Nursing home sector set for expansion

Nursing home sector set for expansionNursing homes provide 24-hour nursing care for residents who are typically aged 70 years and older. The industry is set to expand at a strong rate due mainly to the ageing of the Australian population.

The nursing homes industry is expected to generate revenue of $8.8 billion in 2009-10, representing about 6.5% of total health expenditures in Australia.

Revenue of the nursing home industry is expected to grow at an average annualised real rate of 4.6% in the five years through 2009-10. Growth in industry revenue will come from increases in the number of high-level care places, in resident charges and, to a lesser extent, in government subsidies.

Industry revenue is expected to grow at an average annualised real rate of 5.1% in the five years through 2014-15, and will be underpinned by growing demand resulting from an ageing population and an increase in the average dependency of residents (ie. requiring a higher level of nursing support).

Industry outlook

The ageing of Australia’s population will help propel the nursing home industry’s revenue at an average annualised real rate of 5.1% in the five years through 2014-15. Strong revenue growth will be a factor that will see a moderate increase in industry profitability.

Private expenditure on nursing homes is expected to increase at an average annualised real rate of about 6.0% in the five years through 2014-15, which means that individuals will, on average, take on more responsibility for the cost of their own care. Growth in private expenditure will come from an increase in the number of places, and from increases in annual accommodation charges and daily resident fees.

The barriers to entry to this industry through Greenfield operations are considered to be moderate to high, and include the cost of establishing the nursing home, attaining Approved Provider status under the Aged Care Act and meeting Commonwealth Government standards for facilities and quality of care, and thereby achieving ‘approved’ status, which entitles the nursing home to receive certain funding.

Key success factors:

  • Provision of appropriate facilities: Accommodation facilities should be safe and comfortable for residents, while also providing for efficient care provision and low maintenance.
  • Must comply with government regulations: It is essential that firms comply with Commonwealth Government registration for the nursing home.
  • Ability to take advantage of government subsidies and other grants: Government subsidies form a significant proportion of total revenue.
  • Optimum capacity utilisation: Maintaining high levels of occupancy on a consistent basis.
  • Access to multi-skilled and flexible workforce: The ability to manage and retain good staff is important to keep down labour costs (eg. from temporary staff) and to ensure an adequate level of care is provided.
  • Access to volunteer labour: The access to voluntary labour can help reduce labour costs for not-for-profit operators.
  • Economies of scope: The mix of categories of residents in the nursing home.
  • Economies of scale: The size of the nursing home in terms of number of beds.

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Robert Bryant is the general manager of business information firm IBISWorld.


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