The healthcare, and residential aged care, providers who survive and thrive in the current climate will be those who embrace and capitalise on the latest trends towards specialisation and diversification.
According to Shalain Singh, Head of Healthcare & Retirement Living at Colliers International, the sector is likely to face turbulence in the near term as it comes to grips with new quality and compliance standards as well as recommendations stemming from the Royal Commission.
This is in addition to shifts in consumer sentiment – from both a buying and expectations perspective.
“We have already seen a number of areas of key focus from the Royal Commission ranging from models of care, to compliance standards and, of course, the interface of residential aged care
with primary (GP clinics and the like) and tertiary (Hospitals) care systems as well as the home care regime and the seniors living sector,” Mr Singh says.
“Needless to say, everything from specified care and services through to who can charge for what and how things operate is all under review. In addition, the Department of Health is undertaking numerous work streams in its’ own right ranging from funding instrument recommendations through to potential changes to the ACAR system.”
Mr Singh says the way residential aged care has been used in the past is not how it will be used in the future, with the future consumer or resident and their families fundamentally different to those that sector has dealt with in the past.
“Healthcare, and by nexus residential aged care, is really now in the world of retail – value has to be demonstrated to the consumer irrespective of the underlying need,” he says.
“In that vein, those that will not only survive but thrive will be those that look to capitalise on the thematic trends. This includes opting for specialised co-morbidity based care models and designing new builds for not only the optimum size – building smaller – but functionally taking into account the multiple higher acuity needs of their residents.
“It will also mean potentially diversifying into primary care and/or seniors living and providing a continuum of care.
“Over time, the providers willwho success will have a lower reliance on RAD capital. They will be those who change their thinking from one of unilateral price and service setters, to more akin with the likes of retail – where value has to be not only talked about, but also provided to the consumer.”
To weather the current storm, providers need to understand that competitive threats come not just from residential aged care, but from the acute setting, elements of home care and increasingly the seniors’ living sector.
Those who increase the use of technology to assist making the workforce more agile and efficient, as well as potentially automating low impact tasks, will be those who thrive.
“Of course, with system-wide changes as large as those faced by the sector at present, consolidation will occur,” Mr Singh says. “Thus far in 2019, there has been significantly more activity in both owner-driven and non-compliance driven sales than the previous 12 months.
“This trend is likely to continue as consumer expectations, competition and intensity of compliance requirements increase whilst the ability to grow revenue lines remains constrained.
“We also anticipate the level of new builds to slow, which in a way may not be such a bad thing if an element of the occupancy issue is indeed driven by short term oversupply.
“This, in our view, will also permit the capital and senior debt markets to form a view on their participation with the sector and, simultaneously, will see operators potentially build some reserves and/or reduce debt – either way strengthening underlying balance sheets.”
Mr Singh says the services provided by the sector are essential for not only elder Australians but also their families and the wider economy as a whole.
“In that vein, despite the turbulence that is being, or will be, experienced in the short term a sustainable sector has to emerge – the alternative is just not an option,” he says.