People vs profits: Aged care providers to pocket $1B amid royal commission

Market research firm IBISWorld compiled a report highlighting the effects that the public inquiry may have on the profitability of the industry. Source: Getty.

The Royal Commission into Aged Care Quality and Safety kicked off on Friday, with the first preliminary hearing taking place in Adelaide. However, new research into aged care providers has revealed that the industry is set to rake in $1.1 billion in profits this year alone.

That profit margin could be set to change though as market research firm IBISWorld compiled a report highlighting the effects that the public inquiry may have on the profitability of the industry as the royal commission investigates allegations of mistreatment, understaffing and elder abuse in aged care facilities across Australia.

Raising the issue of people versus profits, the report outlines numerous ways that the commission could detrimentally impact the industry’s bottom line, as a national spotlight is shone on aspects of care such as the ratio of staff to residents and the cost of services.

The key factors which could trigger a decline in profits for providers include any changes the government makes to funding arrangements as a result of the royal commission, as well as rising pressure to provide higher standards of care to patients.

One major factor that has come to light in the lead-up to the royal commission is “chronic understaffing”, with the Australian Nursing and Midwifery Federation saying on Thursday that it’s “time we acknowledged that the system has failed Australia’s most frail and vulnerable”.

Federal Secretary Annie Butler said: “Chronic understaffing and under regulation of our aged care system are the root causes of the horrific stories that have come to light.

“Older Australians are entitled to affordable, accessible and high quality aged care services … and do not deserve the current chronic understaffing and underfunding that leads to unnecessary wait lists, unmet expectations, pain and suffering.”

The IBISWorld report pointed out that, as a result of the Royal Commission into Aged Care Quality and Safety, the government may institute minimum staff-to-resident ratios.

While this would benefit residents and their families immensely, IBISWorld Industry Analyst Haley Munro-Smith said: “This would likely increase labour expenses for providers, placing downward pressure on profit margins.”

Another factor that may cause a decline in profits is potential changes to funding from the Aged Care Funding Instrument (ACFI), with Munro-Smith adding that a clampdown on eligibility criteria may “threaten aged care providers’ bottom line”.

“Increasing costs, if not met with rising fees or government funding, will ultimately erode profit margins for aged care providers,” she added.

The report also claims that the cost of providing aged care services has increased over the past five years due to elements such as increasingly complex health needs among the elderly, as well as rising costs of utilities such as electricity, making facilities more expensive to run.

The indexation pause to the ACFI in December 2016 has also significantly affected the industry, according to the report.

Read more: Majority of Aussies don’t trust aged care industry: Study.

In November last year, research revealed that the majority of Aussies have very little faith in the country’s aged care system with most claiming organisations lack empathy for ageing residents.

According to a national report compiled by insights agency Faster Horses, only 18 per cent of Australians have trust in the industry compared to 13 per cent who believe it to be open and transparent.

The research followed data compiled by Starts at 60, which revealed the major concerns the community has when it comes to entering aged care.

We received almost 1,000 responses to an online poll which asked readers to share their biggest concerns about the sector, with the majority (13.7 per cent) telling us they were most afraid of falling victim to abuse, neglect or malpractice at the hands of staff in aged care facilities.

The second biggest worry among readers was the increasing cost of services, with 9.3 per cent admitting they are concerned about being able to afford sufficient care when they need it. Many people also expressed their concern over the profit-geared focus of the industry.

Another major concern, claiming 6.7 per cent of the vote, was understaffing, with many readers telling us they were concerned about a lack of trained aged care workers, which could lead to patients having to go days without showering, or without having their incontinence pads changed regularly.

Will you be following the royal commission? Have you had a negative experience with the aged care industry?

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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