Future of Aged Care: Cash flow management is more important than ever

Cash continues to be a real challenge for aged care providers as it is often tied up in assets, such as nursing homes or customer credit accounts. Cash flow will continue to require very close management as we outline below.

Residential and in-home care staffing cost increases

The Minister for Aged Care, Anika Wells, has announced the Government will fund the outcome of the Fair Work Commission (FWC) ruling, which is estimated to cost about $4 billion annually if the 25% claim is successful. However, it now appears a 15% raise to the minimum wage for aged care workers in direct care roles is more likely, even though many employee advocates in the industry say this increase is not enough. The FWC is expected to make its final decision with all details about the pay raise by March 2023. The cash flow impact is therefore not expected to impact providers until after March 2023.

Although Minister Mark Butler reconfirmed the commitment to fund the FWC wage increase as part of the recent Federal budget, it is unclear whether superannuation and other employee costs linked to base salary will also be met by Government, or if this will be an additional cash requirement for providers to meet. If these employee on-costs are not funded by Government, it may therefore create a cash flow hole for industry participants.

The Increase to care worker wages is intended to bring those wages into line with other industry rates. As a result, it is unlikely the wage increase will cause a flood of labour to be attracted to the aged care industry. But at least it may stem the turnover of staff who leave for higher pay in other industries.

Residential care minutes

By October 2023 the new average care minute requirements will be in force. Residential homes will need to arrange their labour to provide the care minutes based on the residents’ AN-ACC classifications for that month. This will require very close management of the employee roster to ensure that just-the-right amount of care is provided. Any additional care minutes provided that are above the average care minute requirements are unfunded via the AN-ACC model, so providing extra care minutes will place additional pressure on a providers’ profitability and sustainable cash flows.

Additionally, if a provider does not meet the minimum care minutes, this will reduce their star rating, which is to be used by consumers to compare available services.

In-home care unspent funds

According to Stewart Brown’s Financial Performance Survey Sector Report as at October 2022, there were $2.1 billion of unspent funds across the industry; an average of $10,763 per client. For context, the average was $9,871 per client in March 2021, which was shortly after the first round of in-home care funding changes were introduced. To date, the funding changes appear to have had little impact to reduce unspent funds.

Our experience shows most providers do not actually hold cash equivalent to the unspent funds balance, even though Government would prefer they did so. As a result, it seems that FY23 may still see providers struggle to manage their cash flows as unspent funds must start to be returned to the government.

To help minimise the insolvency risk to Provider’s, DOHA has made a number of grants available to providers to reduce the cash flow impact including:

$20 million for grant GO5679 – which allows the rollover and use of one month’s worth of CHSP grant funding to provide a cashflow bridge to the new “funding in arrears” arrangement; and

 $15 million for grant GO5672 – emergency, ad hoc one-off funding (if unspent funds are not available) or the additional rollover of upsent funds (after 30 July 2022).

To ensure sustainable continued operations, providers must monitor their cash flows very closely with the use of rolling 13-week cash flow forecasts and monthly 1-to-3-year forecasts. This should be a tool used by the executive team to manage cash and to report to the board to help manage financial risks.