Aged Care Reform 2025: A CFO's Financial Preparation Guide

Aged care is experiencing its most significant transformation in a generation. The new Aged Care Act, strengthened quality standards, mandatory staffing requirements and ongoing AN-ACC refinements create a complex reform environment that demands careful financial preparation.

This guide provides practical guidance for CFOs preparing their organisations for aged care reform in 2025 and beyond.

Understanding the Reform Landscape

Multiple reform streams are converging to reshape aged care economics and operations.

The New Aged Care Act

The new Aged Care Act represents a fundamental shift from provider-focused to rights-based legislation. Key elements affecting financial management include strengthened consumer rights creating new obligations around information provision, consent and complaints. Provider obligations introduce enhanced requirements for governance, quality and safety. Regulatory powers provide expanded enforcement options including civil penalties. Whistleblower protections create new protections that may increase issue visibility. Transition arrangements phase in requirements over defined periods.

Financial implications include increased compliance costs, potential penalty exposure, investment requirements for systems and processes, and staff training needs.

AN-ACC Evolution

While AN-ACC replaced ACFI in October 2022, the model continues to evolve. Areas of ongoing development include classification refinements with potential adjustments to class boundaries, assessment approaches and complexity factors. Indexation methodology determines how funding rates are adjusted for cost increases. Shadow assessment continues with assessment workforce review of classification accuracy. Data and analytics improve IHACPA analysis capabilities for identifying anomalies.

Financial implications include ongoing uncertainty about funding adequacy, need for continuous classification capability development, and importance of documentation quality.

Staffing Requirements

Mandatory staffing requirements create significant financial and operational obligations. Key requirements include 200 care minutes per resident per day minimum (increasing to 215 from October 2024), 40 registered nurse minutes per resident per day, and 24/7 RN presence from 1 July 2024.

Financial implications include potential workforce cost increases, rostering complexity, recruitment and retention challenges, and agency cost pressure where permanent recruitment is difficult.

Quality and Star Ratings

The Star Ratings system and strengthened quality standards affect both compliance costs and market positioning. Key elements include public Star Ratings for quality indicators, staffing, compliance and resident experience. The Strengthened Quality Standards create new quality assessment framework. Increased audit frequency and rigour follows from enhanced regulatory approach.

Financial implications include investment in quality improvement, potential link between ratings and funding or occupancy, and reputational management requirements.

Financial Impact Modelling

Effective preparation requires modelling reform impacts on your specific circumstances.

Revenue Modelling

Model revenue implications across scenarios. AN-ACC funding scenarios should consider whether current classification accuracy is sustainable, whether funding rates will keep pace with costs, and how your case mix might change.

Occupancy scenarios should evaluate how Star Ratings might affect occupancy, what competitive dynamics reform creates, and whether regional factors affect demand.

Accommodation revenue scenarios should assess whether reform affects accommodation pricing or demand, and how RAD/DAP preferences might shift.

Cost Modelling

Model cost implications of reform requirements. Staffing cost modelling should determine the cost of meeting care minute requirements, additional RN costs, and expected wage growth given workforce pressures.

Compliance cost modelling should estimate costs of meeting new Act requirements, quality system investments, and reporting and documentation requirements.

Implementation cost modelling should assess one-time costs for system changes, training, process redesign and external support.

Margin and Sustainability Analysis

Combine revenue and cost modelling to assess sustainability. Key questions include whether you can achieve sustainable margins under reform scenarios, what efficiency improvements are required, and where you would adjust if margins become unsustainable.

Strategic Response Options

Based on impact analysis, consider strategic response options.

Operational Excellence

Operational improvements can help absorb reform costs. Classification optimisation ensures accurate AN-ACC classification through documentation improvement and assessment preparation. Rostering efficiency meets staffing requirements at minimum cost through optimised scheduling and skill mix. Quality improvement addresses quality indicator performance to support Star Ratings. Administrative efficiency reduces overhead costs through process improvement and automation.

Portfolio Decisions

Reform may prompt portfolio reconsideration. Service mix evaluation assesses whether all current services remain viable under reform. Facility decisions consider whether facilities require investment to meet standards or whether exit is appropriate. Geographic focus examines whether concentration or expansion better positions you for reform.

Funding and Capital

Reform may affect funding requirements and capacity. Capital planning assesses investment needs for compliance and quality. Debt capacity evaluates borrowing capacity under changed economics. Reserve management examines appropriate reserve levels given increased uncertainty.

Partnership and Consolidation

Reform may create partnership or consolidation opportunities. Scale benefits come from larger organisations potentially better able to absorb compliance costs. Capability sharing allows partnerships that share specialist capabilities. Exit opportunities mean reform pressure may create acquisition opportunities.

Implementation Roadmap

Structured implementation ensures readiness for reform milestones.

Immediate Actions (Now)

Current priorities include completing AN-ACC capability development, ensuring classification accuracy and documentation quality. Achieving staffing compliance by meeting care minute and RN requirements. Establishing quality baseline by understanding current Star Ratings position and improvement priorities. Beginning Act preparation by assessing requirements and identifying gaps.

Near-Term Actions (6-12 Months)

Coming period priorities include completing systems and process updates for new Act requirements. Embedding quality improvement through systematic approaches to indicator performance. Optimising workforce through permanent recruitment, retention and rostering efficiency. Modelling financial scenarios and updating planning for reform impacts.

Medium-Term Actions (12-24 Months)

Forward priorities include achieving operational excellence through full realisation of efficiency opportunities. Completing strategic positioning through portfolio and market decisions informed by reform experience. Building sustainable model through financial structure appropriate for reformed environment.

Governance for Reform

Effective governance enables successful reform navigation.

Board Engagement

Boards need engagement on reform implications. Regular reform updates keep the board informed of developments and implications. Strategic discussions involve boards in significant response decisions. Risk oversight includes board visibility of reform-related risks and mitigation.

Management Accountability

Clear management accountability supports execution. Executive ownership assigns reform response to specific executives. Cross-functional coordination connects clinical, operational and financial perspectives. Progress tracking monitors implementation against milestones.

Compliance Assurance

Assurance mechanisms verify readiness. Gap assessments identify compliance gaps requiring action. Internal audit provides independent verification of compliance. External validation engages specialists to verify readiness where appropriate.

Financial Planning Integration

Integrate reform into financial planning processes.

Budgeting

Budget processes should incorporate reform impacts. Revenue assumptions should reflect AN-ACC and occupancy scenarios. Cost allocations should include staffing and compliance requirements. Investment provisions should fund implementation activities.

Forecasting

Rolling forecasts should incorporate reform developments. Assumption updates should reflect emerging reform information. Scenario refresh should update scenarios as reform details clarify.

Long-Range Planning

Strategic financial plans should address reform. Multi-year projections should model reform impacts across planning horizon. Capital planning should address reform-related investment needs. Sustainability assessment should evaluate long-term viability under reform.

Common Preparation Pitfalls

Several mistakes undermine reform preparation.

Delayed response leaves organisations scrambling as deadlines approach. Early preparation enables measured, effective response.

Under-estimating costs leads to budget surprises. Model costs comprehensively, including indirect and opportunity costs.

Compliance-only focus misses strategic opportunities. Reform creates winners and losers; position to benefit, not just comply.

Siloed preparation fragments response across functions. Integrated, coordinated preparation produces better outcomes.

Inadequate board engagement leaves governance gaps. Boards need involvement in significant reform responses.

Conclusion

Aged care reform demands comprehensive financial preparation. By understanding reform requirements, modelling impacts, developing strategic responses and implementing systematically, CFOs can position their organisations for success in the reformed environment.

The stakes are high: organisations that prepare effectively can thrive in reformed aged care; those that don't face sustainability challenges that may prove insurmountable.

For guidance on aged care reform preparation, CFO Insights provides fractional CFO services with deep expertise in aged care financial management and reform navigation.