Sector response prompts changes to proposed liquidity standards

Public consultation has resulted in changes to the new Aged Care Act’s minimum liquidity standards for providers.

The Aged Care Quality and Safety Commission (the Commission) announced on Thursday that there will be amendments made to its draft financial and prudential standards, first released in February.

The Commission acknowledged that much of the feedback in the 32 written submissions and 134 online survey responses received during the consultation period centred on the proposed liquidity standard, with many providers considering the formula “too restrictive.”

The original draft standards outlined three components subject to a minimum liquidity calculation:

• 35 per cent of the previous quarter’s cash expenses
• 10 per cent of residential refundable deposit liabilities
• 10 per cent of of retirement refundable deposit liabilities.

However, in the recently released public consultation summary report, the Commission said that it will reduce the amount a provider needs to set aside for independent living unit and retirement village refundable liabilities (where these operate under the same corporate structure as a residential aged care service). It will also include ‘trade receivables’ in the calculation.

“The new financial and prudential standards will ensure that aged care providers are not only meeting their obligations to deliver high-quality care but are also financially viable and effectively managing the funds entrusted to them,” Aged Care Quality and Safety Commissioner Liz Hefren-Webb said.

Providers will still be required to hold 35 per cent of the previous quarter’s cash expenses and 10 per cent of residential refundable deposit, come November 1, as per the pre-consultation standard.

Deputy Commissioner Regulatory Operations Gary Rake said the standards are crucial to the future success of aged care.

“These new standards provide a clear and consistent framework for financial stewardship in the aged care sector,” Mr Rake said.

“They will help ensure that providers are managing resources responsibly, while giving older people and their families greater confidence in the services they rely on.”

In a bid to address sector-wide financial issues, the Royal Commission into Aged Care Quality and Safety recommended that a ‘prudential regulator’ be empowered to require aged care providers to submit evidence of an independent audit showing the organisation is able to meet its financial obligations. This would include Refundable Accommodation Deposits (RADs) that were likely to become payable within a 12-month period.

Several critical outcomes were cited as the reasoning behind the implementation of the new system; to identify and mitigate financial risk, ensure continuity of care, enhance quality and safety, improve accountability and support the overall sustainability of the sector.

Ageing Australia general manager of policy and advocacy Roald Versteeg said the recent changes are “a win for providers and older Australians alike”. He called upon the Department of Health, Disability and Ageing to continue acting in support of the sector's capacity to meet the growing needs of an ageing population.

“If we’re going to have minimum liquidity standards, as the Royal Commission recommended, we want to make sure they don’t undermine investment,” he said.

“Clearly the figure of 10 per cent would have strangled investment in the sector, which we were able to convey to the Aged Care Quality and Safety Commission in over a dozen meetings, reinforcing our original, evidence-based submission.

“We also advocated for a clearer alternative method for providers to demonstrate compliance against the Standard, to avoid situations where hundreds of millions of dollars – intended to build more beds – is tied up. It’s great to see that the Commission has responded to these concerns and has clarified this alternative method.”

A final version of the standards is expected to be released in the coming weeks.

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The Commission encourages providers to share the Financial and Prudential Standards fact sheet with older people in their care.