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Financial and Prudential Regulatory Insights – February 2023

Why money management matters – learnings from the Royal Commission

Peter Edwards, Executive Director, Financial and Prudential Regulation

Today I want to take us back to some of the things the Royal Commission into Aged Care Quality and Safety said about financial viability and prudential regulation.  It is useful to reflect on what the Royal Commission said, as it is obviously shaping the aged care reform agenda.

A key observation of the Royal Commission was to make the link between provider financial health and the delivery of safe high-quality care:

The Australian Government has an interest in managing prudential risk. It also has a broader financial oversight responsibility with respect to aged care providers. This is because the financial health of providers is crucial to the continuity of the essential aged care services they provide, and to their ability to provide those services safely and to a high quality. This is equally true for residential and home care. (page 160 Final Report Volume 1).

Commissioners Briggs and Pagone then highlighted the importance of the System Governor and Prudential Regulator roles:

  • The System Governor has oversight and shapes how the overall aged care system operates to benefit consumers through policy and funding settings.
  • The Prudential Regulator works at the provider level to identify financial viability issues and prudential compliance risks that have the potential to harm consumers’ wellbeing or interests.

The Department of Health and Aged Care (the Department) is the System Governor, advising Government on policy and funding settings for the sector. The Commission is the Prudential Regulator.

Consistent with that model, the Commission took over responsibility for oversighting compliance with prudential standards from the Department at the beginning of 2020. Planning is currently underway to transition oversight of provider level financial viability risk from the Department to the Commission later this year.

It is important to recognise that although the Department and Commission have distinct roles, we do not work in isolation from each other. To the contrary, these roles are complementary and require close collaboration between the Department and the Commission to ensure that:

  • regulatory activity supports policy objectives, and
  • provider level risks identified through the Commission’s oversight functions help to inform policy and funding decisions.

The Royal Commission recognised that the aged care sector needs to transform itself. The Department and Commission both have essential and complementary roles to ensure that transformation occurs in a coherent and well-planned way. In achieving this, there are areas of responsibility that might appear to overlap. A key one is the Department’s program assurance role, which can involve monitoring activities similar to those undertaken by the Commission. In next month’s post I will address any potential confusion about how the Commission’s regulatory functions intersect with the Department’s program assurance responsibilities.

Peter Edwards

Executive Director, Financial and Prudential Regulation

 


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