Estia Health Ltd (ASX: EHE), Japara Healthcare Limited (ASX: JHC) and Regis Healthcare Ltd (ASX: REG) have seen their share prices rocket today after the government announced changes to its approach to the sector.
Speaking at a conference, Assistant Minister for Health and Aged Care Ken Wyatt said that changes to the aged care funding instrument (ACFI) that were announced in the May 2016 budget would be replaced with a new cost-saving measure.
Those changes had delivered a $1.2 billion cut to the ACFI over four years.
Estia's share price jumped 11.5% to $2.82, Japara's gained 11.9% to $2.21 and Regis rocketed up 13.2% to $4.56.
Today Mr Wyatt said that there would be a one-year freeze on indexation of ACFI and in the following year a 50% freeze on the added payment for high-care patients.
The three listed operators are among a group that have been accused of rorting the ACFI system by claiming higher rates for their 'higher care' patients. At least one of the three has claimed in presentations its ability to claim higher funding when making acquisitions of other aged care homes and operators.
In August this year, we reported on the Minister for Aged Care Sussan Ley's revelation that 1 in 8 of the 20,000 claims through the ACFI in 2014-15 were deemed to be incorrect.
With the Federal government looking to save money, it's still possible that the aged care operators will face a significant cut back in their funding, so today's news and share price may only be a temporary respite.
And that's the issue with sectors that rely heavily on government funding including hospitals, diagnostic imaging, pathology or aged care.
Foolish takeaway
The aged care operators have also come in for criticism over questionable / aggressive accounting practices – and that's the primary reason why I'll be avoiding these three aged-care operators.
