Generational aged care reforms

On 25 November 2024 the Parliament passed sweeping aged care reforms that will profoundly change how aged care services are provided in Australia, including the management and governance of aged care providers. It is critical that aged care directors are across these changes in advance of commencement from 1 July 2025.

Overview of key reforms

The Aged Care Act 2024 (new Act) implements around 60 recommendations from the Royal Commission into Aged Care Quality and Safety, with key reforms including:

• A rights-based framework that embeds a focus on the rights of older people in the aged care system;
• A new duty applying to directors and senior managers of aged care providers (responsible persons);
• A new duty applying to providers linked to the standard of care provided to older Australians;
• A new home care framework called Support at Home, replacing the existing home care packages system;
• A new funding model for residential care applying to new residents from 1 July 2025, where some residents will make means-tested contributions, based on their income and assets; and
• New and expanded powers for the regulator, the Aged Care Quality and Safety Commission.

The reforms will commence from 1 July 2025, although the Department of Health and Aged Care will be consulting on rules that will cover how the reforms are implemented, including transition periods.

Responsible person duty

The AICD’s policy and advocacy efforts over 2023 and 2024 in aged care focused on the responsible persons duty that will apply to directors and senior managers of providers.

The duty places a requirement on responsible persons to exercise due diligence to ensure that the provider complies with the separate provider duty. The duty on the provider is a requirement that it does not cause adverse effects to the health and safety of older people while delivering funded aged care services.

The law defines due diligence for the responsible person as taking ‘reasonable steps’ in a number of areas, for example the director ensuring the provider has appropriate processes for considering information regarding incidents and risks and responding in a timely way. The implications of the duty for the governance of providers are discussed further below.

The initial consultation on draft legislation in late 2023 proposed that a breach of the duty would have the potential for civil or criminal penalties. This would have meant a director would have faced the risk of a significant fine (up to $313,000) or imprisonment for serious breaches (up to five years jail).

The AICD, along with many other participants in the aged care sector, had very significant concerns with the proposed duty and the attached penalties. While we recognised the need for operational and governance improvements across the aged care sector, our view was that the duty was an unnecessary, and excessively punitive, layering of new duties on aged care directors. Our submissions stressed that directors are already subject to obligations that hold them to account for oversight of the provider’s operations, including workplace health and safety requirements and the Code of Conduct for Aged Care.

We heard loudly from AICD members in the aged care sector that the duty would drive talented people from the sector and exacerbate ongoing difficulties in recruiting and retaining experienced directors and managers. This risk was heightened for small, not-for-profit and regional and rural providers, which rely on volunteers to fill board positions and contribute to ongoing operations.  

The AICD engaged in extensive advocacy efforts with the Department, Government and opposition members of Parliament. Pleasingly, the legislation that was introduced and passed by Parliament removed criminal liability and the strict liability construction of certain breaches.

While we remain of the view that the duty is unnecessary, we consider that the changes are a measured reframing of the duty and have reduced the very real concerns of providers and directors.

Implications for the governance of aged care providers

The new Act represents a culmination of a number of years of significant changes that have been required of aged care providers and their boards. For example, previous reforms required boards to have a director who has experience with clinical care and to separately establish a quality care advisory body.

Boards of aged care providers should inform themselves of the new Act, particularly implications for their organisation’s operations and governance structures.

The responsible person duty imposes an affirmative, non-delegable obligation on a director to take reasonable steps to ensure compliance by the provider. Steps a board can take to prepare to meet the duty include:

• Review the quality and scope of board reporting to ensure it is providing the right information on the provision of care at the provider;
• Ensure there are processes in place for the board to be made aware of care and other risk failings and to be able to take action to address any failings;
• Directors are informed and updated of the regulatory obligations faced by the provider;
• Consider whether greater ‘eyes-on’ oversight (e.g. physical inspections of facilities) are needed to understand the implementation of risk management controls; and
• Ensuring that board activities that are relevant to the due diligence requirement are appropriately recorded and documented.

We expect that, in time, the Department and regulator will issue guidance to assist boards in order to meet their obligations under the responsible person duty.