Financial Performance

1
Financial Performance

• Sorting out the numbers

2
The Hogan Review

• Both the financial analysis and the efficiency
  studies point to striking differences between the
  most successful participants and the weakest
  performers in the sector
• W P Hogan Review of Pricing Arrangements in
  Residential Aged Care
• April 2004

3
Stewart Brown Survey

• The following slides demonstrate that the
  proposition put forward by the Hogan report has
  also shown up in the results of the Stewart Brown
  quarterly survey of nursing homes and hostels
• There is a difference of some 55 per bed day
  between the best performing hostel and the worst
  performing hostel (June survey for Y/E 30/6/2004)
• There is around 41 difference between the best
  and worst performing nursing home (June survey
  for Y/E 30/6/2004)

4
Variation in Operating Results
5
Variation in Operating Results
6
Size vs Results

• Whilst there is a case for spreading costs over a
  larger facility or group of facilities there does
  not appear to be any right answer about the
  optimal size of a residential facility
• There are facilities that perform well in all
  size categories as well as others that do not
  perform as well
• Data shows that a good size for Hostels is around
  the 75 Bed size where there appears to be a large
  number of facilities performing better than
  average.

7
Size does not appear to matter
8
Variations on size
9
Does Income Determine Profit?
10
Does Income determine Profit?
11
Care costs are a significant factor
12
Relationship between Income and Care Costs
13
Nursing Home Non-Care Costs
14
Care costs are a significant factor
15
Relationship between Income and Care Costs
16
Non-Care Costs - Hostels
17
What is happening to results over time?
18
June 2004 Survey

• Downward trend of trading result for high care
  facilities continues
• Average high care facility in June 2004 survey
  incurred a 0.82 per bed day trading loss
• High care facilities averaged a trading profit of
  4.42 per bed day for the 2003 financial year
• Low care facilities averaged a 3.65 per bed day
  profit for the 2004 year compared to a profit of
  4.18 per bed day for the 2003 year

19
Summary of High Care Survey results
20
Results by size High Care
21
Some known factors

• In NSW there were pay increases for nursing staff
  and other care staff of between 4 and 5 during
  2004 (higher increases are expected in 2005)
• This does not account for all the rising costs
• Managers report an increased administrative
  burden due to accreditation and RCS documentation
• This is illustrated in the high care results
• However administration costs for low care
  facilities have decreased over past 12 months.

22
Administration Costs
23
Low Care Results Summary
24
Reconstruction - A case study

• We have looked at some of the factors that effect
  the operating result of a residential care
  facility such as wages, size and income levels
• The following case study also shows that there
  are other factors at work in determining the
  financial well being of a residential care
  facility

25
Reconstruction A case study

• A 50 bed independent religious nursing home
• Relatively old facility open plan ward type
  rooms with shared or communal bathrooms
• Would not satisfy certification
• In 2000-01 4.5m expended on refurbishment and
  extension
• Now mainly private rooms with en-suites
• Approximately 50 increase in overall floor space
• Borrowings of 3m to construct

26
Results before and after

• Prior to refurbishment this nursing home was
  outperforming all others in our survey
• Due to the new design and private rooms it was
  necessary to increase staff levels
• This combined with subsequent pay increases has
  seen a large increase in wage costs
• Total operating costs (before interest) has
  increased by 24 per bed day since construction
  completed
• Income has only risen 10 per bed day

27
Before and After

• The net operating result before interest is down
  16 per bed day in 3 years
• This is a difference of nearly 300,000 in the
  last financial year alone.
• So there are many factors at work when analysing
  results.
• In this case the improved living conditions for
  the residents has meant an increase in costs to
  the operator and no additional income is
  forthcoming to recognise this fact.

28
Conclusion

• We have seen that the financial results of
  residential aged care facilities vary
  significantly
• We have also seen that the reasons for this
  variance are many
• One fact remains however and that is that whilst
  there is variation in results, the overall trend
  in profits for the average facility is downward
  and operators must use all the tools at their
  disposal to minimise this downward trend