safety Commission (ACQSC) released the Exposure Draft for the new Standards on 18 February, proposing that residential aged care operators be required to hold onto 35% of quarterly cash expenses plus 10% of quarterly refundable deposit liabilities for providers with refundable deposits – including Independent Living Units.
StewartBrown’s 15-page submission details their modelling – which looked at 54.4% of approved beds and was conducted in conjunction with the aged care peak body Ageing Australia – on the impact of the changes.
Their analysis found that if the Commission’s proposed liquidity management formula is adopted (the 35%, 10%, 10%), it would force providers to retain 58% of their liquid assets, significantly higher than the current 24% (shown in the table above).
The Commission has publicly noted that over 80% of residential aged care providers would currently meet the proposed liquidity ratios.
StewartBrown’s findings indicate this is in part because operators have been on a ‘capital strike’ for the last five years, which has increased their liquid assets – and the ratios would create financial strain on large providers aiming to expand or develop new facilities.
Check out the table below.
As you can see, large providers would need to increase their retention of liquid assets from the current 25% to 77%, more than triple.
With 40,000 new beds needed by 2030, this would place a handbrake on new projects with operators warning the measures could add two to three years to each development.
“The Quality Commission proposed liquidity calculation settings (35/10/10) is likely to increase cost of capital for providers, discourage the proposed and essential) planned capex for new construction in both residential aged care and retirement living at a time when this investment in new builds and renewal of existing building stock is essential,” concludes the submission.
StewartBrown is recommending the liquidity ratios be amended to 29%, similar to the current minimum liquidity amount required under the Liquidity Management Strategy (LMS). This would see operators still be required to retain 25% quarterly cash expenses; 5% of RAD liability and 2% of ILU liability.
Ageing Australia is also advocating for an alternative option for operators that cannot meet the 35/10 requirement directly.
Consultation on the new Standards is due to close today at 5pm.
Download StewartBrown’s full submission here.
