industry & policy
In addition to the challenge of new competitive supply, incumbents are having to consider potential changes to the residential aged care landscape, such as:
• The Review of the Aged Care Funding Instrument which may lead to a completely new revenue model.
• Shorter lengths of stay, which are increasingly evident, may mean a fall in RADs relative to DAPs( a daily rent).
• The potential elimination of ACAR in all but rural and remote areas. This may lead to a greater intensity of competition.
• Less in the way of RAD inflows compared to new entrant. Before benefiting from the new RADs, incumbents have to pay back existing RADs to residents in a redevelopment – cash outflow! This contrasts starkly with a new entrant that does not incur this financial obligation.
These uncertainties challenge incumbents in developing business cases that stack up.
TARGETING NEED So are residential aged care providers optimally targeting need? Based on my experience in conducting market research, the answer is, in a lot of instances, no.
Planning regions are geographical areas; boundaries are defined by the Department of Health to allocate the aged care supply. By contrast, a catchment area is a smaller geographical area where a facility’ s prospective residents tend to currently reside. The geographical boundary determination is based on factors such as land use, drive times, internal migration trends and levels of socioeconomic status. Many catchment areas can form a planning region.
RAC developments are often opportunistic, targeting high median house prices and land availability, not necessarily targeting need within a catchment. I observe that some catchment areas within a planning region are in a statistical oversupply, whereas the planning region as a whole is in statistical undersupply.
Up against new supply, it is essential for existing providers to understand the external market environment and differentiate their product / service to ensure long-term financial sustainability. For new providers, it is imperative to gain deep understanding of the market before entry. This means determining the product and service features that they are going to offer that will respond to unmet demand. ■
Safdar Ali is the director and founder of The Ageing Equation, a consultancy specialising in quantitative and qualitative market catchment studies to support business cases in RAC and retirement living for new developments, mergers and acquisitions and ACAR applications.
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