Increased risk of non-compliance under New Aged Care Act – Implications for providers and insurers

When looking at Australia’s ageing population, the increasing capacity challenges to come are starkly obvious. The final report from the Aged Care Taskforce shows that those 70 and over will increase by 2.3 million in two decades.

Those 85 and over will “more than double” to a fraction under 1.4 million by 2042. With RAC at 252,379 spots in 2023-2024, sector wide is the understanding that the lift to meet these unfolding numbers is gargantuan. Coupled with the incoming changes of the New Aged Care Act, the need for provider leadership to understand the changing compliance measures and subsequent risks is paramount.

Multiple sources, from government to private actors, have attempted to predict and pin-point the number of residential aged care beds needed as the next decades unfold. 350,000 is a number calculated by an investor group but the truth is that the exact number is unknown, the trend however is not.

With an only ever-increasing demand for beds, the pressure on the aged care sector to meet the needs of a rapidly inflating cohort, while meeting heightened compliance measures under the new Act, has experts across legal and insurance fields raising the alarm for provider leadership to comprehend potential insurance and non-compliance consequences under the new Act.

Heightened accountability frameworks

The Government has clearly articulated the underpinning impetus for the new Act, to secure higher standards of care through a “rights-based framework”, bringing in a “comprehensive set of obligations for providers”. With heightened accountability frameworks legal experts are highlighting particular wording of the act for providers to undertake careful consideration. 

Legal group Clyde and Co assess that the new act, “binds the actions of associated providers to registered providers’ own liability.” They predict that, “The New Aged Care Act, in inherently tying the actions of associated providers to aged care providers’ own liability, may create demand for a specialised form of insurance.”

Policy re-assessment

The group advises that, “Registered aged care providers should check to ensure their policies include comprehensive cover for all costs associated with regulatory investigations.” In addition to fines resulting from findings of non-compliance, they highlight the need for coverage surrounding, “associated costs also include legal fees, document preparation, conferrals and inquiries, whether informal or through the court system.”

In preparation for operating under the New Aged Care Act, the newly created avenues for compensation must be fully understood by leadership teams. A financial liability exists through the avenue of compensation claims if an aged care provider is found to have been non-compliant in its duties under the new Act.

“The process for compensation is facilitated by direct application to the Aged Care Quality and Safety Commission (ACQSC)”, Clyde and Co assess, “consequently resulting in the likelihood of an influx of claims. These claims are potentially insurable, depending on policy wording, and so insurers [and providers] should actively review existing policies ahead of 1 November to account for this implication.”

For insurers in the sector too, the group advises that if, “decid[ing] to extend coverage, it is crucial the policy wording is carefully considered to account for conditional declinatures or increased premiums that are appropriately proportionate to the level of potential exposure faced.”

Regulatory oversight and codified duty

In replacing previous oversight legislation, the New Aged Care Act, alongside the Code of Conduct for Aged Care, as of November 1, brings to the fore a new age of regulatory oversight. While most provider leadership teams have likely memorised the six points the Act will ensure, it is the wider ramifications of non-compliance that are yet to be fully understood by a sector that is grappling with still changing and opaque rules underpinning the act.

Clyde and Co state that, “The New Aged Care Act, in its pursuit to prioritise the rights, decisions and needs of older individuals, establishes two new statutory duties, being:”

“A duty placed on registered providers to ensure their conduct does not cause adverse effects to the health and safety of individuals (Provider Duty).”

“A duty for ‘responsible persons’ to exercise due diligence to ensure the provider complies with the Provider’s Duty (Responsible Person Duty).”

A “responsible person”

Understanding section 12 of the act in regards to “responsible person” is critical for compliance and liability understanding under the new act.

Section 12 details, “—any other person who has authority or responsibility for (or significant influence over) planning, directing or controlling the activities of the registered provider”, 

“any person who has responsibility for overall management of the nursing services delivered by the registered provider, or overall management of the nursing services” and

 “any person who is responsible for the day-to-day operations of an approved residential care home or service delivery branch of the registered provider”.

Importantly, inclusive also is, “a person who is responsible for the executive decisions of a registered provider includes a member of the governing body of the provider.”

Clyde and Co interpret this as, “bringing directors of a body corporate under the Corporations Act 2001 (Cth) within the definition of a ‘responsible person’.”

“Associated providers”

A particular area of language in the act that must be acknowledged is that of “associated providers”.

Section 6 provides, “A set of key obligations apply to registered providers and apply even where registered providers subcontract the delivery of services to associated providers.”

Establishing a clearer link between the registered provider and an associated provider, in terms of compliance obligation and liability consequence, the act stipulates:

“If an entity (an associated provider) engages in conduct under an arrangement with a registered provider relating to the registered provider’s delivery of funded aged care services, this Act applies in relation to the registered provider as if the registered provider had engaged in the conduct.”

The Act goes so far as to provide further clarification, noting:

“This means that a registered provider may contravene subsection 142(3) or (4) or another provision of this Act because of conduct engaged in by an associated provider.”

With such clear language, it is evident that registered providers by contracting associated providers will be, through that relationship, liable for the conduct of the linked associated providers. Registration is not a requirement for compliance obligation under the act. Clyde and Co see this to mean the inclusion of, “replacement workforces of nurses and staffing in aged care facilities.”

They state, “Workers of an associated provider are considered to be aged care workers under the New Aged Care Act and will be subject to the same obligations as registered providers’ employees.”

Civil penalties

The failure to comply with the Provider Duty and the Responsible Person Duty are tied with hefty civil penalties, particularly in the environment of elevated regulatory oversight conducted by newly equipped actors like the Aged Care Quality and Safety Commission.

Clyde and Co point to the accountability of directors for the quality, standard and safety of aged care services under the New Act’s purview. “This increased regulation of associated providers may extend aged care service providers’ governance requirements beyond their own surveyable remit, thereby increasing the complexity of responsibilities and heightening the risk of governance breaches.”

Insurance amendments

Speaking to Director and Officer insurance, the group highlights that this insurance, originally intended to indemnify insured directors for personal liability stemming from statutory governance obligations, has a heightened need for re-assessment. There is likely necessity to tailor coverage to include liabilities linked to the conduct of associated providers.

The group suggests, “Considerations for amendment may include ensuring that professional services exclusions on D&O policies are written back in to account for a failure to provide supervision and/or exercise due diligence.”

Under the widened language of the new act and definition of “responsible persons”, inclusive of not just directors and executives but persons in authority, with decision-making powers, it is important to note that the spectrum of staff with a higher likelihood of exposure to personal liability contravention has arguably increased.

Legal experts are encouraging providers to be familiar with the new liability incoming under the New Aged Care Act, to secure policy limits that are adequately tailored to meet the needs of the elevated civil penalties for compliance contravention.

The group believes, “The obligations imposed by the Act will also have the potential to impact claims under management liability, statutory liability, professional indemnity and public and products liability policies. Existing insurance policies such as these are likely capable of providing indemnity under the new regime.”

It is critical that all executive leadership personnel, for both registered and associated providers alike, are acutely familiar with the language of the New Act and the upcoming changes in compliance obligations. Significant re-assessment of process, coverage and understanding are likely worthwhile to adequately prepare for the upcoming environment under the new Act.