Around half of Australian aged care homes are losing money, prompting concerns about their long-term financial viability and the potential for closures - particularly in the country.
Authors
Michael Woods
Professor of Health Economics, University of Technology Sydney
Nicole Sutton
Associate Professor of Accounting, University of Technology Sydney
Aged care homes in rural and remote areas face many specific challenges. Servicing a dispersed population of older people in need, they tend to be smaller in scale, find it hard to attract and retain staff, and face high costs and ongoing losses.
And yet data shows the levels of care that these homes deliver, on average, exceed that of homes in the cities. Similarly, residents in rural homes rate their own experiences more highly.
Rural aged care has many financial challenges
Aged care homes in small rural towns and remote communities have long suffered high operating losses, averaging A$2,200 per resident a year in 2018-19. This compares to homes in the cities achieving a small financial surplus of around $2,500 per resident.
Five years later, the situation has deteriorated for homes across all regions. But the losses faced by rural and remote homes have blown out to $8,600 per resident a year, nearly twice that of their city counterparts at $4,500.
Contributing factors for these financial outcomes have been:
- lower occupancy rates
- greater reliance on high-cost agency nurses and personal care workers
- higher costs of providing food, laundry, cleaning and other everyday living services and accommodation.
Home closures in these small towns and villages cause significant disruptions for residents, their families and friends. The Royal Commission into Aged Care Quality and Safety heard that 40-60% of older people living in these areas already had to leave their lifelong communities and travel more than 100 kilometres to access residential care, compared to less than 5% of those who live in the major cities.
The health, care and other support workers and small businesses are also heavily affected when a major business, such as the only aged care home in town, closes.
Since October 2022, a change in how the government funds direct care has brought some relief for these homes. A portion of homes' direct care funding is now paid as a fixed base amount, which is higher for those in rural and remote areas to account for their higher operating costs.
Remote homes are further protected from fluctuations in occupancy by having their fixed funding tied to the number of operational beds rather than the ever-changing number of residents.
Our analysis shows that during 2022-23, rural and remote homes still had the highest direct care costs but also had the highest revenue. This meant they produced, on average, a small positive margin for direct care services. This helped offset their ongoing losses from everyday living services and accommodation.
There have also been other government initiatives to support these homes, such as through business and workforce advisory services and direct financial aid.
Better staffing and resident experiences in rural and remote homes
While the overall financial viability of rural and remote homes has been a long-term concern, the actual level of care and residents' experience of that care appears to be better than in the cities.
In October 2023, it became mandatory for aged care homes to deliver a level of care, on average, of at least 200 minutes of nursing and personal care to each of their residents on a daily basis, with 40 minutes to be provided by registered nurses.
The largest workforces in the economy are, of course, in the major cities and large regional centres. So it is reasonable to expect homes in those areas to be better positioned to attract the necessary workforce.
However, our analysis of the first half of the 2023-24 financial year shows that compliance rates get better - not worse - as you move further from the major centres.
For example, around 80% of homes in the very remote areas of Australia have met both their staffing targets, compared to about 35% in major cities.
To a certain extent, rural and remote homes are assisted to meet their targets by new funding arrangements. A registered nurse supplement is paid to smaller homes to ensure around-the-clock care.
However, they are also more likely to be run by government and not-for-profit providers, which the latest data shows have significantly outperformed for-profit providers in their level of delivery of nursing and personal care.
Residents in rural and remote areas also appear to rate the quality of their aged care homes more highly. Each year, current residents are surveyed about their experience living in their aged care home, including the staff knowledge, communication, care and food. These results are published as part of the Star Ratings.
The latest results, available on our dashboard tool show, on average, rural and remote homes score 3.8 out of 5 stars for resident experience. This is almost half a star higher than homes in major cities, which scored 3.4.
It is hoped that the new direct care funding arrangements will result in quality care across all regions. This would free up government capacity to provide more bespoke support to assist rural and remote homes and other specialist providers deliver continuity of access to care in their communities.
It would also enable the government to direct its policy focus to finally addressing the large and ongoing losses homes incur in delivering everyday living services and accommodation to their residents. While the Aged Care Taskforce recommendations are a good place to start in undertaking this reform agenda, the government is yet to respond to the proposals it received in December last year.
Michael Woods is Professor of Health Economics at the UTS Centre for Health Economics Research and Evaluation. He is Policy Advisor to the UTS Ageing Research Collaborative (UARC) and Chairs the Editorial Board of Australia's Aged Care Sector. He is a Member of IHACP's Aged Care Advisory Committee and undertakes policy research for the Commonwealth Government and the aged care sector. Michael was a former Deputy Chair of the Productivity Commission. He has no funding or other conflicts of interest related to this article.
Nicole Sutton receives funding from the Department of Health and Aged Care. She is currently the Treasurer of Palliative Care NSW.
