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Aged Care Amendment Bill 2011
18-08-2011 10:38 AM
House of Reps
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Aged Care Amendment Bill 2011
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provide a regulatory framework that is commensurate to the risk
associated with the exponential growth of accommodation bond
holdings (currently over
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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
AGED CARE AMENDMENT BILL 2011
(Circulated by authority of the Minister for Mental Health and Ageing, the Honourable Mark Butler MP)
AGED CARE AMENDMENT BILL 2011
As part of the Government’s Health and Hospital Reform agenda, the Government committed to strengthen consumer protection for accommodation bonds paid to aged care services and to improve arrangements for the handling of complaints about Commonwealth funded aged care services.
The Aged Care Amendment Bill 2011 delivers on these reforms by amending the Aged Care Act 1997 to:
· limit the permitted uses for accommodation bonds (such that providers of aged care may use accommodation bonds for capital works, investment in financial products, loans for these purposes and refunding accommodation bonds);
· introduce new criminal offences where misuse of accommodation bonds has been identified and the approved provider has failed financially, owing accommodation bond refunds;
· introduce new information gathering powers to enable the Secretary of the Department of Health and Ageing to better monitor approved providers that may be experiencing financial difficulties or using accommodation bonds for non-permitted uses; and
· remove restrictions on the use of income derived from accommodation bonds, retention amounts and accommodation charges. This provides aged care providers with greater flexibility in managing their cashflows and assists to offset the restrictions proposed in relation to the lump sum element of accommodation bonds.
The proposed changes to the regulation of accommodation bonds have been the subject of extensive consultation with consumer groups, peak bodies, providers of aged care and the financial services sector. Overall, the response has been supportive of the objectives of the legislative reforms, with stakeholders acknowledging the balance that the proposed changes strike between giving providers access to capital and protecting the life savings of care recipients.
Subject to the passage of the Bill through Parliament, it is proposed that the reforms regarding accommodation bonds will take effect in relation to accommodation bonds taken by approved providers on or after 1 October 2011. However, a two year transition period until the end of September 2013 for the changes to the permitted uses of accommodation bonds will also allow the sector time to become familiar with the new requirements.
In relation to the Department of Health and Ageing’s handling of complaints about Commonwealth funded aged care services, the Bill enables the making of Complaints Principles in place of the existing Investigation Principles. It is intended that the new Complaints Principles (incorporated in the Aged Care Principles) will improve the process of handling aged care complaints and increase the focus on achieving outcomes for care recipients, their families and other representatives. They will enable the Department of Health and Ageing to adopt a range of approaches to assist in resolving complaints co-operatively with care recipients and providers of aged care (approaches that will include, for example, conciliation, mediation and investigation).
While key elements of the new approach to complaints handling have already been implemented administratively, passage of the Bill through Parliament (and the making of Complaints Principles) will enable the new Complaints Principles to take effect from 1 September 2011.
The Bill also makes minor technical amendments to remove redundant provisions.
Financial Impact Statement
Funding of $21.8 million over four years was provided in the 2010-11 Budget for a range of enhanced prudential measures of which the proposed changes to accommodation bonds is one. Funding of $50.6 million over four years was also provided in the 2010-11 Budget for improvements to the Aged Care Complaints Investigation Scheme. Many of these improvements have already been implemented administratively, but changes to delegated legislation (provided for through the Bill) enable the next stage of reforms to take effect.
Regulation Impact Statement
In relation to the amendments proposed in the Bill regarding the complaints scheme, the Office of Best Practice Regulation (OBPR) has advised that a Regulation Impact Statement is not required (OBPR Reference: 12586).
In relation to the amendments regarding the use of accommodation bonds (and associated changes), following is the Regulation Impact Statement approved by OBPR.
REGULATION IMPACT STATEMENT
The Aged Care Act 1997 (the Act) describes the regulatory framework within which Commonwealth Government-subsidised aged care providers (approved providers) must operate in order to obtain funding. Amongst other things, the Act describes the rules relating to the charging and use of accommodation bonds, which are amounts of money that are given to approved providers by residents of aged care services on certain terms. An accommodation bond is akin to an interest free loan to an approved provider, which must then be used by the provider for the purposes of aged care.
Since the introduction of the Act in 1997, there has been strong growth in the value of accommodation bonds from around $500 million to more than $10.6 billion. During the four years since 30 June 2006 the total value of bonds has increased by around 20% per annum, from $5.2 billion. As at 30 June 2010, approved providers held more than $10.6 billion in bonds on behalf of more than 63,000 aged care residents (there are 1150 approved providers, with about 970 of these providers currently holding accommodation bonds). The average total bond holding by an individual approved provider is $11.2 million and the average accommodation bond is $167,000, constituting a significant part of each resident’s life savings.
These funds are, in essence, an unsecured loan paid by care recipients to the approved provider, which the approved provider is required to pay back when the care recipient leaves the home (subject to certain permitted deductions being made). Given the significant and increasing amount of bonds, it is appropriate that care recipients can be assured that their funds are being used for the intended purposes and there is transparency of and accountability for that use.
The regulatory framework for aged care sets out the rules associated with accommodation bonds and requires that approved providers comply with prudential requirements. As part of a broader reform of prudential regulation, resourcing was provided in the 2010-11 Budget. This funding has allowed the Department of Health and Ageing (the Department) to expand and increase the sophistication of its supervisory and compliance risk management activities. As a result, the Department is now able to systematically assess the financial and compliance risks of approved providers holding accommodation bonds and adjust its regulatory approach based on the identified risk.
Specific problems that have given rise to the Government identifying the need for further reform to the regulatory framework relating to accommodation bonds are:
· Lack of clarity on the permitted use for accommodation bonds
The original policy intent was that accommodation bonds be used for capital funding for investment in building stock (and retirement of associated debt) however, this is not clearly articulated in the legislation for the principal amount of the accommodation bond.
Currently, the Act provides that if an accommodation bond is charged for entry of the care recipient to a residential or a flexible care service the approved provider must not use the accommodation bond for a purpose that is not related to ‘providing aged care to care recipients’.
The Act also provides, that where a bond is charged, the approved provider is entitled to the income derived from the bond and may also deduct retention amounts from the bond principal. There are, however, explicit restrictions on how these amounts can be used (in contrast to the absence of prescriptive rules associated with the uses for the bond itself).
This lack of clarity about prescribed use of the principal of the accommodation bond has resulted in bonds being used for a very wide variety of purposes - including some uses that may increase the risk of default on refunds of the accommodation bond. For example, using accommodation bond funds to meet operational expenses could arguably be considered a permitted use under the current arrangements as this relates to providing aged care. There is also evidence that approved providers are making loans to related (and other) entities using accommodation bond funds and there is uncertainty around whether these funds are consistently being used for an aged care purpose.
Moreover, it is not clear in the legislation that approved providers can invest accommodation bonds in financial instruments. For example, it could be argued that placing accommodation bonds into a term deposit with a bank does not meet the requirement that a provider must not use the accommodation bond for a purpose that is not related to providing aged care. This lack of clarity around the investment of accommodation bonds also makes it difficult to distinguish between different types of possible investments such as bank deposits and loans to related parties or individuals.
A random sample of over twenty approved providers was conducted and their financial investments assessed (extracted from the General Purpose Financial Reports). The providers chosen were a mixture of large, medium and smaller bond holders to ensure an even coverage of the type of financial products being used.
The sample demonstrated that all providers used deposit taking institutions for investment of bonds. However there was also a wide variety of financial products used including: managed funds; hedge accounts; shares; global bank credit linked notes; syndicates; joint ventures and units in resident trusts. This small sample demonstrates the very wide use of bonds and the lack of consistent interpretation regarding permitted uses of bonds.
Through its monitoring and compliance activity, the Department has also identified other anomalies which suggest that there is lack of clarity regarding the requirements of the legislation in relation to the use of bonds or a lack of incentive for compliance. For example:
· evidence of approved providers may have been using accommodation bonds to make loans to related parties (for non aged care purposes) and meet operational expenses has been identified in those cases which have triggered the Accommodation Bond Guarantee Scheme (the Guarantee Scheme). This scheme was introduced in 2006 to increase protection for residents’ accommodation bonds and is triggered if an approved provider becomes insolvent and defaults on its accommodation bond refund obligations. In these circumstances, the Government repays the amounts owing to residents in full and has the capacity to impose a levy on the sector to recover any loses under the Guarantee Scheme.
Since 2006, the Guarantee Scheme has been activated on five occasions and around 150 accommodation bonds have been refunded at a cost of approximately $24.5 million to the Commonwealth. In all the cases involving the Guarantee Scheme there was evidence that the failed approved providers had made significant loans to related parties, a number of which appear to be involved in non-aged care activities. To date, the levy has not been imposed on the aged care sector
· as part of its routine monitoring and compliance activities, the Department has also identified a number of approved providers that have made loans to related entities and to individuals. In examining these cases, there has been variable practice in documenting the loans including repayment arrangements and interest charges. The use of loans to other entities is becoming a common practice with a sample of approved providers reviewed by the Department showing that nearly 25 per cent had loans to either related parties or individuals. In such circumstances, the Department is keen to ensure that the loans are on commercial terms (in order to protect the asset of the care recipient) and that the loan is only used for a permitted purposes (such as investment in capital works for aged care or certain financial products); and
· in investigating and taking action against approved providers that have failed to meet the existing prudential standards relating to bonds, the Department has identified the relatively wide practice of using bonds for operational purposes and for purposes which may reduce the capacity of the approved provider to refund bonds.
While data is not readily available, as approved providers are not currently required to report on bond usage, discussions with aged care and financial service providers have indicated that the permitted uses of bonds have been interpreted widely by the sector and that it is not uncommon for bonds to be used for operational purposes.
The impetus for strengthening regulation has also been reinforced by an audit by the Australian National Audit Office (ANAO). In its 2009 report, Protection of Residential Aged Care Accommodation Bonds (the ANAO Report), the ANAO recommended that the Department enhance its regulatory approach to include reviews of whether aged care providers are using bonds and bond income for the purposes of providing aged care to recipients as required under the Act.
· Inability to request certain information and inadequate penalties for non-compliance
Where the Department has reasonable grounds for concern that an approved provider is using bonds for non-permitted purposes or is likely to be unable to repay bonds, it currently cannot require an approved provider to submit certain types of information, nor can it compel the provider to report to the Department on a periodic basis. This means the Department is limited in its capacity to actively manage or monitor risks as they emerge.
In cases where accommodation bonds have been misused the most significant action the Department can currently take is to revoke approved provider status and/or allocated places. It is not clear that this provides suitable incentives to ensure bonds are used appropriately (noting the level of non-compliance that has been identified including in circumstances where the Guarantee Scheme has been triggered). There is also currently no capacity for the Department to take action against key personnel of approved providers even where it appears that they may have knowingly misused accommodation bonds and triggered the Guarantee Scheme.
From the experiences of the past five Guarantee Scheme events, the existing offences in the Act do not cover the misuse of accommodation bonds. Similarly, an examination of other Commonwealth and State legislation has found that there are no existing offences that would cover the misuse of bonds by an approved provider or an individual (in the absence of fraud).
· Restrictions on the use of income derived from bonds, retention amounts and accommodation charges
Currently, if an accommodation bond is charged, there are restrictions on how the approved provider can use the income derived from the accommodation bond and the retention amount  . Similar restrictions also apply to the use of funds paid by the care recipient as an accommodation charge  . Currently these funds can only be used by the approved provider to meet capital works costs relating to residential or flexible care, retire associated debt or to improve the quality and range of aged care services (to meet accreditation requirements). These restrictions are more significant that those related to the actual bonds themselves. The tight restriction on the use of income related to bonds does not reflect the comparative risk, creates an unnecessary administrative burden and could impact on an organisation’s cash flow, resulting in the risk that the bond itself may be drawn upon to manage day-to-day operations.
The objectives of any Government action and the purpose of this Regulation Impact Statement (RIS) is to identify the best means by which to:
· address current legislative inadequacies, while keeping the regulatory burden as low as possible
· ensure, as far as possible, that the financial interests of residents are protected
· maintain effective regulatory safeguards for accommodation bonds
· provide a regulated source of capital funding for investment in aged care infrastructure
provide a regulatory framework that is commensurate to the risk
associated with the exponential growth of accommodation bond
holdings (currently over
$10 billion); and
· promote public confidence in the aged care system.
Option A: Do nothing.
Option B: Reform the legislation so that it better reflects the nature of the industry, better protects residents’ savings and more efficiently and effectively regulates the use of accommodation bonds.
Option B proposes to amend the Act so that:
· the bond principal would be subject to increased regulation, while restrictions would be lifted on the income derived from the bond, retention amounts and accommodation charges, thus the regulation would better reflect the associated risk. This is consistent with the distinction between the principal of the bond, which is in effect an interest free loan made by a resident, and other sources of income for the approved provider. In summary, permitted uses for the accommodation bond would be limited to those that are consistent with the original policy intent of providing funding for investment in aged care infrastructure. Moreover, these uses are more likely to preserve the capital such as investment in capital works, in certain financial products (such as bonds and securities) and to repay debt related to the provision of aged care (where this was incurred before the proposed changes to the permitted uses)
· additional information gathering powers are available to the Department in circumstances where concerns exist regarding the capacity of an approved provider to repay accommodation bonds; and
· there are appropriate incentives to encourage approved providers not to use bonds for non-permitted purposes. It is proposed that new offences be introduced for approved providers that use bonds for non-permitted uses and trigger the Guarantee Scheme. It is also proposed that key personnel would commit an offence if they were complicit in the approved provider’s actions (for example, knew the bonds were being used for a non-permitted use, were in a position to influence the conduct of the approved provider, and failed to take all reasonable steps to prevent the bonds being used for a non-permitted use).
The proposed changes described in this RIS are one element of the broader reform measure to enhance the protection of accommodation bonds. In particular, the Department is systematically assessing the financial and compliance risks of approved providers holding accommodation bonds and adjusting its supervisory approach based on the identified risk. This risk-based approach will not, however, be fully effective unless the problems in the current prudential regulatory framework for accommodation bonds are addressed (as described above).
The Government has announced, as part of the National Health and Hospitals Network, that it will commit $21.8 million over four years to strengthen the regulation and monitoring of the use of accommodation bonds.
This will allow the Department to enhance its supervision of bond use as recommended by the ANAO.
The majority of the ANAO recommendations have been implemented:
- a risk management strategy has been completed
- performance measures and targets have been established to improve internal management and external accountability
- a Client Service Charter has been finalised and made available to stakeholders
- processes governing the capture, use and promulgation of regulatory intelligence are now captured in the compliance risk management framework; and
- procedural documentation has been updated and a stakeholder communications strategy has been developed.
The remaining recommendations are in the process of being implemented:
- proposed legislative amendments to enhance prudential regulation of accommodation bonds
- a draft Prudential Compliance Strategy has been developed and will be implemented in the near future; and
- development of enhanced IT systems to support enhanced risk management functions will be complete by end 2011.
5. Impact analysis
The following groups are potentially affected by the options outlined above:
· approved providers of aged care - there are approximately 1,400 approved providers of aged care in Australia and over 970 of these providers hold accommodation bonds
· recipients of aged care - there are approximately 183,000 operational residential care places in operational Commonwealth funded aged care places and 63,000 residents occupying these places have paid accommodation bonds; and
· Government - the Commonwealth Government funds aged care and regulates approved providers of Commonwealth Government funded aged care.
6. Summary of impact of regulatory changes
Option A: Do nothing
Aged care providers:
Under Option A, approved providers will continue to have restrictions placed on the use of income derived from accommodation bonds, retention amounts and equivalent accommodation payments (with resultant compliance costs including costs related to identifying such funds and ensuring they are only used for the specified purposes).
Under this option, providers may use the bond principal itself for day-to-day operational expenses, rather than for the intended purpose (capital works and further investment in aged care).
Maintaining the status quo is more likely than Option B to lead some approved providers to use bonds in ways that would increase the risk of default, including loans, particularly loans to individuals. Providers may also use bonds for operational purposes, leading to potential insolvencies, increased costs to the sector and imposition of a levy by the Government to recover any loses under the Guarantee Scheme. This is because under the status quo, the permitted uses of bonds are unclear and there are insufficient disincentives for non-compliance.
The confidence of consumers and financiers (such as bankers and financial advisers) can be negatively impacted when providers invest or use bonds unwisely. Under this proposal, there would also be limited opportunity to address this or increase the public’s confidence in approved providers and their management of accommodation bonds.
Under this option, there would be no change, approved providers would not be required to adjust any of their investment practices relating to accommodation bonds, nor would they be able to legitimately utilise retention amounts/income for a broader range of purposes.
The benefit of Option A is that there would be no compliance costs associated with assisting staff of approved providers to become familiar with changes in legislation (as there would be no such changes).
Retention of the status quo provides no benefit to care recipients. There will continue to be limited transparency regarding the increasingly large amounts of funds that residents are entrusting to their approved providers to manage. This lack of accountability undermines confidence in the aged care sector.
Without clarity regarding use of bonds, some approved providers may continue to use bonds for purposes which reduce their capacity to refund bonds (e.g. use for operational purposes or non-aged care purposes). While the financial impact of this on care recipients is minimised, because of the operation of the Guarantee Scheme, there is still significant disruption and stress to care recipients associated with a failing approved provider, including in some cases the closure of a home and the need for care recipients to relocate.
Retention of the status quo continues to expose the Government to the risks of underwriting the sector through the Guarantee Scheme, costing the Commonwealth $24.5 million since commencement of the Guarantee Scheme in 2006.
The Department’s experience in regulating the aged care sector has indicated that poor corporate governance (including use of bonds for purposes which reduces the available capital) has contributed to compliance failures and financial difficulties amongst some approved providers.
While the Department has had limited capacity to take action in relation to misuse of bonds (given the uncertainty and wide range of interpretations of the current requirements), the Department has taken action in relation to non-compliance with Prudential Standards which also set requirements around the use of bonds (including requirements relating to liquidity, reporting).
Since the prudential requirements were introduced in 2006, 652 approved providers have been found to be non-compliant with the Prudential Standards. This amounted to non-compliance with the Prudential Standards by over 15 per cent of the aged care industry.
Of those instances of non-compliance, there were six Notices of Non-Compliance and one sanction in 2006-07, one Notice of Non-Compliance in 2007-08, four Notices of Non-Compliance in 2008-09 and six Notices of Non-Compliance in 2009-10.
Without capacity to request important information on a regular basis, the Department would continue to have limited visibility of, and opportunity to act on, non compliant approved providers, or those at potential financial risk.
This option would not address the deficiencies identified by ANAO and the Department’s own regulatory experience.
Option B: Reform the legislation such that it better reflects the nature of the industry, better protects residents’ savings and more efficiently and effectively regulates the use of accommodation bonds.
Aged care providers:
This option could potentially have the following regulatory impacts on approved providers:
· the permitted uses of bonds proposed preclude bonds being used to meet operational costs. While this approach reduces the risk that bond funds are spent and not available to make refunds, it may require some approved providers to make adjustments to their operating and financial management to meet the new requirements and there would be costs associated with those changes. Any increase in costs potentially could be passed on to aged care residents/consumers. Currently approved providers are not required to report on their bond usage, resulting in a lack of robust data to fully assess the extent of changes that may be required. It should be noted that a potential increase in operating costs have not been quantified.
· The likelihood and extent of the adjustments an approved provider may need to make, if any, will depend on factors such as how approved providers manage accommodation bonds and the way in which they use bonds. The Department has identified a number of cases where approved providers have used bonds for operational costs, particularly those where approved providers have failed financially. Those approved providers that do draw on bonds for operational purposes fall into two categories: (1) those that utilise bonds intermittently to manage fluctuations in cashflows (such as when three pays fall into a month); and (2) those who may be experiencing financial challenges that may progressively drawdown bonds to support operations.
â¢ Category 1: Approved providers in this category may experience some adjustment costs under the new requirements as they may need to hold higher cash balances or draw on a credit facility (such as an overdraft) to meet cashflow variations. However, these would be expected to be relatively low as aged care subsidies and other income is paid on a monthly basis, so cashflows are regular and predictable.
â¢ Category 2: Approved providers that fall into this category would be expected to incur higher adjustment costs as they may need to subsitute bond funds for other financing such as borrowings and/or make operational adjustments to allow operational costs to be met from operational revenues. Adjustment costs could also include the need to seek professional financial advice. Ongoing drawdowns of bonds would increase the risk of default on refunds and approved providers.
Data is not available to determine specifically how many approved providers may fall into each Category. The available evidence suggests that there would only be a small number of approved providers in Category 2. For example, most approved providers in 2009-10 reported positive cashflow results and net assets. In addition, more than 99% of approved providers reported that they were compliant with their prudential liquidity requirements and more than 90% refunded bonds within the statutory timeframes. This suggests that most approved providers were not needing to continually draw on bond funds for operations. The proposed requirements should also be seen in the context of existing obligations on approved providers in managing their finances, including bonds. The Corporations Act requires corporations (including approved providers) to be able to meet their debt as, and when, they fall due, and the Aged Care Act requires them to be able meet bond refunds as, and when, they fall due.
· There is significant implementation uncertainty involved in the proposed changes, primarily for approved providers in Category 1. However, this needs to be balanced against the current risks to bond funds under the existing prudential arrangements. In view of this, it is proposed to have a transition period for the permitted uses to take effect, allowing the sector time to adjust to the new arrangements.
· During the transition period, approved providers would continue to be able to use bonds in line with the current regulatory requirements and prepare for the start of the new requirements. Moreover, during the transition period, the Department will collect the necessary data and undertake analysis, including through the new benchmarking mechanism, to identify the potential for increased costs associated with the new requirements and the scope to adjust the regulatory requirement to further facilitate effective cashflow management particularly for those approved providers who fall into Category 1. Consultation did not identify significant concerns with the impact of this proposal on approved provider’s cash management, in fact aged care and finance industry feedback confirmed this use of bond funds represented poor practice. The Department will however, continue to work with the sector to ensure they are prepared for the new requirements. Following the end of the transition period, the Department would principally use its reporting regime and compliance powers to manage risks, this will provide flexibility in dealing with different types of cases
· bonds taken before the commencement of the new provisions will continue to be able to be used for purposes relating to aged care (ie the existing rules wil continue to apply to bonds taken before the commencement of the new provisions) or they can use the bonds in accordance with the new provisions (providing greater certainty). This minimises accounting costs and ensures that if a provider does not wish to maintain two separate systems (to account for bonds under the old rules and bonds under the new rules), they can choose to apply one system to all bonds (ie use all bonds in accordance with the new requirements)
· providers are likely to experience implementation costs, for example in ensuring staff are appropriately trained in relation to the new ‘rules’, accounting procedures are brought up to date and data management and reporting systems are appropriate. However as approved providers should already have systems in place to ensure that bonds income is used in accordance with regulatory requirements, this impact is not expected to be significant
· if the Department requires additional reporting (because it has reasonable ground for believing that the approved provider may be unable to repay bonds or may be using bonds for non-permitted uses), this will have cost impacts for the approved provider. The purpose of the reporting is, however, to enable the Department to understand the circumstances of the approved provider and to assist in order to reduce the risk of the approved provider triggering the Guarantee Scheme (at significant cost to Government and potentially to the sector if the Government seeks to recover costs through imposition of a levy).
These costs are expected to be offset by the following benefits to approved providers:
· long term benefits of certainty regarding ‘the rules’ related to investment of bonds (including for improvements in aged care) and associated certainty for business planning
· the removal of all restrictions on the use of income derived from bonds, retention amounts and on accommodation charges. This will provide approved providers with a legitimate cash flow increase and will reduce the current regulatory burden in this area. This proposed amendment would defray additional costs that could be incurred as a result of the new arrangement, and will provide a potential saving for approved providers that could be passed onto residents and consumers
· the proposed two year transitional period during which time bonds may continue to be used for the current purposes. This will enable approved providers to adjust their practices over time and will minimise any cash flow issues; and
· promotion of consumer confidence regarding the use of bonds which will benefit approved providers.
The introduction of offence provisions for the misuse of bonds is appropriate because of the element of serious moral culpability in misusing funds which have been essentially loaned to the approved provider by people in a vulnerable position. Specific offence provisions in the Act are necessary because, in the absence of fraud, misuse of accommodation bond monies is not an offence under the Criminal Code or the various state and territory Crimes Acts.
The introduction of criminal penalties will have no impact on approved providers who comply with the rules about accommodation bonds. Furthermore, criminal penalties would only be pursued against individuals in the ‘worst cases’ where the individual has known that bonds are being used for non-permitted purposes, not taken reasonable steps and the Guarantee Scheme has been triggered. It is therefore not likely that the introduction of criminal penalties will affect the preparedness of individuals to act as key personnel for approved providers. It should also be noted that many key personnel (such as Board members and Directors) already have obligations under corporations legislation which are supported by criminal penalties.
Care recipients are expected to benefit through increased certainty regarding the use of their bonds. It is expected that greater approved provider discipline regarding the use of bonds will also reduce the risk of approved providers being unable to repay bonds.
This is likely to have three positive impacts for care recipients. It is likely to:
· improve the quality of aged care for care recipient, through increased investment in capital works
· decrease the number of times that care recipients receive a late refund of bonds (because of cash flow challenges faced by the approved provider); and
· it is likely to decrease the number of approved providers that become insolvent because of inappropriate use of bonds (with resultant stress and disruption for care recipients).
The benefits of this option to Government are that:
· by requiring higher standards of prudential safeguards it reduces risk factors which might lead to the triggering of the Guarantee Scheme (which has a cost impact on Government)
· it increases the capacity of Government to request information on the use of bonds which will provide important regulatory intelligence to Government and assist with the management of emerging risks (promoting a risk-based approach to regulation)
· it enables the Government to take appropriate action against both approved providers and key personnel in the event that an approved provider uses bonds for non-permitted uses and triggers the Guarantee Scheme (where key personnel were complicit in this); and
· it addresses recommendations put forward by the ANAO.
The costs to Government include:
· some small costs associated with educating the sector and internal staff about the proposed new regulatory approach and changes to the permitted uses of accommodation bonds; and
· costs associated with reviewing any notifications provided by approved providers during the 2 year transition period.
Consultation with industry, community and government stakeholders on the options presented in this RIS commenced with the release of an Issues Paper from 27 October 2010 to 19 November 2010.
The Issues Paper sought input on the proposed reform approach and views on the issues that would need to be managed. A total of 33 submissions were received; six from peak industry bodies, 23 from approved providers, one from a consumer group (Alzheimer’s Australia) and three from other interested organisations. Overall the submissions were supportive of Government’s intentions for the prudential regulation of aged care accommodation bonds. In particular, there was considerable support for the increased clarity in relation to permitted uses and for the introduction of criminal penalties - although submissions urged the Department to carefully structure such penalties to ensure:
· key personnel could not unintentionally be caught up under any new offences
· that the new offences did not dissuade people from taking up roles within aged care; and
· that offences only apply to those individuals in the ‘worst cases’, where the individual has deliberately acted in a way that has caused a provider to misuse bonds and the Guarantee Scheme has been triggered.
The Department also held a number of industry and consumer stakeholder meetings, along with regulatory agencies to gather stakeholder views. Over 20 consultation meetings were held with stakeholder organisations in Canberra, Sydney, Perth, Melbourne and Adelaide. Stakeholders consulted included consumer groups, peak industry bodies, approved providers, auditors, accountants, advisers specialising in the aged care sector and major financial institutions.
The issues outlined in the submissions and discussed in consultation with the sector informed the development of more detailed reform proposals which were presented in a Consultation Paper, released February 2011.
The Consultation Paper included an explicit request for information on the impact of the proposed changes, and specifically, any additional compliance costs approved providers were likely to face as a result of the proposal. While a few stakeholders did report the potential for increased business costs or the potential for increased regulatory burden (depending on the specifics of the new arrangements under the Aged Care Principles) given the nature of the proposal, however they did not provide data for the proposals set out in this RIS.
The Consultation Paper sought comments on the proposed reforms and approach. A total of 25 submissions were received by the Department. Overall the submissions were supportive of the objectives of the reform proposals for the prudential regulation of aged care accommodation bonds. Comments differed widely from the various stakeholder groups (namely: aged care providers/peak bodies, consumer groups and the banking and finance industry).
In conjunction with the Consultation Paper the Department also held a number of industry and consumer stakeholder meetings, along with regulatory agencies during February and March 2011 to gather stakeholder views that were to provide the basis for the options proposed in the RIS. Over 25 consultation meetings were held with stakeholder organisations in Canberra, Sydney, Perth, Melbourne, Brisbane and Adelaide. Stakeholders consulted included consumer groups, peak industry bodies, approved providers, auditors, accountants, advisers specialising in the aged care sector and major financial institutions. There was general support for the policy intention with a wide range of views put forward during these meetings.
The views of financiers (such as bankers, financial advisors, auditors and accountants) were of significant value during the consultation process and assisted the Department’s understanding of likely impacts on approved providers. However, given that the final design of the proposed new arrangements will have minimal impact on the role or interests of financiers, they have not been considered in the impact analysis (above).
As no submissions were received from aged care consumers or their families, the views of the following representative consumer groups were drawn upon: Alzheimer’s Australia; Elder Rights Advocacy Victoria; National Seniors Australia and Queensland; and Council on the Ageing.
While these groups will not be directly impacted upon by the proposals, and have therefore, not been included in the impact analysis, their views represent the interests of their members and aged care consumers generally.
· did not support the status quo (Option A); and
· broadly agreed that Option B was necessary and appropriate.
In relation to Option B, while all stakeholders agreed on the need for greater precision in defining permitted uses of accommodation bonds, there were differences in opinion regarding the types of uses that should be permitted and the impact of the criminal penalties.
· aged care providers generally favoured a broader range of permitted uses (for example, payment of interest on debt during the business start-up phase). Consumer groups support a narrower range of uses
· there was no consensus among providers on whether operational uses should be permitted. While most agreed the continued ‘drawing down’ of bond funds for operational purposes was undesirable, providers, for the most part, sought further details on how this might operate within the current regulatory regime, with some calling for strict controls and others seeking transitional arrangements to allow time to comply with the new arrangements. Consumer groups generally prefer a more restrictive approach which ensures bonds are always invested in ways that preserve the capital or for the provision of aged care services
· Overall, most aged care stakeholders accept the proposed permitted uses for bonds. Consumer representatives support the proposed approach including precluding operating costs and requiring bonds to be invested in residential and flexible aged care infrastructure. The major financiers also support clearer regulation on the use of bonds. Approved providers and their peak bodies have not raised any significant concerns about the proposed permitted uses of bonds.
· Some aged care stakeholders argued that bonds should also fund independent living units, community care infrastructure and other community services, while consumer groups felt bonds should only be used for the purposes originally intended. These reforms exclude these uses as they are beyond the current policy intent for bonds.
· some providers were concerned that new offence provisions will deter prospective board members. Consumer groups supported the proposed new offences
· some aged care providers consider that any new measures should be proportionate to the size and complexity of a providers operations, and allow flexibility for smaller providers to adjust within a reasonable timeframe. Others consider that consistent rules should be applied to all approved provider regardless of the size of the approved provider’s operations; and
· most stakeholders sought to ensure that the regulation strikes a balance between explicit regulatory requirements and a risk-based approach.
8. Conclusion and preferred option
The major disadvantage of Option A is that it does not address the current legislative inadequacies or problems identified in this RIS.
Option B addresses the problems identified and is therefore the preferred option. While it is difficult to quantify the regulatory impact due to the lack of available data, this option:
· provides a regulatory framework that is commensurate to the risk associated with the strong growth of accommodation bond holdings (currently over $10 billion)
· increases the incentives for bonds to be used in a prudent and sustainable way to meet the policy objectives in allowing providers to charge bonds. Any costs related to the changes required of approved providers (to ensure that bonds are only used for permitted purposes) are minimised through:
- removing current restrictions on the use of income derived from bonds, retention amounts and accommodation charges and giving approved providers complete flexibility over how such income is used
- the proposed transition period of two years which allows approved providers time to comply with the new arrangements.
· ensures, as far as possible, that the financial interests of care recipients are protected; and
· keeps the regulatory burden as low as possible while delivering on the policy objectives.
9. Implementation and review
It is proposed that the changes take effect from 1 October 2011 for all bonds received on or after that date.
Bonds received before this date can continue to be used in accordance with the existing rules or may be used in accordance with the new rules. This ensures that the changes do not have any retrospective impact but also gives approved providers the flexibility to choose to treat all bonds in the same way (that is, in accordance with the rules that will take effect from 1 October 2011).
A two year transition period is also proposed whereby approved providers may use bonds for existing purposes associated with aged care. This will provide the Department with the data necessary to determine if further adjustments to this proposal should be made to assist the cashflow management of approved providers and will provide industry with a reasonable transition period to become familiar with the new arrangements.
It is proposed that the effectiveness of any changes to the legislation be monitored by the Department including through feedback from industry and consumer bodies and other advisory bodies such as the Ageing Consultative Committee. A post implementation review will be conducted following the two-year transition period. It is anticipated that the review is likely to be conducted in 2014 - 15.
AGED CARE AMENDMENT BILL 2011
NOTES ON CLAUSES
Clause 1 - Short Title
This clause provides that the Bill, once enacted, may be cited as the Aged Care Amendment Act 2011 .
Clause 2 - Commencement
This clause provides that:
· sections 1 to 3 of the Act commence on the day the Act receives the Royal Assent;
· Schedule 1 (which contains provisions relating to accommodation bonds) will commence on 1 October 2011;
· Schedule 2 (which relates to the Complaints Principles) will commence on 1 September 2011; and
· Schedule 3 (which removes redundant provisions in the Aged Care Act 1997 and other Acts) will commence the day after the Act receives the Royal Assent.
Clause 3 - Schedule(s)
This clause provides that each Act that is specified in a Schedule to this Bill is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item has effect according to its terms.
SCHEDULE 1 - PERMITTED USE OF ACCOMMODATION BONDS
Currently the Secretary of the Department of Health and Ageing (the Secretary) has some limitations in requesting information from approved providers in circumstances where the Secretary has concerns that the approved provider is experiencing financial difficulties or may be unable to refund accommodation bonds. Further, while information can be requested about accommodation bonds on a ‘one-off’ basis, periodic reporting by approved providers is not expressly provided for in the legislation (for example periodic provision of financial reports or details about the investment of accommodation bonds). This limits the capacity of the Secretary to monitor approved providers in circumstances where accommodation bonds may be at risk or there is a concern that an approved provider may not be meeting their statutory responsibilities for accommodation bonds.
This item addresses this situation by inserting a new section into the Act (section 9-3B) which describes the circumstances in which approved providers are obliged to give information to the Secretary. It builds an additional risk-based focus into the Act and ensures that any administrative burden from prudential supervisory activities is targeted at identified compliance risks.
The section enables the Secretary to request information from approved providers in circumstances where the Secretary believes, on reasonable grounds, that:
· an approved provider is experiencing financial difficulties. For example, it is unable to meet its liabilities or care and services have deteriorated and one of the likely causes is financial stress; or
If such circumstances exist, the Secretary may request the approved provider to provide information, in writing, relating to any of the following:
· the approved provider’s suitability to be a provider of aged care. Section 8-3 of the Act describes the matters which the Secretary takes into account in determining whether an organisation is suitable to be an approved provider;
· the approved provider’s financial situation;
· the amount of one or more accommodation bond balances at a particular time;
· how accommodation bond balances have been used by the approved provider;
· the approved provider’s policies and procedures relating to managing, monitoring and controlling the use of accommodation bonds; and
· the roles and responsibilities of key personnel in relation to managing, monitoring and controlling the use of accommodation bonds.
Such information may be requested on a one-off or periodic basis.
Examples of the type of information that may be requested include:
· financial statements;
· bank account statements; and
· loan agreements or any other evidence to demonstrate that any loans were made on a commercial basis.
The section also sets out the timeframes within which the approved provider must comply with the request. The relevant timeframe is:
· 28 days after the request is made or such shorter period as is specified in the request; or
· if the information is to be given on a periodic basis, before the time or times worked out in accordance with the requests. For example, the Secretary may require that the approved provider give the Secretary specified information within 14 days of the end of each month.
The section describes an offence for non-compliance with the request which is punishable by a maximum penalty of 30 penalty units (a penalty unit currently equates to $110).
The maximum penalty is consistent with like offences in the Act. For example, offences relating to the failure to give information relevant to an approved provider's status (section 9-2) and failure to give information relevant to accommodation bonds and entry contributions (section 9-3A).
Failure to comply with a request made by the Secretary under new section 9-3B would also constitute a breach of the approved provider’s responsibilities under section 63-1 (refer item 7 of Schedule 1 of the Bill) and could result in the taking of compliance action by the Secretary in accordance with Part 4.4 of the Act.
In summary, paragraphs 57-2 (1)(k) and (ka) of the Act provide that:
· if an accommodation bond is charged for entry into a residential care service - the approved provider must not use the accommodation bond for a purpose that is not related to providing aged care or that does not comply with the prudential requirements; and
· if an accommodation bond is charged for entry into a flexible care service - the approved provider must not use the accommodation bond for a purpose that is not related to providing flexible care or that does not comply with the prudential requirements.
The effect of this item is to repeal paragraphs 57-2(1)(k) and (ka) of the Act and replace them with a new paragraph 57-2(1)(k).
New paragraph 57-2(1)(k) provides that an approved provider must not use an accommodation bond unless the use of the accommodation bond is permitted (as described in section 57-17A).
This new rule relating to permitted uses of accommodation bonds will apply to accommodation bonds charged by approved providers on or after 1 October 2011. The substance of 57-2(k) and 57-2(ka) have been retained for accommodation bonds charged prior to 1 October 2011 (refer item 11 of Schedule 1 of this Bill).
This item inserts a new section 57-2(1)(ka) which provides that an approved provider must comply with the prudential requirements relating to accommodation bonds. Section 57-3 provides that an approved provider complies with the prudential requirements if the approved provider complies with the Prudential Standards which are set out in the User Rights Principles. This amendment simply restates (in a new stand alone paragraph) the requirement that was already embedded in previous paragraphs 57-2(1)(k) and (ka).
This item removes the restrictions on the use of retention amounts and the income derived from accommodation bonds charged for entry into either residential care or flexible care.
By repealing paragraphs 57-2(1)(n) and 57-2(1)(na), approved providers will be able to utilise these funds as an income stream without the need to monitor the uses of such amounts of money to ensure compliance with the regulatory restrictions. Previously such monies could only be used for those purposes specified in paragraphs 57-2(1)(n) and (na) which were limited to capital works, retirement of debt relating to residential care and to improve the quality and range of aged care services.
This change ensures that accommodation bond income is treated in a comparable way to other aged care income such as resident fees and charges. It also recognises that the main regulatory risks are associated with the principal of the accommodation bond.
This item inserts a new subdivision (Subdivision 57-EA - Permitted uses of accommodation bonds), which sets out the permitted uses for accommodation bonds taken by approved providers on or after 1 October 2011.
New subdivision 57-EA contains two new sections:
· section 57-17A - Permitted use of accommodation bonds; and
· section 57-17B - Offences relating to non-permitted use of accommodation bonds.
Section 57-17A Permitted use of accommodation bonds
In summary, the changes reflected in this new section reinforce the policy intent that accommodation bonds are to provide approved providers with a source of capital funding for investment in residential and flexible aged care infrastructure. They give greater clarity for approved providers about the use of accommodation bonds for capital purposes and address uncertainties such as the capacity for approved providers to use accommodation bonds for financial investment.
The changes also recognise the diversity of approved providers and the wide range of corporate structures that are utilised within the aged care sector by ensuring that there is flexibility to shift accommodation bonds between different entities provided appropriate safeguards are in place.
Collectively, these reforms are expected to improve the capacity of approved providers to refund accommodation bonds by encouraging the development and acquisition of assets to support their accommodation bond refund obligations.
· used for capital expenditure. Permitted types of capital expenditure are described further in subsection 57-17A(2);
· invested in certain financial products (as described in subsection 57-17A(3));
· used to make a loan in relation to which the following conditions are satisfied:
- the loan is not made to an individual;
- the loan is made on a commercial basis;
- there is a written agreement in relation to the loan;
- it is a condition of the written agreement that the money loaned will only be used for capital expenditure or investment in certain financial products (as described in subsection 57-17A(2));
- the agreement includes any other conditions specified in the User Rights Principles;
· used to refund accommodation bond balances or entry contribution balances;
· used to repay debt accrued for the purposes of capital expenditure or refunding accommodation bond balances;
· used to repay debt that is accrued before 1 October 2011, if the debt is accrued for the purposes of providing aged care to care recipients; or
· used as permitted by the User Rights Principles. The User Rights Principles may specify that a u se of an accommodation bond is only permitted if certain circumstances apply or the approved provider complies with conditions specified in, or imposed in accordance with, the User Rights Principles. For example, the User Rights Principles may provide that certain other uses of accommodation bonds are permitted provided that the approved provider obtains the prior consent of the Secretary to the proposed use of the accommodation bonds.
Subsection 57-17A(2) describes what is meant by ‘capital expenditure’ (as it is referred to in subsection (1)).
The following expenditure is ‘capital expenditure’ if it is reasonable in the circumstances:
· expenditure to acquire land on which are, or are to be built, the premises needed for providing residential care or flexible care;
· expenditure to acquire, erect, extend or significantly alter premises used or proposed to be used for providing residential care or flexible care;
· expenditure to acquire or install furniture, fittings or equipment for premises used or proposed to be used for providing residential care or flexible care, when those premises are initially erected or following an extension, a significant alteration or a significant refurbishment; and
· expenditure that is directly attributable to doing anything above. This would include, for example:
- architects fees; and
- interest and other borrowing costs that are directly attributable to the asset and which form part of the cost of that asset in accordance with the Australian Accounting Standards relevant to treatment of borrowing costs associated with asset acquisition; or
· expenditure specified in the User Rights Principles.
The definition described in section 57-17A(2) is intended to enable approved providers to use accommodation bonds for the purposes of capital expenditure in relation to aged care services. This improves the capital value of aged care services and improves services for aged care recipients.
It is not intended to allow accommodation bonds to be used for:
· routine repairs or maintenance of premises (such as painting, plumbing, electrical work or gardening). This would be expected to be funded through the operational budget of the service and not through the use of accommodation bonds;
· routine replacement of furniture. Again, it would be expected that approved providers would use operational budgets to replace worn furniture. By contrast, if a significant refurbishment is planned whereby, for example, all furniture is removed and replaced, this would constitute a significant refurbishment and accommodation bonds could be used for this purpose (as it is improving the capital value of the service). Similarly if an approved provider were to repair an existing call bell system this would not be capital expenditure for which accommodation bonds can be used. However, if the approved provider were to replace the call bell system with an entirely new and improved system, accommodation bonds could be used for this purpose;
· paying disproportionate fees to building contractors or others. For example, it is expected that architects fees are an expense that is directly attributable to the erection or significant alteration of an aged care service. However, in order for accommodation bonds to be used to meet such an expense, the fees must be reasonable in the circumstances. The inclusion of this “reasonableness test” (which is commonly used in legislation and readily interpreted by courts) is to avoid approved providers using accommodation bonds to pay disproportionate fees to people who may provide services to the approved provider (for example, partners or family members of key personnel who are also builders or architects).
Subsection 57-17A(3) describes those ‘financial products’ which are able to be invested in, using accommodation bonds.
In summary, the following (within the meaning of the Corporations Act 2001 ) are permitted financial products:
· any deposit-taking facility made available by an Authorised Deposit-taking Institution (within the meaning of the Banking Act 1959 ) in the course of its banking business (within the meaning of that Act), other than a retirement savings account) within the meaning of the Retirement Savings Accounts Act 1997 ;
· a debenture, stock or bond issued or proposed to be issued by the Commonwealth, a State or a Territory;
· a security, other than a security of a kind specified in the User Rights Principles;
· any of the following in relation to a registered scheme:
- an interest in the scheme;
- a legal or equitable right or interest in an interest in a registered scheme;
- an option to acquire, by way of issue, an interest or right in an interest in a registered scheme;
· a financial product specified in the User Rights Principles.
This section allows approved providers to invest accommodation bonds in a broad range of financial products. This is consistent with current practices in the aged care sector and allows approved providers to generate additional income.
Section 57-17B Offences relating to non-permitted use of accommodation bonds
New section 57-17B sets out offences relating to non-permitted use of accommodation bonds for both approved providers and key personnel of approved providers (section 8-3A of the Act defines key personnel).
The offences are intended to reinforce the significance of approved providers’ obligations to their residents in dealing appropriately with residents’ funds and ensuring that refund obligations are met. They are not intended to be used in circumstances where there have been minor or unintentional breaches. Rather, they are structured to ensure that they only become available in the most extreme of circumstances - where an approved provider has failed to comply with its statutory obligations on the use of accommodation bonds and it has been unable to meet its refund obligations to residents.
In summary, under subsection 57-17B(1), an approved provider or former approved provider commits an offence (subject to a maximum penalty of 300 penalty units) if:
· an accommodation bond is used for a non-permitted use; and
· within two years of that non-permitted use, the Secretary makes a default event declaration under the Aged Care (Bond Security) Act 2006 because there is at least one outstanding accommodation bond balance (i.e. an accommodation bond that has not been repaid when it should have been) and an insolvency event has occurred (as defined in the Aged Care (Bond Security) Act 2006 ). Strict liability applies to this element of the offence.
In other words the offence applies if an approved provider triggers the Accommodation Bond Guarantee Scheme (because the approved provider is insolvent and has failed to repay one or more accommodation bonds) and during the two years prior to the event an accommodation bond was used for a non-permitted use.
It is not necessary that the non-permitted use of the accommodation bond actually causes the insolvency but simply that there was a non-permitted use and there was also an insolvency event (and failure to repay one or more accommodation bonds) within two years.
The offence has been structured in this way because it is not always a single event that leads to an insolvency. For example, investment of accommodation bonds in race horses might not be the final trigger that causes an approved provider to become insolvent (a trigger might, for example, be failure to pay staff wages), but the investment in the race horses was not permitted, reduced the liquidity of the approved provider and made insolvency more likely.
An approved provider can avoid potential liability for an offence entirely by using accommodation bonds for permitted purposes only.
Under subsection 57-17B(2), an individual also commits an offence (punishable by 2 years imprisonment) if:
· the individual is one of the key personnel of an approved provider or former approved provider;
· the approved provider or former approved provider uses an accommodation bond for a non-permitted use;
· the individual knew that, or was reckless or negligent as to whether the accommodation bond would be so used and the use of the accommodation bond was not permitted;
· the individual was in a position to influence the conduct of the entity in relation to the use of the accommodation bond;
· the individual failed to take all reasonable steps to prevent the use of the accommodation bond;
· within 2 years of the non-permitted use of the accommodation bond, the Guarantee Scheme was triggered. In other words, an insolvency event (within the meaning of section 10 of the Aged Care (Bond Security) Act 2006 ) has occurred in relation to the approved provider or former approved provider and there has been at least one outstanding accommodation bond balance. Strict liability applies to this element of the offence; and
· at the time that the accommodation bond was used for the non-permitted use, the approved provider (or former approved provider) was a corporation. Strict liability also applies to this element of the offence.
The maximum penalty of 300 penalty units for approved providers and 2 years imprisonment for key personnel is consistent with like offences in the Act. For example, section 10A-2 (relating to disqualified individuals) contains a maximum penalty of 300 penalty units for the offence committed by the approved provider and a maximum penalty of 2 years imprisonment where the relevant offence is committed by one of the key personnel of the approved provider.
This item repeals paragraph 57A-2(1)(l) of the Act. This paragraph limits the purposes for which an approved provider may use an accommodation charge (for example, to meeting capital works costs related to residential care and retiring debt related to residential care).
The effect of repealing this paragraph is to remove this limit on the use to which accommodation charges can be put. This initiative complements the tightening of restrictions on the use of accommodation bonds, and puts the regulatory focus in the most appropriate place, in order to protect the large capital investment of care recipients which is made through accommodation bonds and ‘free up’ the uses to which accommodation charges may be put.
Section 63-1 of the Act summarises the responsibilities of an approved provider in relation to accountability for the aged care provided by the approved provider.
Paragraph 63-1(1)(c) references the notification requirements on approved providers and the responsibility to respond to requests for information that are made by the Secretary under subsections 9-2(2), 9-3(2) and 9-3A(2). This item amends this paragraph by extending it to include a reference to the new subsection 9-3B(4) which requires the approved provider to provide information to the Secretary in relation to the capacity of the provider to refund accommodation bonds.
By making this amendment, this ensures that it is a clear responsibility of the approved provider to respond to requests for information by the Secretary under new section 9-3B. Failure to comply may not only lead to prosecution for an offence (as provided for in subsection 9-3B(5)) but may also lead to the Secretary taking compliance action under Part 4.4 of the Act.
Item 8 and 9
Items 8 and 9 add two new definitions to Schedule 1 , namely capital expenditure , which is defined at subsection 57-17A(2) and permitted , relating to when the use of an accommodation bond is permitted, which is also defined at section 57-17A.
PART 2 - Savings and Transitional
This item provides that a term used in this Part has the same meaning as in the Act.
This item describes the transitional arrangements in relation to permitted uses of accommodation bonds that were charged for entry into a service prior to 1 October 2011.
The effect of the section is that if an approved provider has taken accommodation bonds before 1 October 2011 (that is, before the commencement of the amendments made by this Bill) those accommodation bonds can continue to be used for:
· providing aged care to care recipients (if the accommodation bond had been charged for entry to a residential care service); or
· providing flexible care to care recipients (if the accommodation bond had been charged for entry to a flexible care service).
In addition, the approved provider may choose to use accommodation bonds taken before 1 October 2011 in accordance with the new permitted uses described in section 57-17A (that apply to accommodation bonds taken on or after 1 October 2011).
If the approved provider uses the pre-1 October 2011 accommodation bonds for any of these purposes (i.e. the old purposes for which pre-1 October 2011 accommodation bonds could be used or the new purposes for which post-1 October 2011 accommodation bonds may be used) then the approved provider complies with the legislation.
Item 11 also describes the arrangements that apply to income derived from accommodation bonds taken prior to 1 October 2011, retention amounts taken in relation to accommodation bonds paid prior to 1 October 2011 and accommodation charges that commenced being charged prior to 1 October 2011. In each of these cases, the restrictions which existed on the use of these monies before 1 October 2011 no longer apply on or after 1 October 2011.
In other words, from 1 October 2011, there are no limits on how income derived from accommodation bonds, retention amounts or accommodation charges may be used (regardless of whether the accommodation bond was taken before or after 1 October 2011 and regardless of whether the accommodation charges commenced being levied before or after 1 October 2011).
This item describes the two-year transition arrangements that apply to accommodation bonds charged on or after 1 October 2011.
In summary, if an accommodation bond is charged by an approved provider on or after 1 October 2011, the approved provider may use the accommodation bond:
· for providing residential care (in the case of an accommodation bond charged for the entry of a care recipient to a residential care service), provided the approved provider complies with any requirements specified in the User Rights Principles; or
· for providing flexible care (in the case of an accommodation bond charged for the entry of a care recipient to a flexible care service) provided the approved provider complies with any requirements specified in the User Rights Principles.
This means that approved providers may, until 30 September 2013, use accommodation bonds that have been paid for entry into care on or after 1 October 2011 for purposes relating to providing aged care (this is consistent with the current regulatory requirements). Approved providers would also be required to meet any requirements that may be specified in the User Rights Principles.
The User Rights Principles may, for example, specify requirements for information about such uses to be provided to the Secretary so that the Secretary can monitor the use of accommodation bonds for such purposes.
If approved providers comply with the requirements detailed above, then the offences described in subsections 57-17B(1) and (2) do not apply and the approved provider is taken to have complied with its responsibilities under the Act (so compliance action could not be taken by the Secretary under Part 4.4 of the Act).
While most approved providers are expected to be well placed to meet the new permitted use requirements, there may be some approved providers that will need to prepare for the new requirements. For example, some approved providers may, at times, use accommodation bonds to meet operational costs. Approved providers in this situation may need to make some operational and financial adjustments. The transition period will provide an opportunity for these adjustments to be made.
SCHEDULE 2 - OTHER AMENDMENTS
PART 1 - Complaints Principles
Division 1 - Amendments
Items 1 and 7 - 14
Currently the Secretary operates a complaints scheme (known as the Aged Care Complaints Investigation Scheme) whereby care recipients, their families and other members of the public can make complaints about Commonwealth subsidised aged care services.
These complaints are then investigated by the Secretary in accordance with the Investigation Principles which are made under the Act.
Following a recent review of the Aged Care Complaints Investigation Scheme and extensive public consultation, it was considered that the complaints scheme should shift its focus from an investigative one to one that has a greater focus on the care recipient and the achievement of resolution of a complaint and the best outcome for the care recipient.
In order to achieve this, changes are being made to the Principles that describe the complaints scheme.
To facilitate this, and to demonstrate the shift of the complaints scheme from investigations to the resolution of complaints, it is proposed that the existing Investigation Principles be re-named the Complaints Principles. The Complaints Principles will describe the reforms to the complaints scheme including its increased focus on seeking resolution and on utilising a range of techniques for doing this.
Changing the name of the Principles requires a number of amendments to the Act. Items 1 and 7 to 14 amend the following provisions to remove the references to Investigation Principles and replace them with a reference to Complaints Principles:
· Items 1 and 7 replace the words ‘Investigation Principles’ with ‘Complaints Principles’ in paragraph 56-4(1)(e) and subsection 94A-1(4);
· Items 8 and 12 replace the words ‘by the Secretary under the Investigation Principles’ with ‘under the Complaints Principles’ in paragraphs 95A-1(2)(a) and 95A-12(2)(a);
· Item 9 replaces the words ‘Secretary’s process for handling matters under the Investigation Principles’ with ‘under the Complaints Principles’ in paragraphs 95A-1(2)(b) and (c);
· Items 10, 11 and 14 replace the words ‘Investigation Principles’ with ‘Complaints Principles’ in paragraph 95A-1(2)(g), subsections 95A-4(1) and (2) and paragraph 95A-12(2)(k); and
· Item 13 replaces subparagraph 95A-12(2)(b)(i) (which refers to the Secretary’s process for handling of matters under the Investigation Principles) with a new subparagraph which refers to the processes for handling matters under the Complaints Principles.
Item 2 and 3
These items amend paragraphs 84-1(e) and (g) which describe the focus of Chapter 6 of the Act.
The amendments ensure that existing references to the Chapter dealing with:
· investigations under the Act and Principles (84-1(e)); and
· the Aged Care Commissioner, whose functions include examining certain matters relating to investigations (84-1(g))
are replaced with references to:
· the management and resolution of complaints and other concerns about the provision of aged care services (see Part 6-4A) (new paragraph 84-1(e)); and
· the Aged Care Commissioner, whose functions include examining certain matters relating to the management and resolution of complaints and others concerns about the provision of aged care services (new paragraph 84-1(g)).
Items 4 and 5
These items change the heading for Part 6.4A and for Division 94A to reflect the scheme’s change in focus, from investigation to one of complaints and other concerns. The new heading of Part 6.4A of the Act is ‘Complaints Principles’ and the new heading of Division 94A is also ‘Complaints Principles’.
Subsections 94A-1(1), (2) and (3) currently set out the matters that may be addressed in the Investigation Principles.
This item repeals these subsections and replaces them with new subsections that better describe the proposed focus of the new Complaints Principles.
In summary the Complaints Principles may provide a scheme for the management and resolution of complaints and other concerns about Commonwealth subsidised aged care services through which aged care is provided by approved providers.
To this end, the Complaints Principles may deal with one or more of the following matters:
· how complaints and concerns may be received, managed and resolved. For example, the Principles could specify that complaints may be received orally or in writing;
· different ways of receiving, managing and resolving different types of complaints and concerns, and complaints and concerns in relation to different aged care services. For example, it may be desirable to describe different processes for different type of complaints or for complaints in relation to different types of services (such as residential care, community care or flexible care);
· the roles, rights and responsibilities of complainants, approved providers and other participants in the scheme;
· considerations relevant to making decisions under the Complaints Principles;
· procedures for the review of decisions and processes under the Complaints Principles. For example, the Complaints Principles could describe how the Secretary may reconsider a decision and also those decisions that are subject to examination by the Aged Care Commissioner; and
· actions that may be taken (including making requirements of an approved provider) to address complaints or concerns.
The Complaints Principles may also make provision of a transitional or saving nature relating to investigations that:
· related to this Act or the Principles made under section 96-1; and
· were being dealt with under the Investigation Principles immediately before the commencement of the new provisions (1 September 2011).
Items 15, 16 and 19
These items amend section 96-1 of the Act to remove the reference to repealed section 46A of the Acts Interpretation Act 1901 and include an express declaration that the Principles (made by the Minister under section 96-1 of the Act) are legislative instruments for the purposes of the Legislative Instruments Act 2003.
While the Principles are, as a matter of practice, already legislative instruments for the purposes of the Legislative Instruments Act 2003 , this technical amendment removes outdated provisions and updates the drafting of section 96-1 to make this express.
Item 17 and 18
Section 96-1 enables the Minister to make Principles that are specified in a table in section 96-1. The table includes a reference to the Investigation Principles. Item 18 repeals the reference to the ‘Investigation Principles’ (described at item 16A of the table) and replaces it with a reference (at item 13A of the table) to ‘Complaints Principles’.
This enables the Minister to make the Complaints Principles to describe the new scheme for the management and resolution of complaints and other concerns about Commonwealth subsidised aged care services through which aged care is provided by approved providers.
Paragraph 56-4(1)(e) of the Act currently provides that an approved provider must comply with any requirements made of the approved provider under the Investigation Principles.
The purpose of item 20 is to save the operation of this provision so that if an approved provider was required by the Secretary to do something in accordance with the Investigation Principles, this requirement will remain despite the fact that the Investigation Principles will change to the Complaints Principles on 1 September 2011.
For example, the Investigation Principles currently enable the Secretary to issue a Notice of Required Action, requiring the approved provider to take certain actions where a breach of the legislation has been identified through an investigation. In such circumstances, paragraph 56-4(1)(e) of the Act has the effect of requiring the approved provider to comply with such a notice. If the approved provider fails to comply, action may be taken by the Secretary under Part 4.4 of the Act.
The effect of this savings provision is that if, for example, the Secretary gives an approved provider a Notice of Required Action on 20 August 2011 (giving the approved provider 14 days to comply) the approved provider must continue to comply with this requirement despite the fact that the Investigation Principles will become the Complaints Principles part way through the period during which the approved provider must comply.
Section 95A-12 of the Act requires the Aged Care Commissioner to prepare an annual report and to include certain matters in the annual report.
Currently section 95A-12 describes some of the matters for inclusion in the report, by reference to the Investigation Principles.
Various amendments made by the Bill change the references in this section from references to the Investigation Principles to references to the new Complaints Principles.
The effect of item 21 is to ensure that, for the purposes of the Aged Care Commissioner’s report for the year ending on 30 June 2011, the Aged Care Commissioner reports on relevant matters by reference to the Investigation Principles.
However, for the financial year ending on 30 June 2012 the report will need to be by reference to both the Investigation Principles and the Complaints Principles (noting that the Investigation Principles will apply up to and including 31 August 2011 and the Complaints Principles will apply from 1 September 2011).
SCHEDULE 3 - SPENT LEGISLATION
This Schedule amends the Aged Care Act 1997, the National Health Act 1953 and the Health Insurance Act 1953 to remove redundant provisions that are no longer operational and risk confusing stakeholders. The Schedule also repeals the Aged or Disabled Persons Care Act 1954 and the Nursing Home Charge (Imposition) Act 1994 , both of which were replaced by the Aged Care Act 1997 and are now redundant.
PART 1 - Amendments
Items 1 to 3 and 11
Item 56 of Schedule 3 of this Bill repeals the Aged or Disabled Persons Care Act 1954 (refer discussion below). Items 1 and 2 of Schedule 3, make consequential changes to subparagraphs 16-2(3)(g)(iii) and (iv) of the Aged Care Act 1997 to remove references to the Aged or Disabled Persons Care Act 1954.
Paragraph 16-9(2)(g) and subsection 43-6(5) of the Aged Care Act 1997 cross-reference the Aged or Disabled Persons Care Act 1954 as well as redundant parts of the National Health Act 1953 (which are being repealed through item 39 of Schedule 3 of this Bill). Item 3 therefore repeals 16-9(2)(g) and item 11 amends subsection 43-6(5) to remove inappropriate cross-references. These changes are consequential to the repeal of the Aged or Disabled Persons Care Act 1954 and Part VBA of the National Health Act 1953.
Items 4, 7, 8, 9 and 13 to 17
It is proposed that the opportunity be taken, through this Bill, to repeal references in the Aged Care Act 1997 relating to a redundant set of quality standards for residential aged care (namely the Residential Care Standards). The affected provisions were relevant to a now ceased quality assurance program for residential care services and their inclusion in the Act is no longer required, as these standards have been replaced by the Accreditation Standards from 1 January 2001.
Items 1, 2, 4, 7, 8, 9 and 13 to 17 amend the Act to remove or amend provisions relating to the now defunct Residential Care Standards.
Items 5, 6, 10, 12, 18, 19 and 20 to 55
Items 20 to 55 repeal redundant provisions in the National Health Act 1953 relating to aged care. Items 5, 6, 10 and 12 make consequential changes to the Aged Care Act 1997 (that result from the repeal of the provisions in the National Health Act 1953 ) and items 18 and 19 likewise make consequential changes to the Health Insurance Act 1973.
In 1997 the Aged Care Act 1997 came into effect, replacing the previous system for regulation of hostels and nursing homes with a new, comprehensive system for funding and regulating aged cares service operated by approved providers.
The previous system of regulation (and payment of Commonwealth benefits) was, in part, described in the National Health Act 1953 . Despite the enactment of the Aged Care Act 1997 , these provisions were retained because there were a number of organisations that were subject to transitional arrangements and to whom benefits continued to be paid under the National Health legislation.
After 10 years, however, no organisations were any longer subject to funding or regulation under the old provisions of the National Health Act 1953.
The continued existence of the redundant provisions in the National Health Act 1953 can lead to confusion for stakeholders because they may mistakenly turn to that Act seeking information about the funding and regulation of aged care services when in fact this information has been superseded and is now reflected in the Aged Care Act 1997.
Items 20 to 55 therefore amend the National Health Act 1953 to remove all references to the redundant provisions of the Act that relate to aged care.
Items 5, 6, 10 and 12 make consequential amendments to the Aged Care Act 1997 to remove cross-references to provisions that are being amended or repealed in the National Health Act 1953 .
Items 18 and 19 make consequential amendments to the Health Insurance Act 1973 to remove cross-references to terms that are defined or used in the provisions of the National Health Act 1953 that are redundant and are being amended or repealed.
None of the amendments proposed by any of the items described above will have any adverse impacts as they simply remove redundant and potentially misleading provisions.
PART 2 - Repeal of Acts
This part repeals two Acts that are no longer operational - the Aged or Disabled Persons Care Act 1954 and the Nursing Home Charge (Imposition) Act 1994.
This item repeals the Aged or Disabled Persons Care Act 1954. The Aged or Disabled Persons Care Act 1954 enables the payment of grants or financial assistance to approved hotels and community care services. These types of funding are no longer available and have been replaced with the system of grants, subsidies and payments described in the Aged Care Act 1997 . Item 56 therefore repeals the outdated Aged or Disabled Persons Care Act 1954.
The Nursing Home Charge (Imposition) Act 1994 enables the imposition of charges for the purposes of Division 2A of Part VD of the National Health Act 1953.
As Division 2A of Part VD of the National Health Act 1953 is no longer operational and is being repealed (through item 39 of this Bill) the Nursing Home Charge (Imposition) Act 1994 can also be repealed.
PART 3 - Repeal of Acts: saving
As noted in relation to item 56, grants are no longer payable under the Aged or Disabled Persons Care Act 1954 . However, that Act and funding agreements made under that Act imposed obligations on recipients of grants, some of which continue for a significant period of time.
The purpose of the saving provision described in item 58 is to ensure that, if an organisation received a grant which was subject to grant conditions or agreements that may still be relevant, the Aged or Disabled Persons Care Act 1954 continues to apply as it was in force immediately before its repeal.
 This is an amount, set by Government, that an approved provider may deduct from an accommodation bond for up to five years.
 In summary, an accommodation charge is a regular amount that is paid to approved providers instead of an accommodation bond. Accommodation bonds (lump sums) may be charged in low care aged care but only accommodation charges may be charged in high care. unless the high care service has been granted ‘extra service ‘ status