Australia's aged care sector has received a lifeline from the federal government, with this year's budget confirming more funding.
Under the changes, aged care will receive $36.03 billion for 2023-24, an increase of $5.06 billion compared to the previous year.
A bulk of this — $11.3 billion — will be dedicated to providing the sector's 250,000-strong workforce with a 15 per cent pay rise.
"This pay rise will help retain, reward and recruit the hard working people who care for our loved ones as they grow old," Treasurer Jim Chalmers said during his budget speech.
"The message from our government to the aged care workers of Australia is very simple: You deserve every cent."
The federal government's investment comes after the sector has struggled for decades.
Earlier this year, government data showed that Australian aged care lost over $465 million during the first quarter of the 2023 financial year — equating to a daily shortfall of $27.90 per resident and an annual loss of almost $1.9 billion.
While this support from the government has been welcomed by the aged care sector, it's not clear that it's enough.
As evidenced during the 2021 royal commission into aged care, the sector has been historically under-resourced. So much so that, in the wake of the royal commission, it was suggested by the Australia Institute's Centre for Future Work that the sector would need at least $10 billion a year to implement the recommended reforms.
Grant Corderoy is a senior partner at StewartBrown, a chartered accountancy firm that specialises in aged care.
He says that while the support for workers is "good news for the residents, the residents' family, and also for the staff", the budget allocation is not enough to provide financial stability for the sector.
'At the fiscal cliff'
Corderoy says that, over the last six years, the cost of Australian aged care's underfunding and operating losses have aggregated to over $5 billion.
"We're seeing an increasing number of aged care homes running at an operating loss, and in a cash loss as well," he told ABC RN's The Money.
"If this continues for too much longer, we're going to see [more] potential [residential facility] closures than we've seen over the last few years."
Corderoy says these ongoing losses mean additional investors are reluctant to step in, and that the industry's financial bleeding has "eroded the capital base" of the sector, preventing many new private investments.
He says aged care is, financially speaking, on the edge, and that in order for the industry to survive, the aged care sector needs immediate government funding, beginning from July this year, followed by a second tranche in January 2024.
"Even if we change the settings today to allow more revenue for everyday living and for accommodation, the lag period could be two to three to four years before it flows," he says.
"I think residential aged care is at the fiscal cliff."
Long-term problem
Government subsidies for residential patients account for only some of the cost of care and accommodation, not all.
Aged care facilities run on tight margins with research suggesting that even an 89 per cent occupancy rate results in operating at a loss.
Nicole Sutton, a senior lecturer in accounting at the UTS Business School, says in residential care, "most of the revenue is typically tied to the individual residents".
"That becomes really variable because it will change depending on the number of residents in a home on any given day, and that can change."
Other variables, including an older person's capacity to make financial contributions or the complexity of their required care, can further drain profitability.
"On any given day, you might have a resident leave, usually because they've passed away, and you may or may not have another resident come in that day. And you may or may not have a resident that comes in with the same circumstances," Dr Sutton says.
'It all adds up'
Recent events, including inflation, COVID-19 and a declining workforce, have placed further weight on residential aged care.
The latest budget measures are partly to help retain workers.
A "secret" report handed to the Morrison government in 2021 reported there would be a shortfall of 100,000 aged care workers by the 2028 financial year.
A 2022 industry report concluded that, by June 2023, 64,000 aged care workers could have left the sector.
A lack of resources has also been linked to the COVID-related deaths of more than 5,000 aged care residents since the start of the pandemic to the start of 2023.
"In terms of the financial woes of providers, [COVID] definitely has caused problems by increasing the expenditure on infection control, disrupting service delivery," Dr Sutton says.
"And on the other side, what's happened as a result of COVID is that we've got a worldwide shortage of healthcare workers, particularly for nurses."
Uniting NSW ACT chief executive Tracey Burton says the lack of staff also meant her organisation was forced to reduce the number of places available.
Currently Uniting NSW ACT has 5,600 older Australians in NSW and the ACT under its care.
"One of the problems we have right now in the sector is, with workforce shortages, we're needing to close beds. For example, our home in Armidale, we have 15 beds offline because we can't find the staff to open them," she says.
Burton says this has "huge [economic] implications for us as providers".
The required reforms of 2021's royal commission have also impacted the sector.
"The administrative burden that's come on with all the additional governance, the system changes — we've spent over $1.5 million just changing our systems for the new billing system, the new reporting for the quality system," she says.
"It all adds up."
Facilities across the country have struggled to financially meet these reforms. The Perth-based residential facility Brightwater announced in April it would be closing three aged care homes, in part due to the requirements of the aged care commission.
For example, from July 1, residential facilities are required to have a registered nurse on site at all times.
"For small providers, I think they can apply for some support. But for large providers, we've had to find all of that ourselves. And that's been part of the contributing factor to why our financial [deterioration is] speeding up," Burton says.
She argues the solution for the aged care sector is immediate funding and that any proposed long-term solutions should come secondary.
"I think [an] urgent injection of funding will definitely help to shore up the sector. We don't want to see more homes close. And unfortunately, I think, quietly, they are closing," she says.
"It would be much better if we could shore up the sector and then work together on finding long term solutions."
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