What happens when aged care operators go broke

It's a tough time for some residents too. The Earle Haven aged care facility at the Gold Coast has been the target of intense media scrutiny due to its extraordinary sudden closure. Everyone wants to know how the dispute between the owners of the village and the management institution caused the facility to be closed down with no notice. It's hard to imagine anything much worse than very elderly residents being evicted from their rooms in the middle of the night, and their medications and patient records being confiscated as well.

In Perth, one of the most luxurious (and expensive) aged care groups went into voluntary administration, sending a shock wave through the industry. The group has two homes, one in Subiaco and the other in Como. The price of beds across the two homes ranges from $795,000 to $1,250,000 with the operator holding around $100 million dollars in what used to be called "accommodation bonds", and are now known as "refundable accommodation deposits".

Operator Berrington Care Group say that, unlike 44 per cent of aged care operators who are operating at a loss, Berrington is profitable. They claim that the present predicament is the result of an issue with their major creditor.

So what will happen? The Administrator (KPMG) will seek to preserve the company, but if that isn't possible, Berrington may be wound up. In the meantime, the aged care facility will continue to operate, and the CEO has stressed that there will be no reduction in care, services or staffing levels throughout this process.

However, wondering if they will need to relocate residents is a real concern for families, along with fears that accommodation deposits may not be refunded. A Health Department spokesperson confirmed that, "there are currently no concerns regarding the quality of care at either of the Berrington facilities. Residents' refundable accommodation deposit balances are guaranteed by the Commonwealth through the Accommodation Payment Guarantee Scheme. In the event that Berrington Care Group goes into liquidation and is unable to refund RADs, the Guarantee Scheme will meet the refundable accommodation payments."

Sadly, with so many aged care operators on the brink, it is a matter of when, not if, more fail. The fact that 44 per cent of aged care homes are now in the red is a cause for great concern.

Aged care homes don't go broke overnight. Before they get to the point of closing the doors they normally do everything they can to improve efficiencies and cut their costs. And of course, the greatest cost is care.

According to Grant Corderoy, from accounting firm Stewart Brown, "aged care homes have to manage a number of key factors including occupancy, getting the resident care mix right and reducing costs in order to be profitable or return to profit". He says the other issue impacting operators is community expectations: there are a significant number of older homes that don't enable care to be provided efficiently, and attract a lower price, meaning that the care is underfunded from the government and the consumer.

The fact that accommodation deposits are guaranteed is an important safety net for residents, although the government is considering alternatives to its ongoing role of underwriting around $27.5 billion in deposits.

But aged care residents deserve more certainty than "if the operator goes broke, you'll get your money back". They need to know that they are going to be cared for now and in the future, and the system needs to enable the operator to do that without going broke.

A major plank of government policy should be ensuring that aged care institutions have the cash flow to stay in business.