Getting bigger and getting organised:

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• Getting bigger and getting organised
• Preservation of the not for profit sector in aged
  care
• John Ballard Mercy Health
• David Ettershank Outcomes Plus

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• In 2003 the Board of Mercy Health resolved to
  prioritise the growth of its aged care business.
  
• In the ensuing period Mercy has grown its
  residential care from 324 places to almost 1200
  places.
• This paper explores
• The rationale behind this decision
• The elements of the growth strategy
• The lessons learnt along the way
• Some issues for the future

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Chapter 1

• The rationale behind the development of a growth
  strategy

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About Mercy Health

• Long standing community serving organisation
  founded and wholly owned by the Sisters of Mercy.
• Operating throughout Victoria and southern NSW
• Providing direct services to in excess of 350,000
  people every year
• Operating public acute and sub acute services
  mental health womens health early parenting
  aged care, home based services and palliative
  care.
• Employing over 4,000 people
• Financial turnover approx 260 m
• 2000 to 2002- recovering from financial distress

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Why the decision to grow the aged care division?

• 2003 strategic internal dialogue regarding
  priorities and future directions
• Government Policy
• Hogan cottage industries and the need to
  rationalise the number of providers
• Bi partisan political support to cap subsidies
  and avoid high care bonds
• Consolidation in the sector
• Primarily in the private sector and privates
  taking out NFPs
• Sustainability
• Economies of scale
• Ability to increase depth of skill talent
• Financial strength
• Technology and automation

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Existing competitive advantages to underpin a
growth strategy

• The hospital based corporate scale and
  infrastructure
• Management
• Capital
• MIS
• Skills base
• A strong systems based culture

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How Big Is Big Enough ?
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How Small Is Big Enough ?
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The Choice

• Grow
• Niche
• or
• Exit
•  
• All are valid but we chose Growth

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Chapter 2

• Key components in the deployment of a growth
  strategy

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Key Components 1

• Strategic Direction
• Strategy sometimes seems like a luxury when
  living at a subsistence level but it is
  essential.
• Commitment at all levels
• Board
• Management
• Stakeholders including staff
• Owners
• A well defined business model
• Care driven quality a first priority but
  continuously integrated with the business model
• Continuously tested and adapted to reflect
  experience and changing circumstances.

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Key Components 2

• Critical intellectual culture
• Must have ability for critical thinking and
  vigorous debate
• A strong systems orientation to ensure the
  enterprises is not dependent on one or two key
  players
• Capacity to be agile, flexible and opportunistic
• Resources, people and systems to be able to
  react.
• Confidence in your people and systems.
• Capital
• Unless purely community care based and huge issue
  for high care residential care.
• Limitations of debt financing.
• Threats to bonds and DMF?

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Key Components 3

• Appropriate skills base
• Recruit and retain
• Industrial Relations
• Grow your own
• Changing skills profiles at all levels
• Relationships
• Capital
• Government
• Construction
• Consultants (another preferred provider)
• Maintaining internal relationships (particularly
  Board engagement)

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Key Components 4

• Stamina, Courage and Resilience
• It will get hard and things will go wrong
• Mid-ground is no ground you will slip on the
  slope
• You wont win them all

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Chapter 3

• Where are we up to in implementing the growth
  strategy?

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Progress to date

• Mercy health has set the target of achieving 2000
  residential places by 2011
• We have grown from 324 places in 2003 to 1,172 in
  2008 (including construction in progress)

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Current building projects include
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The capital call
we referred to the need for courage previously
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Show me the money Jerry

• Need consistent and robust cashflows
• What sources for Capital?
• From cashflows
• Traditional bank debt
• Structured finance
• Gifts from God/Pennies from Heaven
• Need to mix and match and not be locked into any
  one.

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Corporate infrastructure
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• In other words
• We have a clear purpose and shared mission.
• Our priority has been to develop scale in
  residential care concentrating on high care and
  dementia/behaviour.
• We have developed a sound operational and
  transactional capacity
• Relationships in place
• Have the ability to be agile and to make quality
  decisions
• Actively pursuing opportunities

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The unexpected benefits and pitfalls of a growth
strategy

• Nothing succeeds like success
• Profile
• Opportunities
• Recruitment
• Morale
• Confidence
• Potentially scary levels of risk and debt
• It costs a lot of money, time and love
• It requires an unwavering intensity of focus.
• You have to be willing, and should celebrate your
  wins, acknowledge achievement and learn from the
  mistakes.

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Chapter 4

• A few thoughts in closing

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Source Trends in Aged Care Services Some
Implications. Productivity Commission Research
Paper, September 2008, Page 38
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The cost of building
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ACFI

• ACFI redistributes current pie but doesnt
  address capital
• Recognises complex care and behaviours
• Narrows bond pool
• Displaces a range of people who could
  traditionally access residential care

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Respite and the displaced

• Given the diminishing pool of carers how do we
  deal with those displaced from residential care
  but who cant access community care?
• When are we going to have a sustainable model of
  residential respite care?

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Sustainability

• Range of potential mechanisms to address the
  capitalisation of high care but there is no
  outcome focussed debate occurring on how to do
  this?
• In Victorian there are about 80 ACFs currently
  on the market.
• Also fundamental questions about the value of bed
  licences.
• Particularly for residential high care we are now
  at a tipping point.

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That said

• Fundamental structural issues (particularly for
  residential high care) confront the sector.
• There is a process of industry rationalisation
  underway.
• There is a community need that must be met by
  committed providers Like most of you, we are in
  this for the long term.
• From Mercys perspective we believe we need to
  become significantly larger to meet our mission.
• We need to use the process of restructuring to
  strengthen the NFP sector.

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• We should seize these opportunities to develop
  scale either directly or virtually through
• amalgamation
• collaboration
• shared services/infrastructure
• Mercy welcomes the opportunity to explore these
  opportunities with other NFPs.

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