Did you know that the loss of just one occupied bed in a residential aged care facility can lead to profitability falling by over 15%?
Given that residential aged care standards ensure that care is ‘a given’, and that location and amenity is largely fixed for an operator, resident lifestyle will be the single most determinate of the viability and success of residential aged care operators of the future.
If occupancy drops by just one bed in an average Australian facility, with an average mix of residents, EDITDA (or profit) will plummet, over 15%. Operators lose all the income, yet, cannot adjust their costs.
Residential aged care facilities who do not have strong occupancy will not be sustainable. Further, aged care facility occupancy will experience further downward pressure in the future with:
- bipartisan political support for older Australians choosing their own care services through market – based mechanisms;
- the ever present threat of bed licence deregulation and money following consumers, not operators with homecare taking the lead in February 2017;
- homecare operator competition warming up with increasing CDC focus and technology improvements keeping people out of residential care, and the cost effectiveness of homecare;
- the increasing influence of the increasing star rating websites for aged care; and
- the move towards user pay and the appeal of additional ad-hoc purchases by innovative CDC residential operators with resort like offerings.
With the consumer wielding the power of choice, operators will find consumer appeal (lifestyle) essential for occupancy.
In terms of funding and focus, lifestyle in aged care will now move to ‘top of mind’ in importance ahead of care and accommodation that are generally meeting community standards. Lifestyle will drive the welfare of residents and consequently support operators building their brand and reputation needed for high occupancy.
Lifestyle in aged care also has a natural funding source, that is user-pay and/or the opportunity cost on profit tumbling where beds are empty.
User pay is an extension of what have been traditionally the domain of hairdressers. We now see the emergence of consumer directed care and decline in ‘extra services” (that would package up lifestyle expenses in the residential fee). Facilities now offer lifestyle choices such as flexible dining options, cafes, entertainment, cinemas, art and music lessons, outings, games, exercise classes, activities and shopping.
Low hanging fruit for operators striving to improve their lifestyle program, include putting in management KPI’s for lifestyle initiatives, including:
- a culture of resident centric care and consequent facility reputation;
- driving the use of volunteers, both for profit and not-for-profit, be it a concert by school children, or people from the local community to visit and talk, or encouraging families and friends to be more active at the facility;
- publishing the lifestyle program, in real-time as a home page item on a facility website. The first question a prospective resident and their family should be asking is “Can I see your lifestyle program?”. Increasingly, desktop research will short list facilities for potential consumers. Gone are the static websites with polished marketing written scripts on culture and latest care methodology. Consumers will cut through and see the substance value that speaks to the activity in the facility;
- more product and service offerings (user pay), which not only diversifies revenue streams, but also encourages people to relocate to aged care facilities earlier than they otherwise might have;
- more of the extras: gardens, pets, visiting pets, inclusion of high care on the edge of activities and visiting shops; and
the ability of the facility to respond to consumer directed options, on staffing, meal and shower times, making the facility closer to a home lifestyle.??
There will be no room for ‘penny pinching’ when it comes to resident wellbeing, as demonstrated, the resulting profitability of the initiatives above far outweigh any cost. As much as there is upside with high occupancy for lifestyle focused facilities, the downside for facilities that do not respond is brutal. If occupancy falls, the impact on profitability makes lifestyle investments and their longer term payoffs very difficult, with management becoming absorbed by the numbers and finance focused on rosters.
Downsizing does not lead to greatness.
Published in the Leading Aged Care Services Journal, Spring 2016