Aged care budget squeeze means efficiency is king

Changes to the Aged Care Funding Instrument (ACFI) announced in this year’s federal budget will have the biggest impact on the sector’s revenue, with $1.2 billion slashed from the available funding pool. Of most concern is that it appears this is part of an ongoing trend by the Government to reign in aged care spending.

For aged care operators, it means there is now an urgent need to formulate a clear strategy to navigate an increasingly competitive market. There is a real need to bring a more business-oriented approach to aged care which for some operators may require a dramatic shift in emphasis.

Given the decrease in Government funding, providers will need to know very clearly what their cost of care is and what efficiencies can be found to reduce it. It’s important to keep in mind that revenue will likely continue to decline in the short term, so providers should leave no stone unturned in the hunt for more efficient processes.

Providers should also think carefully about how they can differentiate themselves from their competitors. In an environment where everyone’s margins are shrinking it is invaluable to have a clear unique selling point. Having the right brand might be the difference between success and failure.

Having to balance reducing costs against a service offering with a market appeal is no easy feat. Reputation is critical to the brand of any care provider, and being forced to search for more and more efficiencies always leaves open the risk that quality of service will be eroded. Many organisations have built their reputation on providing excellent care — something that should be applauded. However, it is clear that what the Government is focused on is funding a basic level of care.

For operators who have built their business model and brand around excellent care, there will likely be increasing tension between funding and service provision. For operators with a more basic service offering, it is important that fundamental care requirements are maintained.

At a time when demand for aged care places is rapidly increasing, the 2017 budget offers little incentive for investment in the aged care sector. Instead, providers are being asked to do more with less. Those that figure out how to walk the tightrope between efficiency and quality will be best placed to thrive in this new environment.