The days when retirement village profits prop up struggling aged care homes appear to be over.
As The Weekly SOURCE reported last Thursday, the Exposure Draft for the new Aged Care Financial and Prudential Standards 2025 has proposed aged care providers which operate independent living units (ILUs) and retirement villages will have to retain 10% of ILU and retirement village refundable amounts.
The Aged Care Quality and Safety Commission (ACQSC) told Senate Estimates last week it consulted widely when developing the liquidity ratios, including with the Older Persons Advocacy Network, Council on the Ageing, Ageing Australia, McGrathNicol, StewartBrown, and the Aged Care Workforce Remote Accord.
The Retirement Living Council (RLC) was not included in this consultation and has come out swinging in defense of the village sector.
The reality is all operators should be deeply concerned about the financial impact of these changes.
Why?
Reason #1: Many aged care operators are now turning to building retirement villages in place of aged care beds.
The banks will be looking at these operators’ forward cash flows to determine how much they can lend.
Less cash equals less finance for new developments.
Reason #2: Village turnover is generally around 10% per year. The average ILU renovation now costs circa $100,000.
For a 100-unit retirement village, that is $1 million a year that the operator has to find.
Less cash means fewer refurbishments and lower prices for resales.
Reason #3: A number of aged care operators are financially propping up their aged care homes with the profits from their retirement village.
In our experience, many of these operators are smaller Not For Profits in regional areas.
If operators need to hold onto their cash, what will happen to those aged care homes dependent on those funds to keep the doors open?
There is no question it is important for operators to remain financially viable and be able to meet their RAD obligations. The Earle Haven case – where 69 residents were abandoned in the sudden operational collapse of its aged care facilities in 2019 – is an example.
The Royal Commission into Aged Care Quality and Safety had recommended new liquidity and capital adequacy requirements for approved aged care providers.
Is this ILU requirement a bridge too far?
We asked the Department of Health and Aged Care how many residential aged care operators had to be bailed out in the past three years – and how many of these operators also owned retirement villages.
Their response to us last Friday was:
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Two aged care providers have ceased operating in the past three years and triggered the Accommodation Payment Guarantee Scheme.
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In these instances, the Australian Government repaid residents’ Refundable Accommodation Deposits (RADs).
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Neither provider is understood to have delivered retirement village services. Retirement villages are subject to state and territory-based legislation under the Aged Care Act 1997.
The fact is this requirement is a blunt instrument being rolled out at a time when many providers are looking at their cash flows and determining if they can afford to build new beds.
The regulator now has greater oversight of operators’ financial and regulatory performance.
Case in point: the Commission has just published the latest tranche of financial and operational data on providers on My Aged Care.
Why can’t the regulator – and the Government – rely on its frameworks to monitor operators and step in when it does detect a provider is in trouble?
The RLC is due to meet with the Commission this morning (Thursday 6 March) to push to address the liquidity standards and push for an extension to the consultation period, which is due to end tomorrow (Friday 7 March).
Watch this space.
