30 November 2018

It’s no secret the demand for aged care services is increasing. The population share of Australians over 75 is projected to reach 8% by 2023 and will continue to grow over the next two decades.

But as demand increases, there are more reports of neglect and poor quality of care for residents and chronic levels of understaffing in the industry.

A Royal Commission into the sector was announced to investigate and provide recommendations to achieve a higher quality of care and safety for residents.

The terms of reference for the commission were announced in October, following more than 5,000 submissions by industry professionals and aged care consumers.

A necessary step in improving the provision of aged care and attaining a higher standard of care and safety for elderly Australians, the likely outcomes from The Royal Commission will have far and wide implications for healthcare real estate. However, these implications won’t be known until the Commission’s findings are released next year.

The findings are expected to reveal deep cracks, including poor quality of care and negligence, not restricted to any one part of the aged care sector.

Facilities for-profit and not-for-profit, large and small, regional and metropolitan will all be affected.

Large operators will be the first to feel the impact of The Royal Commission as they defend themselves before the courts, but the inevitable human capital investment will negatively affect profitability, impacting the sector long-term.

With the focus of the government to provide a higher standard of care in aged care facilities, and to restore the trust of the community, they are likely to implement many of the Commissioners recommendations.

If staffing ratios are recommended and mandated, it will have a significant impact on the bottom line. However, due to the New Aged Care Standard coming into effect next June, it is certain operating costs will increase in line with a need for greater compliance.

Smaller operators, which most at risk of being unable to comply with a higher standard of care and the associated costs, are expected to sell out or be acquired.

In an industry where many operators have just one facility, mergers and acquisitions are likely to become more commonplace in order take advantage of economies of scale. This will present opportunities for investors to break into the market, potentially at a lower price point.

Despite the sector’s anticipated disruption, The Royal Commission is good for all Australians and consolidation in the number of operators will create a more sustainable and better quality of care in the industry.