There are increasing concerns about the long-term financial viability of residential aged care in Australia, as more than half of all residential homes are operating at a loss. This comes despite substantial growth in spending on aged care services by the Australian Government, growing from $19.9 billion in 2018-19 to $28.3 billion in 2022-23.

Many providers are challenged to sustain their business with reports of long-standing losses in the provision of everyday living services and accommodation. Providers are also experiencing increasing financial pressures from higher staffing costs, which are expected to grow with recently introduced regulatory controls on staffing levels. These providers operate in a highly regulatory environment where revenue streams are relatively fixed by regulation and the majority of providers’ revenues are funded by the Australian Government (66% in 2022-23). This means that providers have limited control over revenue and their major expenses, making effective cost management crucial for their financial viability.

The concerns about long-term viability for the sector are potentially heightened as smaller providers exit the market resulting in a trend of consolidation as more residential aged care homes are operated by larger ‘chain’ providers. Since 2013, the total number of residential aged care providers decreased by 27% to 764 in 2023, with the largest providers (with 20 or more homes) now operating over one third of all residential places.
The concentration of homes among fewer providers raises increased risk regarding the continued delivery of care to older Australians if these providers were to exit the market. The impact of a large provider failure in rural, remote and other thin markets is especially significant. It also has a broader salience as the aged care sector as a whole is struggling to meet the growing future demand of older Australians requiring these services.

Given market trends and regulatory factors in the sector, it is critical to examine whether the risks of consolidation can be ameliorated by larger providers achieving cost efficiencies for financial sustainability and long-term viability, whilst providing quality of care.

Using a longitudinal dataset for the continuing operational and financial data of over 1,000 unique residential homes, this study shows evidence that larger providers achieve stronger financial performance through maintaining lower average expenditure. The evidence from this study has implications for older people requiring care, providers, regulators and policymakers, all of whom are concerned about sector viability.