by
Jessica Gardner
Investors in under-the-pump aged care stocks were gifted some good news on Tuesday when the government revealed it had changed its approach to cutting funding for the sector.
Assistant Minister for Health and Aged Care Ken Wyatt told a conference that changes to the aged care funding instrument (ACFI) that were announced in the 2016 budget were to be replaced with a new cost saving measure.
The remarks sparked a rally in the three aged care providers from about midday onwards.
Shares in Japara Healthcare rose as much as 12 per cent and in late afternoon trade were 10 per cent higher. Regis Healthcare and Estia Health were both trading about 9 per cent higher.
The budget
revealed $1.2 billion of cuts to aged care funding, mostly by making it more difficult for providers to claim a higher amount if they look after patients with more acute health needs.
In June
Bank of America Merrill Lynch downgraded all three operators on the basis they were "facing zero earnings growth from fiscal 2017 through to fiscal 2019" due to the changes.
Mr Wyatt said on Tuesday that instead of adjustments to the way ACFI payments were calculated, making them more difficult to obtain, there would be a one year freeze on indexation of ACFI and in the following year a 50 per cent freeze on the added payment for high care patients.
A fund manager analyst noted that the change allowed the government to successfully cut costs in a way that did not target high ACFI claiming operators. The move may anger some in the non-profit aged care sector, who pointed the finger at 'gaming' the system at the private operators.
None of the three operators had distributed any information to the market on Tuesday afternoon. One fund manager complained that it was "staggering" that a government official would reveal price sensitive information and not distribute a press release.
A government fact sheet had been updated to include '
2016-17 Budget measures that will not proceed'.
The Minister's office had yet to respond to a request for comment.
A press release from lobby group COTA Australia, which represents the older Australians, welcomed the announcement.
"It takes courage and leadership to admit you didn't get it right the first time. Today's announcement shows the Turnbull government has kept an open mind to the concerns of consumer representatives and the welfare of aged care residents," COTA Australia chief executive Ian Yates said.
