Introduction

UnitingCare Australia welcomes the opportunity to respond to the Aged Care Quality and Safety Commission’s (ACQSC) consultation on the proposed new Prudential and Financial Standards. Below we have outlined our key concerns with the Liquidity Standard, which broadly cover the impact it will have on the financial sustainability of the aged care sector, and the regulatory oversight of the ACQSC being proposed.

Liquidity Standard

Sustainability and Investment

The Liquidity Standard provides a significant disincentive for capital investment in aged care, at a time where there are growing supply shortfalls. It poses great risk to the sustainability of the aged care sector, putting providers in a difficult position as the vast majority are working to be good stewards of the system.

The Liquidity Standard needs to be drafted to complement the reforms made in response to the Aged Care Taskforce, not counter them and create divided policy objectives. Aged care providers should be enabled to use cash reserves to enhance their services and invest in the industry, in an appropriate and proportionate manner.

Regulatory Powers of the ACQSC

UnitingCare Australia understands from the current drafting of the Liquidity Standard that the requirement to maintain a minimum liquidity amount will apply to providers of residential care, including those who also operate other community services not otherwise funded by the Commonwealth. Notwithstanding the apparent application of the Liquidity Standard, we note the ACQSC only has the power to regulate the operations and finances relating to funded aged care services.

In this context, it remains unclear why the calculation for the minimum liquidity amount in section 11(3) must be made up of 10% of refundable independent living payment amounts; and 10% of refundable retirement village payment amounts. While Parliament has the power to legislate in relation to the provision of Commonwealth funded aged care, retirement villages are governed at a state and territory level. We do not consider it appropriate for the ACQSC to mandate the calculation of the minimum liquidity amount with reference to cash amounts that are unrelated to the provision of funded aged care services, and subject to separate legislative frameworks.

We acknowledge that section 11 requires providers to hold an amount equal to 10% of refundable independent living payment amounts, and refundable retirement village payment amounts, meaning the reference to these amounts is for calculation purposes only. Nevertheless, this still means providers may have to disclose financial and prudential information to the ACQSC regarding services which are not funded aged care services, and over which the ACQSC does not have regulatory jurisdiction.

Furthermore, there is a fundamental difference between the cash flows for independent living and Refundable Accommodation Deposits (RADs) in residential care. Unlike RADs which must be refunded within 14 days of probate, the obligation to refund Retirement Living deposits to the outgoing resident usually occurs once the independent living unit has been resold. Accordingly, the incoming cashflow in relation to retirement villages provides the capital to make the refund to the outgoing resident; the repayment is not dependent upon existing financial reserves.

35% minimum

Aside from the jurisdictional concerns raised, it’s not clear from the draft provisions or Guidance Material whether the 35% of cash expenses (s 11(3)(a)(i)) is related to aged care services only, or cash expenses for all services delivered by a provider. This is noting that some providers in the UnitingCare Network, and indeed across the sector, also deliver other community services, including under disability, housing, and early childhood. This element needs to be made explicit to providers so they can undertake accurate liquidity calculations. In addition, we note on page 13 of the Guidance Material that providers may be able to demonstrate they have access to liquidity through alternative forms. This is welcome, though we ask that further detail is provided around what alternative forms of liquidity would be permitted, as well as what the reporting requirements and timeframes will be if an alternative form of liquidity were accepted by the ACQSC.

If an aged care provider is not able to demonstrate an alternative form of liquidity, then requiring them to hold an amount equal to 35% of their cash expenses for the previous quarter is likely to prohibit much needed investment in aged care service delivery. This includes maintenance of existing infrastructure, investment into new builds, or providing more residential beds to meet increasing demand.

Noting the recommendations of the Royal Commission to strengthen the prudential and financial regulation across the sector, we advocate that any related measure should be proportionate to the risks at play. In this case, we submit that 35% is disproportionate to the risk of aged care providers becoming unviable or inoperable, and we urge the ACQSC to reconsider this amount.

Furthermore, there does not appear to be evidence which demonstrates that the inability of a failed provider to make payments is a measure of residual risk present in the sector. This lack of evidence suggests that the proposed Liquidity Standard is not focused on real risk, rather it is based on the possibility of a failure in the future, with no reference to actual events.

Conclusion

We urge the ACQSC to consider the impact of the Liquidity Standard and to clarify and rectify the issues identified above. We are open to meeting with you to discuss these matters further.