Financial Innovation in Aged Care – Planning for financial viability

Stuart Hutcheon – Managing Partner

Financial viability is the ability to generate

sufficient income to meet operating

payments, debt commitments and, where

applicable, to allow growth while

maintaining service levels

Innovate - make changes in something

established, especially by introducing new

methods, ideas, or products

December 2017

Benchmark

Results Analysis

Residential Care

Percentage of facilities in Dec-17 ACFPSwith negative facility EBT andnegative facility EBITDA results

EBT & EBITDA

41.3%

21.3%

33.9%

16.1%

Negative EBT

Negative EBITDA

June-17 December-17

Care

Results

Survey

Average

Trend

graph

$8.18

$3.65

$4.99

$10.36

$12.41

$8.71

$10.24

$11.30

$11.30

$11.87

$4.06

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

Do

lla

rs p

er

be

d d

ay

Care Result Average All facilities as at

December each year

Defining the Result

Care ACFI Result

• ACFI Income (incl. MTCF) and care supplements

• Less

• Direct care wages and on-costs including w/comp and quality & education costs

• Other direct care expenses including medical, continence and therapy supplies

Everyday Living Result

• Basic Daily fee and extra/additional service fees

• Less

• Hospitality services (catering, cleaning & laundry)

• Utilities

• MV expenses

• Routine property and other maintenance expenses

Administration Result

• Cost of administration and support services excluding w/comp and quality and education costs (reallocated to care and everyday living)

Accommodation (Capital) Result

• Accommodation supplements

• Retention from bonds

• Daily accommodation payments and accommodation charges

• Interest on outstanding deposits

• Less

• Depreciation and amortisation

• Rent

• Room refurbishment costs

• Interest paid on outgoing bonds

Metric Dec-17 Jun-17 Dec-16 Difference

YTD

Care ACFI result Per bed day $33.93 $37.62 $38.69 ($3.69)

Everyday living result Per bed day ($7.16) ($7.16) ($5.91) - $0.00

Administration result Per bed day ($32.73) ($31.04) ($30.51) ($1.69)

=Care Result (revised) Per bed day ($5.96) ($0.58) $2.27 ($5.38)

Care Result (traditional) Per bed day $4.06 $9.42 $11.87 ($5.36)

+Accommodation Result

(capital)Per bed day $10.65 $9.95 $10.15 $0.71

Accommodation Result

(traditional)Per bed day $0.63 ($0.05) $0.55 $0.68

=Facility EBT ($pbd) Per bed day $4.70 $9.37 $12.42 ($4.67)

Facility EBT ($pbpa) Per bed per

annum$1,617 3,236 $4,320 ($1,618)

Facility EBITDA ($pbpa)Per bed per

annum$7,071 8,397 $9,404 ($1,326)

Summary

of results

for the

Survey

Average(915

facilities in

December

2017)

Headline

KPI’s for

Survey

Average

and First

25%

KPI Survey Average Survey First 25%

Dec-17 Jun-17 Dec-16 Dec-17 Jun-17 Dec-16

EBT per

resident per

annum

$1,617 $3,236 $4,320 $12,319 $13,102 $14,067

EBITDA per

resident per

Annum

$7,071 $8,397 $9,404 $17,760 $18,285 $18,943

Occupancy 94.37% 94.64% 95.05% 96.58% 96.37% 96.69%

Care Cost

Ratio60.41% 58.95% 58.28% 51.54% 50.02% 49.38%

Average

ACFI per

bed Day

$171.84 $171.85 $171.13 $175.81 $173.48 $173.52

Care staff

wages as %

of ACFI

74.61% 72.28% 71.30% 63.22% 61.17% 60.22%

Revenue

v

Expenses

77.8%

87.9%

26.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

CU

MU

LATI

VE IN

CR

EA

SE

ACFI & Supplements (including MTCF) Expenditure - care services CPI

Cumulative increase in ACFI + supplements and Care costs

(Base Year December 2007)

Quartile Analysis

Analysis of

the care

result

distribution

-100

-80

-60

-40

-20

0

20

40

60

80

100

$p

bd

Care Result Distribution

4th 25% 3rd 25% 2nd 25% 1st 25% Care Result Distribution

Quartile Bottom range Top range

Number of

Facilities

1st 25% $20.19 $84.36 229

2nd 25% $4.83 $20.15 229

3rd 25% ($10.89) $4.81 228

4th 25% ($78.73) ($10.96) 229

Quartile Analysis

Analysis of

the care

result

distribution

Survey - ALL

Quartile Bottom range Top range Number of Facilities

1st 25% $20.19 $84.36 229

2nd 25% $4.83 $20.15 2293rd 25% ($10.89) $4.81 2284th 25% ($78.73) ($10.96) 229

Major Cities

Quartile Bottom range Top range Number of Facilities

1st 25% $21.92 $84.36 1502nd 25% $6.84 $21.60 150

3rd 25% ($7.48) $6.80 1504th 25% ($72.87) ($7.76) 150

Inner Regional

Quartile Bottom range Top range Number of Facilities

1st 25% $18.03 $57.02 562nd 25% $2.88 $16.96 56

3rd 25% ($12.40) $2.73 56

4th 25% ($73.31) ($13.23) 56Rural & Remote

Quartile Bottom range Top range Number of Facilities1st 25% $7.30 $68.74 232nd 25% ($8.19) $7.23 23

3rd 25% ($24.42) ($8.63) 234th 25% ($78.73) ($25.61) 22

Care staffing

metrics for

Survey

Average

and First

25%

Average First 25%

Dec-17 Jun-17 Dec-17 Jun-17

Care staff costs as % of

total care expenses58.61% 58.51% 57.72% 57.26%

Costs by type - $ pbd

Care management $7.98 $7.46 $8.27 $7.08

Registered nurses $21.18 $20.52 $17.37 $16.34

Enrolled & licensed nurses $9.39 $12.60 $6.41 $9.42

Other unlicensed nurses & personal care staff $78.90 $74.54 $70.20 $65.99

Allied health & lifestyle $7.16 $5.95 $6.66 $5.45

Agency staff $3.59 $3.16 $2.23 $1.84

Total labour costs $128.20 $124.22 $111.14 $106.12

Hours by type - hours worked per resident per day

Care management 0.12 0.12 - 0.10 0.11

Registered nurses 0.38 0.37 0.32 0.29

Enrolled & licensed nurses 0.29 0.26 0.24 0.19

Other unlicensed nurses & personal care staff 2.11 2.05

1.92 1.84

Allied health & lifestyle 0.15 0.12 0.13 0.11

Imputed agency care

hours implied 0.01 - 0.02 -Total Care Hours 3.06 2.91 2.73 2.53

* Note change in definitions from Dec-17 in enrolled and licensed nurses and other unlicensed nurses and personal care staff

Summary

results for

Survey

Averagecompared

to First 25%

(December

2017

compared to

June 2017 and

December

2016)

Survey Average Survey AverageFirst 25%

Average

First 25%

Average

Dec-17 Jun-17 Dec-17 Jun-17

(915 facilities) (957 facilities) (229 facilities) (239 facilities)

Care Revenue $222.78 $221.73 $227.00 $223.30 Expenditure - - - -Direct care costs $134.58 $130.71 $117.00 $111.70 Total expenditure $218.72 $212.31 $192.54 $185.34 Care Result for the year $4.06 $9.42 $34.45 $37.96 Accommodation Result $0.63 ($0.05) $0.49 ($0.72)

Facility EBT $4.70 $9.37 $34.95 $37.25 Facility EBITDA per bed

per annum$7,071 $8,397 $17,760 $18,285

KPIs

Occupancy 94.4% 94.6% 96.6% 96.4%Care costs as % of care

revenue60.4% 59.0% 51.5% 50.0%

Average bond/RAD held $284,588 $279,513 $297,181 $291,179 Average RAD taken during

year$323,849 $320,254 $361,801 $352,619

Summary

2017

results for

First 25%compared

to the rest

Average of Second,

Third & Fourth 25%

combined

Average of Third

and Fourth 25%

combined

Average of Fourth

25%Average of First

25%

Dec-17 Dec-17 Dec-17 Dec-17

(229 facilities) (686 facilities) (457 facilities) (229 facilities)

Care Revenue $227.00 $221.52 $220.78 $220.09 Expenditure

Direct care costs $117.00 $139.83 $144.85 $153.11 Total expenditure $192.54 $226.54 $234.72 $247.49 Care Result for the year $34.45 ($5.01) ($13.94) ($27.39)Accommodation Result $0.49 $0.68 $1.23 $1.51

Facility EBT $34.95 ($4.34) ($12.70) ($25.89)Facility EBITDA per bed per

annum$17,760 $3,974 $1,275 ($3,157)

KPIs

Occupancy 96.6% 93.7% 92.8% 91.0%Care costs as % of care

revenue51.5% 63.1% 65.6% 69.6%

Average bond/RAD held $297,181 $280,164 $277,912 $283,440

Average RAD taken during year $361,801 $313,798 $310,584 $311,702

ACFI Looking

Forward

In August/ September 2017, we calculated the projected facility results (EBT $pbd) for FY18:

Adjusted for ACFI reductions and Rate Freeze

Adjusted for Resident fee increases

Adjusted for Wage increases of 2.5%

Adjusted for other expenditure increases

June 2017

actual and

Projected

June 2018

facility results

(EBT $pbd)

Survey

Average

$10.85 $10.26

$7.83 $8.31

$7.68

$9.37

$4.04

$2.43

$0.49 $0.79

$2.30 $2.12

Band 1 Band 2 Band 3 Band 4 Band 5 All

Jun-17 Average Jun-18 Average Projected

June 2017

actual and

December

2017 actual

facility results

(EBT $pbd)

Survey

Average

$10.85 $10.26

$7.83 $8.31

$7.68

$9.37

$7.72

$6.51

$0.43

$2.94

#N/A

$4.70

Band 1 Band 2 Band 3 Band 4 Band 5 All

Jun-17 Average Dec-17 Average

June 2017

actual and

Projected

June 2018

facility results

(EBT $pbd)

– Survey

First 25%

$41.04

$35.48

$31.97

$39.37

$42.51

$37.25

$34.11

$29.12

$24.87

$34.16

$38.61

$30.87

Band 1 Band 2 Band 3 Band 4 Band 5 All

Jun-17 First 25% Jun-18 First 25% Projected

June 2017

actual and

December

2017 actual

facility results

(EBT $pbd)

Survey

First 25%

$41.04

$35.48

$31.97

$39.37

$42.51

$37.25 $39.20

$32.37

$24.64

$39.86

#N/A

$34.95

-

$5

$10

$15

$20

$25

$30

$35

$40

$45

Band 1 Band 2 Band 3 Band 4 Band 5 All

Jun-17 First 25% Dec-17 First 25%

Everyday

living results

Survey

Average

Trend graph

Everyday Living Results gap for years to December

$31.52 $32.05 $33.41 $38.65 $40.25 $41.71 $44.54 $46.50 $47.49 $48.25 $49.09$3.47 $3.65 $4.38 $4.89 $5.13 $6.21 $6.41 $6.25 $6.06 $6.08 $6.55 $18.75

$23.64 $26.19 $24.64 $26.38 $27.41 $27.64

$33.71 $34.06 $35.17 $37.20

($17.10)($22.59)

($26.21)($21.85) ($23.31) ($24.64) ($23.34)

($29.69) ($30.66) ($31.86)($35.05)

-$55

-$35

-$15

$5

$25

$45

$65

$85

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Basic Daily Fee Hotel services Utilities

Administration Revenue gap

Average

Refundable

Deposits

Received

ACT NSW QLD SA TAS VIC WA ALL-AVG

Dec-16 452,984 313,154 258,249 352,997 216,476 330,047 292,147 311,297

Jun-17 392,235 332,006 267,694 308,497 243,966 371,712 323,405 320,254

Dec-17 467,417 329,785 264,885 316,486 248,338 370,152 319,105 323,849

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

Average RAD taken during financial years 2016 and 2017

Dec-16 Jun-17 Dec-17

$369,000

$550,000

$365,000 $380,000$325,000 $335,500 $375,000 $360,000

$323,849

$467,417

$329,785 $264,885 $316,486 $248,338$370,152 $319,105

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

National ACT NSW QLD SA TAS VIC WA

Minimum Published Accommodation Price Median Published Accommodation Price

Average RAD Taken Maximum Published Accommodation Price

Average RAD taken in FY17 vs published

Accommodation Prices by state

Median

state

facility

RADs

compared

to median

capital city

house price

37.77%

57.14%

67.83%

73.20%

68.27%

86.48%

87.49%

Sydney

Melbourne

Perth

Adelaide

Brisbane

Canberra

Hobart

RAD/DAP/

Combination

splits

54.9%61.9%

40% 41% 41%

19.6%14.3%

33% 33% 35%

25.5% 23.8% 27% 26% 24%

Listed provider

average

Listed provider

average

ACFPS average ACFPS average ACFA report

Jun-17 Jun-16 Jun-17 Jun-16 Jun-16

PER

CEN

TAG

E S

PLI

T

RADs/RACs DAPs/DACs Combination

Policy for

Refurbishment

28%

20%

32%

20%

28%

23%

31%

18%

Over 20 years

Between 15 and 20 years

Between 10 and 15 years

Under 10 years

2016 2017

Depreciation

Policy

6%

22%

10%

46%

17%

1%

17%

15%

54%

13%

Under 20 years

20 to 30 years

30 to 40 years

40 years

50 years and over

2016 2017

Key

Messages -

strong

financial

performance

Building design efficiency

Good quality management - set targets, KPI’s, forecasting

Benchmark performance - dollars & hours

Maximising income in line with resident’s care needs (ACFI);

Staff numbers and skill mix aligned to the funding levels and

facility design (roster management & operational efficiency);

Maximising accommodation prices;

Maintaining occupancy levels; and

Significant refurbishment - operational efficiency and higher

RAD price

Financial forecasting v’s budgets - model the future

Home Care (HCP)

Movement

in

packages

at provider

level

o Growth in number of consumers in home care (from Department’s Third Report on Home Care)

o 8.1% December 2016 to September 2017

o 3.9% June 2017 to September 2017

o Average growth in number of packages at provider level (ACFPS December 2017)

o (6.5%) December 2016 to September 2017

o 3.4% June 2017 to September 2017

o Exits (from June 2017 ACFPS additional information request)

30% exit to residential

4% exit to other home care providers

66% exit to other (out of system, pass)

Comparison

of EBT

December

2017 versus

June 2017

Band 1 Band 2 Band 3 Band 4 All

Dec-17 Average $0.84 $1.85 $2.89 $7.39 $3.24

Jun-17 Average ($7.60) $1.52 $5.30 $12.51 $5.37

Dec-17 First 25% $9.44 $10.56 $17.91 $29.63 $18.98

Jun-17 First 25% $2.59 $9.35 $22.57 $36.53 $25.03

$(10)

$(5)

$-

$5

$10

$15

$20

$25

$30

$35

$40

Do

lla

rs p

er

clie

nt

pe

r d

ay

EBT per client per day by band

Comparison

of Revenue

Utilisation

December

2017 versus

June 2017

Band 1 Band 2 Band 3 Band 4 All

Dec-17 Average 74.6% 86.8% 87.9% 90.3% 87.6%

Jun-17 Average 75.8% 91.5% 92.7% 93.9% 92.3%

Dec-17 First 25% 72.6% 87.0% 86.0% 93.1% 86.8%

Jun-17 First 25% 79.3% 91.6% 88.3% 95.4% 93.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Revenue Utilisation

Comparison

of Average

unspent

funds

December

2017 versus

June 2017 Band 1 Band 2 Band 3 Band 4 All

Dec-17 Average $3,642 $3,849 $5,210 $8,812 $5,412

Jun-17 Average $4,552 $2,866 $3,548 $7,380 $4,255

Dec-17 First 25% $2,540 $3,330 $4,801 $6,638 $5,780

Jun-17 First 25% $3,453 $2,181 $5,995 $5,945 $6,288

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

Average unspent funds per client

December

2017

Survey

AverageResults

December 2017 Survey Average Results

Band 1 Band 2 Band 3 Band 4 All

Revenue $26.71 $40.35 $69.57 $123.92 $69.83

Expenditure

Direct Services $12.50 $21.06 $36.07 $64.59 $36.27

Brokered Services $2.44 $2.63 $5.51 $7.79 $5.13

Case Management & Coordination $3.66 $4.32 $7.59 $12.19 $7.43

Administration & Support $7.18 $10.24 $17.18 $30.93 $17.35

Depreciation $0.09 $0.25 $0.33 $1.03 $0.40

Total Expenditure $25.87 $38.50 $66.68 $116.53 $66.59

EBT per client per day $0.84 $1.85 $2.89 $7.39 $3.24

EBITDA per client per annum $340 $767 $1,176 $3,074 $1,328

KPI’s

Profit Margin 3.16% 4.60% 4.15% 5.97% 4.63%

Net Growth Rate 8.45% 1.45% 25.10% 18.03% 16.76%

Net Retention Rate 100.00% 100.00% 100.00% 100.00% 100.00%

Revenue utilisation for the period 74.64% 86.84% 87.88% 90.27% 87.59%

Average Unspent Funds per client $3,642 $3,849 $5,210 $8,812 $5,412

Cost of direct care (% of total revenue) 55.92% 58.72% 59.77% 58.41% 59.29%

Case management (% of total revenue) 13.72% 10.71% 10.91% 9.84% 10.64%

Administration (of total revenue) 26.87% 25.37% 24.70% 24.96% 24.85%

December 2017 First 25% Results

Band 1 Band 2 Band 3 Band 4 All

Revenue $26.75 $42.77 $79.06 $129.91 $88.71

Expenditure

Direct Services $8.91 $15.14 $31.78 $49.51 $36.50

Brokered Services $0.31 $3.82 $6.66 $8.48 $6.38

Case Management & Coordination $1.55 $3.22 $8.45 $9.46 $7.92

Administration & Support $6.43 $9.64 $13.97 $31.27 $18.34

Depreciation $0.10 $0.38 $0.29 $1.56 $0.58

Total Expenditure $17.31 $32.20 $61.15 $100.28 $69.73

EBT per client per day $9.44 $10.56 $17.91 $29.63 $18.98

EBITDA per client per annum $3,485 $3,993 $6,643 $11,384 $7,141

KPI’s

Profit Margin 35.30% 24.70% 22.66% 22.81% 21.40%

Net Growth Rate -13.93% 1.49% 63.66% 16.12% 36.93%

Net Retention Rate 86.07% 100.00% 100.00% 100.00% 100.00%

Revenue utilisation for the period 72.63% 87.04% 85.97% 93.14% 86.79%

Average Unspent Funds per client $2,540 $3,330 $4,801 $6,638 $5,780

Cost of direct care (% of total revenue) 34.49% 44.33% 48.62% 44.64% 48.34%

Case management (% of total revenue) 5.80% 7.54% 10.69% 7.28% 8.93%

Administration (of total revenue) 24.02% 22.55% 17.67% 24.07% 20.67%

December

2017

Survey

First 25% Results

Key

Financial

Performance

Indicators

VIABILITY

PRICING!

Pathways to Financial

Growth

Pathways to Growth

Natural

Increase capacity• Extend, construct, refurbish• New markets, new customers

• Growth of existing funding• Business as usual

New services

New businesses• Acquisition, mergers, alliances• New markets and revenue streams

• New services to existing customers• Rebadge existing services

Natural Growth

Business as usual approach

Heavy reliance on external policy settings

Likely will have a use-by date and declining margins

Opportunities for growth limited for many providers

Add capacity to existing infrastructure Refurbish

Extend or add new rooms/apartments

Add new infrastructure Construct a new aged care facility

Develop a new retirement village

Expansion into new markets or grow existing market Expand HCP offering into other

locations

Use marketing including cross selling to attract new customers

Broker existing services to other providers

Source additional funding Tender for additional funding for

existing business streams (CHSP)

Acquire or merge with other organisations with similar business streams

Increasing Capacity of existing Business Streams

New Services

Expand Services• Additional

services in RACF

• Fee for service in ILUs

Charging for existing services• Re-define base level

and what is additional

Rebadge• Package and bundle

services and charge for them

Link to accommodation standards• Additional services and

pricing can be linked to accommodation standards

Expand servicesto existingcustomers

Charge for

existing services

Re-Badge Accommodation

New business streams will often require:• New skill sets• Change in

culture• New systems

at all levels of the business

Emerging• Restorative• Wellness• Respite• Palliative

Traditional• RACF• ILUs• HCP• CHSP

Non-Traditional• NDIS• Other community

New Business Streams

Business as usual is not a sustainable option

Takeaway Message

Service Integration

Service Integration

Increasingly consumer driven

In-Home Care

Consumer driven decision

Seniors’ Housing Transitioning

to consumer driven market Residential

Care

Service Integration

Revenue streams

Home care services into seniors’ housing

Residential care services into Seniors’ housing

Cross selling between business units maximising use of ‘Brand’ across organisation

Workforce Sharing workforce across business units

Integrating standards and policies – single culture

Integration of systems and information flows

Admissions policy

Integration of admissions policy across organisation

Manage movement of customers between business units based on client need

Maximise income levels across business units based on client need

Accommodation

Additional services

Accommodation

Additional services

Care services

Everyday living services

Exploring the Future

Seniors’

Housing

Residential

Care

In-Home

Care

Accommodation

Care services

Assisted Living Services

Additional services

The “New” Aged Services Provider

Will be market/consumer driven

Will need to be flexible and adapt to a changing market

Will need to target its consumers

Will need to be efficient

Capital should be put to work

Will need to have a greater business focus

Will need to make a profit