INSIGHT

A new rights-based approach: the Aged Care Royal Commission delivers its blueprint for radical reform

Corporate Governance Dispute Resolution Government Health Private Equity Risk & Compliance

A new system with people at its centre 13 min read

On 1 March 2021, the Royal Commission into Aged Care Quality and Safety issued its Final Report, a report 'about the future: tomorrow, a decade from now, twenty years from now, and beyond.'

The Commissioners identified various interconnected and systemic problems - including inadequate funding, variable provider governance and behaviour, absence of system leadership and governance and poor access to healthcare - with a 'compounding effect' on the quality and accessibility of aged care.

To address these concerns, the Final Report recommends significant change through the creation of a new aged care system aimed at placing people at the centre of aged care. The recommendations are wide ranging: from new legislation and governance structures through to investment in technological advances. We consider this reform agenda in detail below, and provide insights into the various implications of the proposed new system.

Regulatory overhaul – a new 'rights-based' regime

Summary of Recommendations

  • A new Aged Care Act is proposed as the foundation of a new aged care system. The new Act should take an outcome-focused approach based explicitly on rights-based principles of care.
  • The new Act should clearly define what is meant by high quality and safe care and include a general duty on providers (and key personnel) to provide it to older people. The general duty should be enforced through a civil penalty regime and failure to comply could require providers to pay compensation to care recipients.
  • The new Act should be supported by revised system governance (although the Commissioners differ as to the preferred institutional framework).
  • A system of 'star ratings' should be developed and published to allow consumers to compare the quality and performance of service providers.

IMPLICATIONS

  • The Royal Commission's proposed redesign is directed at tackling the systemic issues it identified during the inquiry, including widespread instances of substandard care, variable provider governance and behaviour, absence of system leadership, and inadequate funding.
  • The Final Report clearly sets the tone for heightened regulatory monitoring, investigation and enforcement under the new civil penalty regime.
  • Regardless of which (if any) recommendations on system governance the Federal Government adopts, providers are likely to experience greater scrutiny and increased regulatory obligations.
  • We also anticipate increased scrutiny and public benchmarking of providers' performance. The new compensation regime is likely to increase class action risk and pressure from plaintiff lawyers and litigation funders.

Internal governance and accountability

Summary of recommendations

  • The Royal Commission recommends changes to legislation directed at improving provider governance. For example, key personnel should be subject to a 'fit and proper person' test. At the board level, the Final Report hones in on an inadequate skills-mix and the potential for lack of independence of subsidiary boards from their parent companies.
  • A new governance standard should be set for approved providers, including skills-mix requirements for boards and an explicit duty owed to the subsidiary company, a mandatory care governance committee, and an annual attestation by a nominated member of the board that the provider has systems and processes in place to deliver safe and high quality care.
  • Comprehensive whistleblower protections should be provided to those in the aged care sector (such as persons receiving care, their family members and employees).

IMPLICATIONS

  • The recommendations are likely to lead to deep scrutiny and reform by providers of their governance and management arrangements.
  • The Royal Commission identifies leadership and culture as critical to both the reform process and the delivery of high quality and safe care. The recommendations are squarely aimed at increased accountability by directors, officers and other key personnel, and the legislative changes proposed are likely to give rise to increased legal liability for individuals.
  • In preparation for the transition to the new regime, providers may need to conduct whole-of-business governance and compliance reviews. The new rights-based principles are a lens through which companies can approach a refresh of their governance arrangements and seek to align compliance systems with what the Commissioners call a 'new caring culture'.
  • The emphasis on whistleblower protections means whistleblower reports may become a more significant channel for the regulator in uncovering and addressing substandard care.

A regulator with bite

Summary of recommendations

  • The Final Report recommends an aged care regulator with significantly enhanced monitoring and enforcement powers: Commissioner Briggs notes that the charter of the regulator should be targeted toward it being the 'tough cop on the beat'. Two alternative models of regulation are put forward:
    • Commissioner Pagone recommends a new independent commission, the Australian Aged Care Commission, to perform the roles of system governor, quality regulator and prudential regulator, with pricing carried out by a new separate body.
    • Commissioner Briggs recommends the Department of Health and Aged Care perform the roles of system governor and prudential regulator, with separate independent agencies responsible for quality and pricing.
  • The Royal Commission recommends:
    • an expanded range of enforcement remedies for the relevant regulator, including the power to apply to the court for civil penalties, accept enforceable undertakings and issue infringement notices; and
    • broad search and seizure powers for the regulator, including the ability to conduct unannounced visits to a provider's premises.
  • A new Complaints Commissioner should be introduced who is operationally separate from other regulatory functions. The Commissioner should have the power to direct providers and others to take specified action, including to provide an apology or explanation.
  • A new Serious Incident Response Scheme should be administered by the regulator which will require reporting by providers of a much broader range of incidents. The Scheme should be extended to cover the home care setting.

IMPLICATIONS

  • The enhanced regulatory powers proposed by the Final Report are similar to those exercised by the ACCC and ASIC. This would be likely to result in more regular enforcement action against aged care providers and greater consequences for non-compliance.
  • The introduction of 'search and seizure' powers would be a significant change to the current regime. It would mean that providers need to be equipped and trained to deal with regulatory visits to their premises.
  • It remains to be seen how the new compliance and enforcement regime would interact (and possibly overlap) with the ACCC's remit in relation to the application of the consumer laws (such as misleading conduct, consumer guarantees and unfair contract terms).
  • The additional obligations to be imposed in relation to complaints and serious incidents will require providers to review and update their existing policies and processes.

Workforce

Summary of recommendations

  • An Aged Care Workforce Planning Division should be established within the Department of Health to develop workforce strategies to meet medium- and long-term demand for a skilled aged care workforce.
  • The personal care workforce should be professionalised. A national registration scheme should be established, which includes a mandatory minimum Certificate III qualification.
  • Commissioner Briggs further recommends that an accreditation authority be established to approve an accredited program of study for care workers.
  • A daily minimum staff time standard should be introduced:
    • From 1 July 2022: the average resident should be provided with 200 minutes per day of care by a registered nurse, enrolled nurse or personal care worker, with at least 40 minutes of care by a registered nurse. At least one registered nurse should be on site for 16 hours per day.
    • From 1 July 2024: the average resident should be provided with 215 minutes per day of care by a registered nurse, enrolled nurse or personal care worker, with at least 44 minutes of care by a registered nurse. At least one registered nurse should be on site at all times.

IMPLICATIONS

  • The recommendations on minimum staffing levels, skill mix and education requirements may prove a challenge for providers, at least initially. This is particularly the case for providers operating in regional and remote areas.
  • Leadership and culture will be critical to attracting and retaining staff.

Funding, pricing and oversight

Summary of recommendations

  • The Final Report finds that the current aged care system often fails to deliver adequate services because there is insufficient funding. Existing funding levels are based on historical precedents and ad hoc decision making, with little direct reference to the actual cost of delivering care and are subject to the fiscal policy of the Government of the day.
  • The Final Report recommends that a new pricing authority be established – independent from the aged care sector and the Government – to determine funding levels for providers and the prices of particular aged care services.
  • The Final Report highlights that the current Refundable Accommodation Deposit (RAD) and Daily Accommodation Payment structure are not particularly conducive to a sustainable capital financing model and recommends that the RAD model is phased out with transitional arrangements to be provided by the Government, suggesting this could be in the form of a concessional loan facility or a guarantee facility.
  • The Commissioners recommend increased prudential oversight and stronger information gathering powers as well as imposing a continuous disclosure obligation on aged care providers.
  • Ultimately, the Final Report recommends that the Government fund the Aged Care system in a more sustainable way and suggests this be through a levy similar to the Medicare levy. The views of the Commissioners varied on its structure. Commissioner Pagone advocated a 'hypothecated' levy with proceeds of the levy segregated within general revenue for Aged Care services; however, Commissioner Briggs advocated a 'non-hypothecated' levy, with the proceeds just forming part of the Government's general revenue, like the Medicare levy.

IMPLICATIONS

  • A number of the recommendations go to providing certainty and stability of government funding for the cost of delivering aged care, regardless of the fiscal policy of the Government of the time. Certainty and stability of cash flow will be of significant benefit to providers, but should also create an environment where the private sector (equity and debt) is willing to invest and, with a level of regulatory certainty, could be in a position to provide cheaper funding (particularly with Government guarantees) and in the case of loans, for longer periods.
  • It is likely that providers will be required or encouraged to provide financial information to the pricing authority and participate in cost studies and surveys conducted by the authority.
  • It is also likely that providers will eventually be subject to more obligations around transparency of use of funds, funding structure, operational performance and issues. The development of continuous disclosure obligations would be a shift in this sector and any change would no doubt learn from other continuous disclosure regimes such as those applicable to public companies.
  • A fundamental shift in the funding model for such a significant sector of the economy will inevitably provide opportunities for the private finance market. Ultimately, the significant share of the cost of provision of services will be borne by the Government, but opportunities abound for the provision of capital financing by the private sector.

Design of accommodation – support for a 'small household model'

Summary of recommendations

  • Residential aged care should transition towards smaller, lower-density congregate living arrangements. Commissioner Briggs believes that 'small household models' are the best option for future residential aged care. Commissioner Pagone considers that there may be other ways, in addition to the small household model, of providing appropriate accommodation.
  • Small household models usually involve housing between 8-16 people within a home-like environment and 'can be constructed as standalone facilities or operate in cottage-like clusters as part of a larger development'.
  • Capital grants should be provided for the building or upgrading of residential aged care facilities to provide small-scale congregate living which facilitates the small household model of care.
  • National Aged Care Design Principles and Guidelines (Guidelines) for accessible and dementia-friendly design for residential aged care should be prepared. The voluntary Guidelines should be capable of application to small household models of accommodation.
  • Financial incentives should be provided for compliance with the Guidelines. Amendments to the National Construction Code should be made to reflect accessible and dementia-friendly design standards according to specifications informed by the Guidelines, and allowing for flexibility and innovation in design.

IMPLICATIONS

  • Providers' access to capital grants and financial incentives from the Government may become tied to adoption of the small household model.
  • There is potential for voluntary Guidelines to be incorporated (in whole or in part) into conditions of planning approvals or state or local planning controls, effectively elevating their status in the development assessment process.
  • There is also potential for impacts on development feasibility unless a range of design options are available beyond the small household model. Coupled with the increased regulatory obligations recommended in the Final Report, this poses implications for the supply of residential aged care, the ability of providers to compete with residential developers in purchasing land for aged care development, affordability and choice within the market.

Technology and data

Summary of recommendations

  • The Royal Commission concluded that a lack of reliable and accessible data is impeding the Government's ability to effectively regulate and develop responsive policy in the aged care sector.
  • The Australian Institute of Health and Welfare should undertake critical aged care data governance and management functions, including developing a National Aged Care Data Asset. This would be a centralised repository of a number of standardised aged care data sets.
  • The sector should prioritise the development of software, information and communication systems to improve data collection, with a view to enabling real-time data sharing within government and automatic reporting by aged care providers.
  • The Commissioners recommend investment in assistive technologies and smart technology to support care and functional needs and safety.
  • Providers should universally adopt digital care management systems (including 'My Health Record') to ensure better transfer of critical health and care information.

IMPLICATIONS

  • Providers will need to carefully consider transparency and adequate disclosure about collection, use and sharing of customer data. This is a key current area of focus for other regulators such as the ACCC and OAIC.
  • Providers will also need to implement effective privacy controls and information security protocols to ensure compliance with privacy obligations.
  • Providers can expect increased demands to invest in technology and information and communication systems along with improving the digital skillset of their workforce.

Five-year roadmap

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Regulatory overhaul
  • A new Aged Care Act based on the concept of respect for the individual.

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Internal governance and accountability
  • An Assistant Commissioner for Sector Capability to lead a transformative change program, including a governance training and funding program for 3,700 senior leaders across boards and senior executives.

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Workforce
  • 18,000 places for workers and a new Home Care Workforce Support Program to assist employers to access support and training for new recruits.

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Funding, pricing and oversight
  • $18m to enhance oversight of the Government's Home Care Packages Program.
  • $32m to enhance the capacity of the Aged Care Quality and Safety Commission and regulation around the use of restraints in care.
  • $189.9m for residential care providers to provide stability and maintain services whilst the Government considers the recommendations of the Final Report.
  • $90m to support a Viability Fund to assist facilities that are facing financial challenges.

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Other
  • Acknowledging that Australians want to age in their own homes, acting on transparency of fees, commencing an audit program of over 500 facilities per year, and implementing a new quality control system.