In a residential bed-poor environment, care at home is the future, but the new rules mean providers must lift prices by as much as 40% to remain viable and better yet, investable.
With residential aged care occupancy sitting at 95% and climbing, increasing rates of care in the home is the only viable way to meet demand, leaving home care providers scrambling to keep their heads above water, says leading independent accounting firm StewartBrown.
“There’s no way we’re going to build the 40,000 residential aged care beds that we need in the next five years,” said Stuart Hutcheon, managing partner with StewartBrown.
“It’s pretty clear that’s not going to happen. People who need to receive care – it’s going to happen in their home or potentially in a retirement village – that’s why support at home is so important.”
Speaking to aged care providers at the Ageing Australia conference on the Gold Coast last week, Mr Hutcheon said home care providers were facing some critical decisions as the 1 November implementation date for the new Aged Care Act looms large.
“It’s hard to model the financial impacts [of the new Support at Home program] at the moment, because we’re waiting to see what is going to happen with older people’s decision path,” said Mr Hutcheon.
“What services will they want? Will they want to pay that co-contribution? Will we have bad debts? Where will they channel their package?”
Inevitably, he said, home care providers would need to increase their prices, not least because under the new rules they will no longer be able to charge the package management fee.
Communicating with clients about the price increase was also important, said Mr Hutcheon.
“The whole reason we’re having pricing increases is because of a change in government policy,” he told providers.
“It would be nice if we’re able to publicise that a little bit more and a little bit earlier in the piece with our clients. All of you didn’t just wake up one day and decide we’re going to increase the prices together. It’s a change in government policy, so how that’s communicated to participants in the sector is really important.”
In its latest aged care financial performance survey, StewartBrown found that on average home care providers in the nine months to March 2025 were making $3.13 per client per day – a 3.8% margin return on revenue.
“The numbers for June are telling us we’re going to get about a 4.4% return on revenue, so it is improving.”
But home care needs to be investable, he said, and that required a return on investment of between 7.5% and 9.5%.
Another challenge for providers was unspent funds.
“At the moment there’s some $4 billion of unspent funds in sector,” said Mr Hutcheon. “On average, that’s about $14,674 per client – a revenue utilisation rate of 86.7%.”
Increasing that revenue utilisation rate was crucial for providers in the chase to increase margins to investable levels, he said.
Different care programs generate different returns, so providers needed to be selective about which programs they offered.
“The [top] 25% of programs are getting $10.94 [per client, per day] or a 12.8% return,” he told providers.
“That’s an investable, strong return for those providers in those particular programs.
“Then the bottom 25% of programs are losing some $14.09 so when you step back and look at that, some larger organisations might have programs that are in the top 25 and they might have programs in the bottom 25.
“If you’ve got programs in that bottom 25% certainly you’d be looking the viability of that program.
“How can we continue to run it at that sort of loss-making level?”
The bottom line was an increase in price to the client, Mr Hutcheon said.
Related
“The current position is a 3.8% return,” he said.
“If we implement the new reforms, and we still want to maintain the 3.8% we’ve got to increase revenue to $73.50.
“If we want to get an investable return of 9.5% we’re going to increase our revenue up to $78.76.
“What does that mean in real terms of the overall percentage increase in revenue? If we want to maintain what we’re doing now, we need to get close to a 30% increase in our revenue. And if we want to get to that 9.5% we’ve got to get a 39% [increase in revenue].”
That would vary depending on how big a home care provider was, he said.
“We need to be pushing towards [servicing] 750 packages to get a return better than break even,” Mr Hutcheon told providers.
“Some organisations in niche [markets], have smaller number of packages, have a lower cost structure, are getting a return. Some organisations are doing a combination of government-funded services plus private services, and they might be getting a better return for their private services.
“Each organisation, financially and strategically and operationally, needs to take a step back and see where you’re going to be operating, who are your clients and what size should you be?
“These numbers tell us there’s definitely a size and scale element to delivering Support at Home at an appropriate margin.”
Mr Hutcheon emphasised the importance of delivering data about costs and pricing to the Australian government and the Independent Health and Aged Care Pricing Authority.
“One of the things for the government and IHACPA that is going to be really challenging when they look to set the prices, is not limiting innovation by providers,” he said.
“IHACPA is not necessarily thinking about what margin you should get. They want to understand the cost of service delivery.
“So it’s really important that we think about that, and we contribute data when we can, and we give feedback when we can. We don’t want to be stifled by that as well. We’ve got to get this price right.”
Mr Hutcheon also urged providers to keep the government accountable about the new reforms.
“We need to keep talking about how important [home care] is and the different levels of it,” he said.
“If the new implementation of the Act isn’t working, we need to keep advocating to make sure we’ve got change, so we can deliver that really important care and those services.”