Preparing your 2018 home care budget

15 Mar. 2017

By Ken Ridgwell and David Ettershank – Principals Outcomes Plus

This paper is Part 2 in a series to be released in the coming weeks that examines some of the issues facing aged care Management and Boards. This paper reflects on some of the issues facing home care operators when preparing their 2018 budget.


Home Care post February 2017

The most difficult aspect of preparing the 2018 budget will of course be the impact of the post February 2017 home care reforms. It is our experience that most people have no idea how they will be impacted (with good reason). Worse, unfortunately, is that many have either not bothered to develop detailed strategies for the new home care paradigm or have left the implementation of these strategies far too late.

Overseas experience has taught us that there will probably be significant disruption and that it will last for at least a year or two. The Department of Health has already told us that they received 135 new approved provider applications in 2015 alone. We suspect the number of applicants is accelerating right now based on the level of enquiries into our office.

When preparing the budget for 2018 there are some critical questions to be asked by management and Board members such as: –

Do we have realistic expectations of income levels based on our new marketing strategies?

Can we achieve something close to historic margins when we know that there will be disruptors trying to “buy” market share through aggressive pricing strategies?

Do we have a good value proposition for our services?

Have we allocated enough capital and recurrent funding in our budget for IT and systems development?

Are we placing too much reliance on diversification strategies to maintain our income or stay viable?

The list seems almost endless when we start to drill down into each specific question. For example, if we are worried about margins, what is the impact of our EBA and work practices on unit costs? How do we maintain the quality of our workforce and remain price competitive?

Aged care Management and Boards have some tough decisions to make for the 2018 budget that cannot be ignored. They have already experienced the pain of impairment charges on their intangible asset values in 2016 (Home care licence write-downs) with possibly final impairment write-offs in 2017. The “guaranteed” income sources we have had in the past will soon be gone.

Most home care portfolios will be experiencing an average churn rate of between 18 and 30 months for their existing client base. If these clients are not being replaced as they leave the program, viability issues will become apparent very quickly.

Here’s a few suggestions to think about for 2018.

Do we understand our fixed costs? Have we modelled what will happen to our bottom line if we start to lose market share and say 10% to 20% of clients aren’t retained? Have we got a fall-back (exit?) strategy if things go bad?

Have we allocated the same funding for marketing as we did in 2017, or have we allocated more funds to enhance our digital marketing and referrals networks?

What are our staff retention strategies and have they been costed into the budget? – There are lots of new players in the market looking to poach experienced care managers and staff.

Will we be playing catch-up with our competitors because we did not invest in new and assistive technologies or systems?

Do we have the same delivery model that we used last year or have we attempted to reduce costs by identifying duplication and streamlining administrative tasks?

Have we changed our pricing structure and margins to reflect our offering in a competitive way? Are our pricing schedules too complex for consumers to understand? Are we offering a “packages of services” that are simple to message (and/or a point of difference) or is everything just an add-on?

Is our home care retention strategy (basically) relying on brand and being “the quality provider”? If so, that’s a pretty crowded little island we are huddling on.


Once again, the list is endless but we think the point to be made is simple – don’t keep doing what you did in the past because the industry dynamics are changing.


In the next instalment, we’ll look at some accommodation payment strategies in residential care.

Ken Ridgwell and David Ettershank are founding Principals of aged care consulting firm Outcomes Plus.  To view their full credentials click here.

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