Liquidity rules spark alarm in aged care sector

Aged-care providers warn they won’t remain financially viable under a plan that would force many of them to have millions of dollars set aside in cash reserves as part of strict liquidity rules.

Aged care is an area that will require more trained staff in the future

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Aged-care providers are warning they will not be able to remain financially viable if “half-baked policy proposals” are carried through that would force them to have millions of dollars set aside in cash reserves as part of strict liquidity rules.

Concerns over new Financial and Prudential Standards, proposed by the Labor government last month, come as wait times for home care packages remain high, with more than 80,000 elderly Australians on the wait list as of December.

Under the new standards, providers would face an enforceable minimum liquidity amount of about 35 per cent of quarterly cash expenses plus 10 per cent of refundable deposit liabilities.

The new rule would mean some providers would need to have more than $200m extra in cash reserves set aside. Consultation over the proposed standards was open for only a handful of weeks.

Retirement Living Council executive director Daniel Gannon said he believed Labor had “prioritised tight reform time frames over properly consulted and well considered policy change”.

“When this happens, we are lumbered with substandard outcomes for everyone. In this instance, some operators will be hundreds of millions of dollars worse off,” he said.

“There are dozens of not-for-profit operators across Australia who are now considering cancelling new development of aged-care facilities and retirement villages as a result of these proposals.

“Some banks are also reassessing whether they will proceed with lending for certain developments.”

Charles Moore, chief executive of BaptistCare – which has become the third-biggest care provider after the merging last week of three smaller organisations – said no consultation had taken place for the dramatic new rules.

“We saw, completely with no consultation, draft legislation around the changes to the liquidity ratios for residential aged-care operators,” he said.

“It will see us, under that draft legislation, having to hold almost three times as much cash as we would today. Now, again, being the larger you are, the more chance we have of being able to preserve that cash.

“For small operators it’s going to make running your business very, very difficult.”

Mr Moore said the BaptistCare merger was driven in part by the desire to insulate the companies against coming challenges in the sector.

“The changing in the pricing dynamics, and the way the home care market will work, is placing further burden on operators, there is going to be reduced margins,” Mr Moore said.

“So you’re going to have higher volumes or more clients, and you’re going to have to invest in better and more intelligent systems so that your staff can optimise the time they’re with clients not doing paperwork. I just don’t know how small operators will actually be able to remain in business.”

A spokesman for Aged Care Minister Anika Wells said the Royal Commission into Aged Care Quality and Safety recommended strengthening the prudential standards, including introducing enforceable liquidity requirement.

“Without a minimum amount, liquidity can vary a lot across the sector and some providers are very vulnerable to short-term changes in their cashflow. That’s a problem because it can cause those providers to decide to reduce costs in ways that could affect the safety and quality of the care and services they deliver,” he said.

“Consultation is open until 14 March 2025 and providers are encouraged to provide their feedback to the Commission. Once finalised, the new Financial and Prudential Standards, including a minimum liquidity amount, will come into effect from 1 July 2025, subject to passage of subordinate legislation through the parliament.”

Opposition aged care spokeswoman Anne Ruston said the financial standards’ impact on retirement villages was particularly concerning. “In the middle of a cost-of-living and housing crisis, Labor is putting the viability of retirement villages at risk despite the affordable housing and critical support they provide to older Australians who want to remain independent in their own homes,” she said.

“At the same time, the government is overseeing a home care wait list that continues to blow out. In fact, it has almost tripled in the last 18 months alone, leaving 81,000 vulnerable Australians without the critical support they have been assessed as needing.”

The Albanese government announced in September it would deliver more than 107,000 packages in the next two years, the largest-ever home care package release.