Re: LVL
Aged care industry must grow by up to 27% in 6 years to meet ageing population demand
15/03/2005
The aged care and retirement village industry must start making serious inroads in development and growth if it is to meet the ever increasing demand of the ageing population, according to research by KPMG’s Corporate Finance practice.
Over recent years the provision of services to the aged population, in particular the supply of aged care beds, has come under substantial pressure said KPMG’s Associate Director, Adrian Arundell.
“The rapidly ageing population has resulted in a significant decline in the number of places relative to the 70+ age group – declining from 91 places per 1,000 people aged 70+ in 1996 to 83 places in 2004.
“Similar pressure is being felt by the retirement village industry (independent living units).
“The consequence of this trend continuing includes increased waiting times as well as potentially higher costs for residents entering aged care,” said Mr Arundell.
The Federal Government’s allocation of an additional 8,600 places on 5 March 2005 is likely to ease pressure on beds in the short term, assuming that all such allocations can immediately be transferred into active places (increasing the ratio to 88 places per 1,000 people aged 70+). Notwithstanding this, additional structural changes are required to ease the medium and longer term pressures confronting the industry.
To simply maintain the status quo – the same level of aged care beds and retirement village units in relation to population - the industry needs to grow by at least 18 percent by 2011. However, a 1 percent increase in demand means the industry suddenly needs to grow by 27 percent, said Mr Adrian Arundell.
“As the population continues to age there will be an unprecedented demand for these types of services. We estimate that by 2011, assuming resident take up does not change, there will need to be at least 185,000 aged care beds (an increase of 29,000 over current levels) and nearly 70,000 retirement village units (an increase of 11,000 units over current levels). This represents total growth of approximately 18 percent over this period,” said Mr Arundell.
“A more startling statistic arises, if it is assumed that resident take up increases. A realistic assumption that there is a 1 percent per annum increase in demand means that by 2011 there will need to be an additional 42,000 aged care beds and 16,000 retirement village units. This represents total growth of approximately 27 percent over this period.”
Mr Arundell believes that in order for the aged care industry to meet these demands, there is a need for greater involvement by private investment, a further boost in government incentives and a simplification of the regulation regime.
“At the present time the industry is fragmented and made up of a few large scale operators and numerous small players, which means that most providers are not able to take advantage of economies of scale in terms of upgrading facilities and investing in capital equipment. What is needed is an injection of private investment in the sector; however, the government should focus on alleviating the burden of entry and operation by reducing the amount of regulation in the sector. Clearly, however, any regulatory restructuring needs to be balanced against the need to ensure a high level of confidence is maintained in care services and the credentials of care providers.”
“In addition, the level of government funding to high care aged facilities needs to be urgently addressed. Without an increase in funding to these facilities, which provide 24 hour nursing care to patients, there simply will not be enough beds to cover the demand,” said Mr Arundell.
Recent private sector growth in the market has been strong as key operators and financial players identify the looming supply and demand issue and introduce innovative financing structures to facilitate investment. Of recent transactions in the industry the most notable have been Retirement Care Australia’s acquisition of the aged care assets of The Salvation Army, Southern Territory, and Craigcare’s acquisition of Australian Residential Care.
KPMG’s Corporate Finance practice was recently involved as joint financial adviser in the sale of the aged care assets of The Salvation Army, Southern Territory.
Snapshot of the aged care industry
• Since 1998, the market has grown at a cumulative annual growth rate of 4.41 percent and is forecast to grow at 3.53 percent beyond 2004.
• The industry exhibits low concentration. The ten largest providers comprise 16.7 percent of the Australian market.
• 78 percent of beds are in NSW, Victoria and Queensland.
• Approximately 80 percent of ‘for profit’ beds offer high level care.
Snapshot of the retirement village industry
• Currently there are approximately 1,960 retirement villages in Australia holding an estimated 80,000 residents (in 60,000 units).
• NSW has the highest number of villages with 700, while Victoria has 400 and South Australia has 330.
• The percentage of private retirement villages is estimated to be approximately 35 percent with not-for-profits at 65 percent.
Source: KPMG’s Corporate Finance practice and the Australian Institute of Health and Welfare
Note: 2005f represents the impact of the recent Federal Government announcement (assuming all allocations immediately translate into bed places)
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