With a new report released on the status of Australia’s aged care and retirement industry, INsite asked industry experts Ryman Healthcare’s Gordon MacLeod and Forsyth Barr’s Jeremy Simpson to comment on the similarities and differences between the Australian and New Zealand aged care sectors.
An industry overview report on Australia’s aged care and retirement sector concludes that while the industry is driven by an ageing population, changes to government funding and more positive consumer perceptions, the improved health of older adults and increasing propensity to remain in their own homes for longer is keeping a lid on revenue growth.
Bankwest’s Industry Overview Report identified a number of drivers behind the Australian industry’s successes, including:
- Ageing population – demand for aged care services is underpinned by the size and health of the population aged 65 years and over. This cohort accounts for 15.0% of the general population, on par with 14.7% in 2015, but up from 12.9% 10 years ago.
- Government regulation – the Australian Government regulates the supply of residential aged care places and home care packages by specifying national and regional targets for the provision of subsidised aged care places. By 2021-22 the aged care provision ratio is set to grow from 113 to 125 operational places.
- Government funding – in 2017 the Australian Government will spend more than $17.4 billion on aged care, up from $16.7 billion in 2015, of which 74.2% will go to residential aged care services.
- Shift to home care – society’s expectations around ageing and the needs of older people are changing, shifting the focus from residential aged care facilities to home care.
- Changing consumer preferences – reforms to funding allocation with a ‘user pay’ model and transparency due to MyAgedCare.gov.au have empowered consumers to be more discerning.
- Increasing wage pressure – the cost and availability of qualified nursing and other staff affect both industry performance and profitability. This reflects the high dependency of nursing homes on labour. Attracting and retaining qualified staff is a constant challenge.
- Consolidation – this has occurred as businesses seek economies of scale to remain competitive in the face of rising costs and the need for upgrades and ongoing capital investments.
Jeremy Simpson of Forsyth Barr says the drivers are very similar in both New Zealand and Australia.
“Both have an ageing population, but we’re probably yet to see the major impact for a few more years until we get a big increase in the numbers of people over 80 which will lead to more pressure on residential aged care,” says Simpson.
Ryman Healthcare’s chief financial officer Gordon MacLeod agrees.
“I think the bottom line in both New Zealand and Australia is this – the ageing phenomenon hasn’t even hit yet – and the UN ageing report has described it as unparalleled and unprecedented in human history,” says MacLeod.
“People are also living longer, but with a greater burden of the diseases of old age.”
Simpson says both countries will be facing issues with increased funding required to meet the needs of the changing demographics.
“In Australia there is superior funding for aged care with the use of accommodation bonds paid by the resident. We do not have this in New Zealand at this point.
“There is a higher ‘user pays’ focus or culture in Australia in my view. This is increasing over time in NZ with increased aged care residents paying a premium to access higher quality facilities.”
MacLeod agrees the main difference between the two nations is that Australia has had more investment in standalone care facilities simply because of the accommodation bond model. He anticipates the ORA (occupational right agreement) model – currently the basis of retirement village residential agreements – will become more common in care environments over time.
With New Zealand’s funding model for residential aged care currently under review, the sector could potentially move to a system more like Australia’s, or incorporate more flexibility into the current funding mechanisms.
Simpson points out that, like Australia, an increased focus on home care is also having an impact on residential aged care in New Zealand. People are living longer and entering residential care later with a higher level of acuity.
“This is also having a flattening impact on revenue growth and the level of occupancy in aged care facilities at the moment,” says Simpson.
The national occupancy average is around 90 per cent. Typically new facilities have a higher level of occupancy than their older counterparts.
Gordon MacLeod says while home care can be a great option, it is important that older people are able to cope in this environment.
“What we see is that older people at home can also really struggle with loneliness, depression, pain and medication management, weight loss and the simple human need to be near others. It’s a long day on your own, with only a few hours of interaction to look forward to. And at the same time, families can be very anxious about Mum or Dad and how they are coping at home, even with support.
“So I am not sure that society’s expectations are changing that much – it depends on the particular circumstances of the person, their family and their care needs.”
New Zealand shares Australia’s issues with increasing wage pressure and securing and retaining staff. The increase in government funding directed at higher carer wages will help to relieve some of these pressures.
In terms of consolidation, Simpson says that while there has been some consolidation in New Zealand, the industry remains very fragmented.
“An issue in New Zealand is…we have a lot of older smaller facilities that are exiting the market, so the net increase in new beds remains modest and below what we are likely to need over the longer term giving the ageing population.
“The vast majority of new beds being built in New Zealand are by large integrated operators (both retirement and aged care) with profits from the retirement operation essentially subsidising the development of new aged care beds.
“This is a bit different than Australia with the higher user pays culture and the use of accommodation bonds meaning that more standalone aged care facilities have been developed in Australia than in New Zealand for a number of years.”
MacLeod believes that in spite of some differences, overall both countries operate effective aged care industries.
“Aged care in both New Zealand and Australia is one of the most effective public private partnerships around,” says MacLeod. “The cost of a public hospital bed is significantly higher than an aged care bed – roughly seven times – and aged care sector standards of care are very high. That’s why Governments are prepared to invest in the sector and support it – high quality at a good price for an essential service.”
Bankwest’s report at a glance: Australia’s aged care sector
- Industry Revenue (2015-16) $19.8 billion
- Number of Establishments (2015-16) 5,448
- Number of Enterprises (2015-16) 1,845
- Wages to revenue ratio (2015-16) 55.5%
- Employees per establishment (2015-16) 40.9
- Average wage per employee (2015-16) $46,940.66
- There are approximately 5,000 nursing homes and approximately 2,000 retirement villages in Australia.