Red tape rejected

Aged care lawyer rejects excessive oversight and poor timing with new bond regulations.

Above: Julie McStay, Partner, Hynes Lawyers

By Stephen Easton

The latest phase in the Commonwealth’s push for tighter regulation of aged care accommodation bonds creates unnecessary hardship for the sector at an already difficult time, according to one of the speakers at last week’s Aged Care Queensland (ACQ) State Conference on the Gold Coast.

In her workshop on Wednesday morning, Julie McStay from Hynes Lawyers told ACQ members what to expect from the new prudential regulations aged care providers will have to comply with from July this year, assuming the government can keep to its timeframe.

The lawyer, who specialises in aged care, cast doubt on whether the new framework would be implemented in a few months time as planned, especially with the sector facing a major systemic shake-up after the Productivity Commission (PC) releases its final recommendations for reform later this year in the report Caring for Older Australians.

“The timing is extraordinary; it’s already a particularly difficult and dynamic time for the sector,” Ms McStay told delegates. “Given what’s happening already with the Productivity Commission, I do not see that happening by July 2011.”

“If it ain’t broke, don’t fix it,” was the message she said federal authorities, the department and politicians had failed to receive from the industry.

“Providers have been [managing accommodation bonds] very well for years. The regulator should look at supporting the financial security of providers instead of such onerous, prescriptive regulations. ”

McStay argued that reforms recommended by the PC would decrease the popularity of bonds, a view shared by many in the for-profit sector including Aged Care Association of Australia (ACAA) CEO, Rod Young.

She said that with the place of bonds in the future uncertain, the enhanced prudential regulations suggested by the Australian National Audit Office (ANAO) in September 2009 were not an immediate priority, and that the sector’s laudable performance in managing the investments so far also made the new rules unnecessary.

The federal government last toughened bond regulations in 2006, when it introduced standards for record-keeping, disclosure and liquidity, and established the Accommodation Bond Guarantee Scheme to repay bonds owed by providers who become insolvent.

Between then and 2009, $16 million dollars of taxpayers’ money had been paid out through the scheme, which McStay said made up only a small fraction – just 0.02 per cent – of the billions in bonds held by providers.

The aged care lawyer said she had no doubt the industry supported strong and effective regulations in principle, but those currently on the table were “very onerous and largely unnecessary,” and amounted to the government “looking over the shoulders” of providers, when they had in fact demonstrated a very small rate of default. 

The consultation process for the new regulations, which began with an issues paper in October 2010, closed earlier this month on March 8. Details of the rules can be found in a consultation paper published by the Department of Health and Ageing in February this year.

The main features are stricter requirements for what bonds can be used for, disclosure of spending coming from bonds to residents and the department, as well as a strict new corporate governance standard, enforced by the possibility of criminal charges for inadequate reporting or misuse of funds.

“The general view in the industry is that criminal penalties are inappropriate, and would discourage key people from being involved in the industry” she said. “At one large provider I went to see, the board members were affronted by the idea of department people coming in and telling them about governance.”

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