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Rest homes: meeting future demand

Thursday, 9 June 2011

As the first group of baby boomers hits retirement age, the article below talks about how future rest home bed capacity might be met in New Zealand.

It originally appeared in the June 2011 Greypower magazine, and is based on a speech Oceania's GM Marketing & Village Operations gave at Greypower's 2011 AGM.

Article as follows:

Rest Homes: how will we as a nation ensure future demand is met?

Jeremy Leach, General Manager Marketing & Village Operations, Oceania Group.

 

With the number of New Zealanders aged 65 or older set to increase from 512,000 to 944,000 over the next 15 years, what aged residential care options can today’s recent retirees expect?

And more importantly, how will we as a country fund the additional residential care beds this will require?

Like most Western Countries, New Zealand has an ageing population. In fact, our population is ageing to such an extent that, by 2026, there will be an 84% increase in the number of people aged 65 or older.

According to the Grant Thornton report The Aged Residential Care Service Review* , the most extensive report conducted on the subject, in order for supply to keep up with projected demand, this will require the construction of an additional 12,000 – 20,000 aged residential care beds.

At first glance, these projections would appear to indicate a golden time ahead for New Zealand’s aged residential care operators.

But dig deeper and what is revealed is a funding and capital investment challenge that will require all stakeholders – the operators, Government and residents - to work together to solve.

Here’s the reason why: a look at some of the figures behind the headline numbers reveals that:

1. To build a new residential care facility an investment ranging from $ 160,000 to $ 200,000 per bed is required.
2. The optimal economic size of an aged care facility is 80+ beds yet at present half New Zealand’s aged care facilities have 50 or fewer beds.
3. As a result of the combination of (1) and (2) above an operator would need to invest at least $ 12.8 million, at a minimum, to build an economically viable facility.

However, given the level of investment required, the current funding for aged care based solely on the gazetted rate paid by the DHB will not be sufficient to attract the level of investment needed to meet demand, or even to sustain current capacity.

Furthermore, the additional investment required extends further than bricks and mortar.

With over 50% of current residents having high acuity needs, and their median age being 86, operators will also need to invest heavily in ongoing staff training.

Hand-in-hand with this future need to up skill staff is the need to simply attract increased numbers of staff full stop– by 2026, the size of the workforce in the aged care sector will need to increase by 50 – 75% to meet projected demand.

As the Grant Thornton report states, “The financial returns being achieved by the majority of existing operators cover operating costs. However, returns are below those an investor would require to encourage new investment to replace ageing facilities or to stimulate new capacity in rest home, hospital and dementia services”.

And as we know, this is against the background of investment capital being harder to come by than prior to late-2008, a situation which means companies and entrepreneurs across all sectors are now competing for a smaller pool of money.

So what is the solution?

What is required to provide the funding necessary to meet future demand? Particularly as not only will sheer numbers be greater, but also because, compared to a generation who experienced both the great depression and a world war, baby boomers are likely to demand a superior “product” and more choice.

The options are two-fold:

1. Increased funding from government for senior care.

Though even if this does increase, given other government obligations and the fact there will be fewer tax-payers per retiree, there will be a limit to how far government could increase this funding proportionately.

1. Residents contributing some funding themselves.

It is almost inevitable that, if they wish to have choices to match their expectations, today’s recent retirees will need to pay more towards their care than those currently living in an aged care facility.

One such self funded model is the licence to occupy model for rest home rooms and suites.

This particular licence to occupy model is currently providing a viable option for some seniors and operators.

So how does it work?

The key to it is a one-off capital payment from the resident, and in the case of Oceania Group this can be transferred from a retirement village (independent living) licence to occupy.

This model works because it allows the operator to develop high quality facilities without holding unsustainable levels of debt. It also bridges the gap between what seniors (and their families) want when they need residential care and the ability of the country to fund it.

There are currently 70 such rest home and hospital level care rooms at Oceania and their value to residents can be summed up in the words of one resident who says, “Ican’t believe I am going to be able to spend the last years of my life in such a beautiful place”.

In fact, we think those words sum up perfectly why the licence to occupy rest-home suite model can work to …

- Create new capacity to meet future demand;

- Help upgrade existing facilities; and

- Most importantly: create a “home” that will delight our seniors as they move in to residential care.

In summary, while it is unknown exactly how future residential care will be funded, and proportionately by whom, what is known is that it will require the close co-operation of operators, residents and Government.

For some indication as to what might happen in future it is worth closely monitoring what happens in re-establishing care bed capacity in Christchurch. As a result of damage sustained in the quake, 600 beds were lost, including 140 Oceania Group beds. To regain this capacity it is estimated an investment of $ 96 to $ 120 million is required.

 

* About the Grant Thornton report The Aged Residential Care Service Review.

Launched in September 2010, this is the most extensive review of its type ever taken.

The review was undertaken by a Grant Thornton New Zealand led project team and overseen by a Steering Group including representatives from District Health Boards and Aged Residential Care providers, co-sponsored by New Zealand Aged Care Association and the 20 District Health Boards of New Zealand.

You can see either a 16-page summary or the full report by visiting www.grantthornton.co.nz

 

About Oceania Group

Oceania Group owns and operates 58 retirement villages and rest homes.

On any given day, it has over 3,000 older New Zealanders directly in its care, and over 1,000 residents living independently.

It is a member of both the Retirement Villages Association and the New Zealand Aged Care Association.

To learn more please visit www.oceanialiving.co.nz or call 0800 623 264.