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Innovation, optimisation and renovation in aged care

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Building for the future of Australia's aged care environments


Aged care homes are changing. From real-time patient data uploads, to high-quality connectivity for streaming services in residential care homes; aged care recipients are increasingly savvy when it comes to technology, finance and their healthcare. And demand from the sector reflects this. 

Meanwhile, the industry faces an uncertain funding future, and a growing number of Australia’s aged care homes are at risk of physical obsolescence. In the wake of the Royal Commission into Aged Care Quality and Safety (the aged care royal commission), aged care providers need to rethink their delivery models in order to care for our ageing population. 

What’s happening in aged care homes?

There are five key trends in aged care homes and workspaces.

1) Care homes face physical obsolescence

A growing number of Australia’s aged care homes and infrastructure are becoming antiquated. Across Australia, many aged care operators are unprofitable and most are suffering due to funding challenges. The result? A significant number of aged care residences are nearing the end of their life.

This large amount of old stock translates to higher maintenance costs for operators. In some instances, it creates challenges for providers when complying with the Aged Care Quality Standards, particularly as they relate to consumer dignity and safety of the service environment. 

Customers’ stylistic preferences have moved on too. Much more than simply outdated décor, this relates to the evolving needs and expectations of consumers (for instance, shared rooms are increasingly being replaced by single rooms with an ensuite). A large proportion of offerings are simply unable to meet contemporary needs.

Elderly man holding a water bottle and yoga mat

Providers also need to consider the technology capabilities of their sites, because aged care customers are increasingly tech savvy. As part of this push towards tech capabilities, providers should consider the best ways to support digital health solutions and assistive technologies during the design and planning phase of new builds or refurbishments. For example, the increased use of telehealth services may mean private consultation rooms are a must, as are relevant devices and strong network connectivity for video calls.

From refurbishments through to comprehensive renovations and replacements, significant capital expenditure is needed to ensure aged care infrastructure meets the needs and wants of consumers. The challenge is: homes are facing obsolescence at a time when operators are struggling to make returns.

2) Funding woes

Current funding models are not conducive to supporting capital investment in aged care homes, nor in technology and digital products in aged care. 

Increased compliance and operating costs are impacting occupancy rates and profitability. Meanwhile, the unfavourable findings of the royal commission, coupled with COVID-19 outbreaks in aged care homes, have fuelled negative sentiment towards residential aged care in Australia.

On the whole, operators have very limited capacity to make capital investments right now.

Even before the aged care royal commission’s final report there has been evidence of a trend towards financially astute consumers choosing daily accommodation payments (DAPs) over refundable accommodation deposits (RADs), with pure RAD payers declining. While the government has taken the royal commission’s recommendation to phase out RADs altogether under further consideration, it has undertaken to work with the sector to reform the funding framework, which will include reviewing the options to reduce reliance on RADs as a mechanism to raise capital. This, along with the introduction of an independent pricing authority, will have further, significant implications for operators looking to fund developments, renewals and refurbishments. In addition to the options for alternative sources of capital identified by the royal commission, operators may need to look to bank loans for access to capital, increasing liquidity risk.

And while there are investors looking to venture into aged care (including healthcare-oriented funds and super funds motivated by social conscience), there’s little doubt the royal commission and COVID-19 has left some potential stakeholders wary.

3) Competition from alternate models of care delivery

While the introduction of home care packages has enabled many elderly people to live at home for longer, the private sector has innovated and found opportunities to fill in the gaps that exist in residential aged care offerings. Private aged care and retirement villages now offer a continuum of care.

What’s evident from the success of these alternative care models is that a sizeable proportion of consumers are willing to pay out of their own pockets for exactly the sort of aged care services they want. There is clearly demand for alternate models of care.

The costs of these services are often offset by government home care packages and aged care packages that the individual is entitled to. Meanwhile, these new competitors are putting further pressure on the occupancy rates and profitability of existing residential aged care homes.

Elderly couple wearing party hats

For example, some operators are adopting co-morbidity care models and evolving into boutique/specialised service providers that cater to particular segments of the market. Likewise, well-capitalised, larger operators are offering aged care homes co-located within existing retirement villages, in order to provide a continuum of care. Some operators are expanding their service offerings, while others are gradually shifting to a user-pay and choice model to increase income sources.  

Many of these expanded service offerings are underpinned by new technologies – technologies that are often overlooked in the traditional aged care setting. Capability to capture and respond to real-time care-recipient data gives providers the opportunity to truly offer people-led care and services. Providers that don’t incorporate these new technologies into their operations are likely to find themselves disadvantaged in the long term. 

4) We’re not getting any younger 

Like so many developed countries, Australia has an ageing population. The population aged 70 or older is expected to rise at a compound annual rate of 3.3% over the five years through to 2025-261, meaning the demand for aged care accommodation is only set to increase in both urban and regional locations.

And, while home care packages and alternate care delivery models cater for a sizeable section of the aged care market, they’re unable to satisfy the entire market. Private aged care and retirement villages alone can’t meet demand.

We need a rethink of the current aged care model so that operators can meet the ever-changing needs of a broad range of aged care consumers. This requires a breadth of flexible services that cater to diverse needs.

For instance, flexibility could come in the form of a ‘hub and spoke’ model, designed to deliver better quality services for those living in remote and regional Australia by connecting outlying areas to a central service hub. Aboriginal and Torres Strait Islander elders, who are currently significantly underserviced by the sector, may benefit from this type of model in particular.

5) Merger and acquisition activity

Opportunities also exist for operators to achieve scale through consolidation. 

In recent years, the aged care sector has experienced lower margins, largely due to funding reform, higher regulatory compliance, operating costs and weakening occupancy rates. By September 2020, approximately half of all providers were operating at a loss. 

As a result, some operators have exited the market, while others have consolidated to remain viable. Increased accreditation requirements have also prompted more organisations to cease operating.

Consolidation is expected to continue as operators seek to strengthen their capital position and improve efficiencies. There is, therefore, an opportunity for astute operators with strong financials to acquire those providers and turn around their performance. 

Economies of scale are on offer for successful operators.

The five trends = one answer

The above trends lead to a single conclusion: Aged care homes are changing and operators need to evolve too. It’s time for aged care providers to rethink their delivery models to ensure that all Australians can look forward to a future of their choosing.

How optimising your environment can support high quality care that is fit for purpose

The quality of your aged care infrastructure directly relates to the quality of care provided. Your care environment must meet consumer expectations of human-centred experience now, while being adaptable to future ways of care.

Inevitable advances in technology and design require infrastructure to be flexible, adaptable and digitally enabled to be fit for purpose. This functionality needs to enhance both people-centric service delivery and personalised care requirements.

PwC’s Aged Care Transformed framework can help you to optimise your care environments, so you can ensure infrastructure is human-centred and fit for purpose, while embedding quality and safety design into the workplace.


References
1  IBISWorld, Australia Business Environment Profiles Report C1356: Population aged 70 and older, February 2021

Contact us

Simon Hayes

Simon Hayes

Director, Advisory, PwC Australia

Tel: +61 409 208 804

Jess Magee

Jess Magee

Manager, Consulting, PwC Australia

Richard Ainley

Richard Ainley

Partner, Health & Wellbeing, PwC Australia

Tel: +61 408 146 897

James Hocking

James Hocking

Partner, PwC Australia

Tel: +61 409 203 163

Tony Massaro

Tony Massaro

Partner, Integrated Infrastructure, Real Estate Advisory, PwC Australia

Tel: +61 2 8266 2047

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