Estia, Japara, Regis market value plunge after fee change

Three listed aged care operators lost almost $400 million of their market value in one day on regulatory concerns.

Australia’s three listed aged care operators lost almost $400 million of their market value in one day after new regulatory concern hit investor confidence in the sector.

Estia Health, which has lost almost half its value in the past six days of trading, was down as much as 31 per cent yesterday in intraday trading, before recovering to close 11.7 per cent lower at $2.78.

The hit came after analysts downgraded all the aged care stocks following updated guidelines from the Department of Health on what additional fees operators can charge aged care residents.

Japara Healthcare’s shares fell as much as 26 per cent, before clawing back to close 14.7 per cent down at $1.74.

Regis Healthcare, which has the highest market value out of the listed players, lost $222m of its value, ending the day 16.6 per cent lower at $3.70.

The investor backlash was fuelled by the Department of Health outlining that additional service fees charged by providers would not be supported by the Aged Care Act if the fee did not provide a direct benefit to the individual or the resident cannot take up or make use of the services.

It also said it would not be supported where the activities or services subject to the fee were of the normal operation of an aged care home and fall within the scope of specified care and services.

A spokesman for the Department of Health said providers who were charging fees inconsistent with the requirements would need to review their approach.

“It is important that fees being charged to consumers are appropriate and consistent with the legislation,” the spokesman said.

Estia Health and Regis both declined to comment and Japara said it had given “careful” consideration to all aspects of the fee prior to its introduction.

Craig Holland, director of private aged care operator Menarock Aged Care Services, said the recent introduction of the additional service fee had been driven by the listed companies after the government made cuts to the aged care funding instrument. Through the ACFI, the government pays a fixed daily amount per person, with more funding available for residents who are judged to require more attention.

Mr Holland added that his board had taken a decision not to charge an additional service fee, saying he believed it did not provide a benefit to residents.

“We felt it wasn’t being directed towards the care of the resident and was effectively an income supplement and not something we felt was appropriate,” he said.

Cameron O’Reilly, chief executive of industry body Aged Care Guild, said yesterday’s market reaction wasn’t just about the latest update on fees but on the constant run of regulatory hits by the government.

“It is early days of the listed companies. Understanding of the regulatory risks has come in a very abrupt way and a very unprepared way.

“The government doesn’t concern itself with the viability of individual operators but it should concern itself with the viability of the pipeline of new beds to meet demand going forward. It you burn sentiment, you start to burn the capacity of the industry to meet demand going forward.”