The Turnbull government's $1.2 billion of aged care funding cuts could force smaller providers to close down or sell up and may lower standards of care for the elderly, industry groups warn.
Treasurer Scott Morrison's budget outlined $1.2 billion of cuts over four years as the ageing population drives increasing demand for aged care services.
Industry body Leading Age Services Australia (LASA) said 38 per cent of aged care providers were already not viable.
Consolidation: Smaller aged-care providers are already struggling. Photo: Mario Borg
"Our seniors living in remote and rural areas will not be able to age in place and will need to travel long distances, far from families and friends, to receive the care they deserve," LASA spokesperson Beth Cameron said.
Sources said that increased pressure on small players would accelerate consolidation of the fragmented industry.
The cuts will also provide the federal opposition with ammunition to attack the government in the imminent election campaign.
Cuts: Treasurer Scott Morrison unveiled $1.2b of cuts to aged care funding. Photo: Alex Ellinghausen
Shadow minister for ageing Shayne Neumann said that the "savage cut" has "failed more than 353,000 Australians living with dementia".
Funding for aged care is complex. The $1.2 billion in cuts comprises changes to the scoring matrix, which determines payments based on acuity of care provided, and a 50 per cent reduction in the indexation of the Complex Health Care Supplement.
Investors reacted negatively to the news, sending the shares of listed aged care providers Regis, Japara, and Estia down 6.6 per cent, 3.8 per cent, and 2.6 per cent respectively.
Estia chief executive Paul Gregersen said the cut was bigger than expected.
"The magnitude of the announcement is somewhat surprising," he said. "But from another perspective it probably is an affirmation that reforms are working well and the people admitting to aged care are of significantly higher acuity than they were before."
Including cuts announced in the December mid-year budget update, around $1.62 billion of government funding has been cut and will have to be met by increased contributions from the elderly.
Estia estimates that the impact in 2016-17 is about $223 million, which equates to $3.12 per day based on the number of aged care places. Given an average Aged Care Funding Instrument of $180, this is a reduction of 1.7 per cent before indexation.
Without further detail it is impossible to gauge the exact impact on individual businesses.
Mr Gregersen said he expected the impact on Estia to be minimal. He said providers could recoup the hit through increased accommodation prices or by providing additional services.
CLSA analysts David Stanton and Zara Lyons estimate that the listed aged care sector derives 70 per cent of its revenue from the government and have cut their valuations on Estia, Japara, and Regis by 8.8 per cent, 6.4 per cent and 10.2 per cent, respectively, in the wake of the cuts.
"We continue to expect the government will continue to rationalise the sector and is likely to attempt to extract an efficiency dividend from the sector over the medium term," Mr Stanton said. "We believe the aged can increasingly pay for their care."
Bank of America Merrill Lynch analyst William Dunlop said that while $1.2 billion is a "big headline number" it is small in the context of the $48 billion anticipated spending in aged care over the four-year period.
Aged Care Guild chief executive Cameron O'Reilly will meet with the Department of Health on Thursday and Friday to get more detail about the changes and consider the industry response.
