Aged care

Where’s the support for aged care facilities running at a loss?

insight featured image
We all know the population is aging and we all accept our elderly population needs care. But aged care is drastically underfunded, the funding model is not fit for purpose, and we are rapidly in danger of running out of beds for the elderly.

Te Whatu Ora is working to come up with recommendations and new funding models, and there will be an inquiry into aged care conducted by the Health Select Committee – so we hoped this would be the year aged care finally got a mention in the Budget.

Up to 12,000 beds short by 2032

Just like the rest of us, Te Whatu Ora can see the giant wave of older New Zealanders on the horizon. It began its review of aged care funding in July 2023, starting with an analysis of supply and demand. The first report, by Sapere, was released in January 2024, and revealed the sector’s serious under-funding. 

It forecast a shortfall of almost 12,000 residential aged care beds by 2032. The report also concluded that current funding models are no longer fit for purpose, that the access to aged care has ethnic inequalities, that there are significant workforce pressures – and that all these issues are worse in the regions. 

Why new expenditure in future Budgets is mission-critical for aged care

Operators are running at a loss in many areas

Aged care operators in every part of New Zealand apart from Auckland and Bay of Plenty are reporting net losses, according to a 2024 Ansell Strategic study. The study found operators had average earnings (EBITDA) per occupied bed per day of just $3.94, down 83% from 2017. Costs have risen considerably over the past six years; personnel, construction, and basic utilities have all soared, while revenue has barely budged. 

Factoring in other costs (depreciation, amortisation and interest), the study showed 56% of facilities made a net loss – on average, $4.24 per occupied bed, per day. In some regions it’s even worse. The average operator is losing more than $10 per occupied bed per day in Northland, Taranaki, Hawkes Bay, Wellington, Otago and Southland. 

Te Whatu Ora needs 1,000 beds to be built every year for the next decade. But investment in aged care facilities is at an all-time low. Aged care businesses are shutting down – even those running as not-for-profits. Reefton, Havelock North, Upper Hutt and Auckland’s Mt Eden have all experienced aged care home closures over the past two years. 

A two-tier retirement is exacerbating inequality

As the sector keeps losing money, inequality is becoming entrenched. 

While aged facilities face closures, retirement villages, by comparison, are growing. Retirement villages provide accommodation for independent seniors who don’t require much, if any, nursing. Operators make money on the properties as they are resold, so these are profitable ventures. 

Many retirement village operators also have aged care facilities. These are a sales tool to make the retirement village more attractive. They offer a ‘continuum of care’, so you can go from independent living, to assisted living, to aged care, all at the same facility. The retirement village effectively subsidises the aged care model. 

As a result, the best way to secure a bed in an aged care facility is to have enough money to buy into a retirement village. Most of the senior New Zealanders who are in a position to buy a retirement unit are homeowners with capital wealth. Older Kiwis without assets or high incomes find it much more difficult to access aged care beds. 

No beds? The burden falls on hospitals and families

What happens when there are no affordable aged care beds available? Older New Zealanders who need care often rely on family members, who may need to reduce their hours of work or even quit their jobs to look after their relatives. This takes the carer out of the wage-earning economy, which may contribute to the carer themselves struggling later in life. 

It’s worse for elderly people without a family support network. They cannot be discharged from hospital because they have nowhere to go – no aged care beds and no family carer. This leads to hospital overcrowding; in 2022, no public hospital was meeting Health NZ’s six-hour target for emergency department stays. In March 2023, there were 138 people waiting in hospitals to be transferred to rest homes, dementia, rehabilitation, or other care facilities, according to figures cited in the Ansell survey.  

This is an exorbitantly expensive way to care for elderly patients. It costs around $1,700 per patient per day for hospital care, compared to aged care costs of between $194 and $358 per bed per day. Spending on aged care makes economic sense, because every dollar the Government invests will result in big savings in hospital care. 

A new funding model, PPPs and more workers

In future Budgets, it would be fantastic to see an indication of money set aside for a new funding model. 

It would also be encouraging to see some ideas for how to encourage investment in the aged care sector – could it be public-private partnerships? It costs around $250,000 to build and bring a bed online, according to the Aged Care Association NZ. This is a high-risk industry that is very much in the public eye, caring for some of our most vulnerable people. Nobody should be expected to do it for free, and there needs to be enough profit in an operation to fund excellent care and attention to detail. With support from public investment and a new funding model, operators will be able to build new aged care facilities and get a return on their investment. 

Finally, it would be enormously helpful for the sector if more nurses were available. Labour is an ongoing headache in the aged care sector, with nurses hard to recruit and retain. Recognition of overseas qualifications, for instance, and removing immigration hurdles for nurses - both would be welcome. 

Aged care is not a glamorous industry but it’s one that affects us all. Failing to deal with our aging population leads to some extremely unpalatable outcomes: family members under pressure, hospital overcrowding, early death and even homelessness. Here’s hoping a better solution is on its way.