The Royal Commission into Aged Care - What does it mean to Approved Providers, their Boards and Management?

On Sunday 16 September 2018, Prime Minister, the Hon. Scott Morrison MP announced the Commonwealth Government's decision to request the Governor General establish a Royal Commission into the aged care sector.

Background

The Royal Commission will primarily look at the quality of care provided in residential and home aged care to senior Australians. It will also include young Australians with disabilities living in residential aged care settings.

The detailed Terms of Reference will be determined in consultation with the community, including residents, their families and aged care providers.

The Government has stated that it is anticipated that the Royal Commission will cover:

• The quality of care provided to older Australians, and the extent of substandard care;
• The challenge of providing care to Australians with disabilities living in residential aged care, particularly younger people with disabilities;
• The challenge of supporting the increasing number of Australians suffering dementia and addressing their care needs as they age;
• The future challenges and opportunities for delivering aged care services in the context of changing demographics, including in remote, rural and regional Australia; and
• other matters that the Royal Commission considers necessary.

The involvement of a particular aged care provider will depend on the Terms of Reference and whether or not a specific complaint against that provider will be made to the Royal Commission and investigated.

Identified Risks and Impact

• The aged care Royal Commission and negative media coverage is likely to influence investor’s perception of increased investment risk into aged care stocks, particularly for listed aged care operators. The increased attention and scrutiny raises operational and financial risk.
• Short-term impacts may include:
  • heightened risk of falling occupancy post adverse media coverage. A fall in occupancy will reduce earnings due to the relatively high fixed cost base of aged care operators.
  • Likely increased compliance, marketing/public relations and legal expenses in FY19.
• Falling occupancy typically coincides with weaker Refundable Accommodation Deposits (RAD) cash flows as normal outgoing RADs are not recouped or matched on the way in. There is also scope for a continuing trend away from incoming residents parting with large personal wealth due to negative short-term sentiment and preferring daily accommodation payments. Strong greenfield developments could offset this trend but still see operators with material debt levels as higher risk investments.
• Material costs related to the Royal Commission. Aged care operators will need to factor in ongoing legal and administration costs related to the Royal Commission, as RAD cash flow is used to fund growth capex and debt repayments.

Our Recommendation

We recommend that Approved Providers:

1. Review any significant and current complaints and claims; if there are any significant complaints and claims, consider resolving those complaints and claims as soon as reasonably possible, obtaining statements and preparing position statements. Make sure to keep insurers  informed at all times.
2. Give high priority to ensure notification to insurers of all incidents (whether significant or not) which could result in liability to a third party for their personal injury or property damage, so as to not prejudice the benefit of cover under the policy for any subsequent claim that may arise. All claims should be notified on receipt and care taken to draft notifications appropriately. The late and incomplete notification of claims or circumstances create unnecessary difficulties between insureds and their insurers. While there is potential for cover to be provided in certain circumstances by virtue of the Insurance Contracts Act 1984 it is not guaranteed.
3. Have appropriate media and social media policies and ensure that staff are aware of protocols in responding to requests from media;
4. Review your insurance arrangements, including general liability, medical malpractice, professional indemnity and directors and officer’s insurance;
5. Ensure that policies and procedures, practices and systems are up to date;
6. Be aware of conflicts of interest, particularly when a particular independent medical practitioner or director is being investigated – there may be a conflict between the interests of the organisation and the interests of that individual;
7. Draw together appropriate resources, including legal and media advice (whether internal or external); and
8. Set the organisation response strategy – sometimes it may be appropriate to resist and other times to apologise and remediate.

The Commission does, under the Royal Commissions Act 1902 (Cth) have the power to summon a person to appear before the Commission to give evidence and/or produce documents. Special rules apply in relation to legal professional privilege and self-incrimination.

Support

We will be in contact with you to discuss immediate measures and to address future impact on your insurance program. For assistance you can contact Lyle Steffensen at lyle.steffensen@marsh.com or 02 8864 7582.

<sub>The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk. Statements concerning legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal advice, which we are not authorized to provide. All such matters should be reviewed with your own qualified legal advisors.

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