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Financial and Prudential Regulatory Insights – January 2023

The Commission’s expanding role in financial viability

Welcome to 2023!

Peter Edwards, Executive Director, Financial and Prudential Regulation

In my last post I challenged aged care providers to view the financial and prudential rules as an opportunity to build more robust financial governance systems. This month I will talk about the Commission’s expanding role, focusing on the financial viability of providers; a function that will be moving to the Commission from the Department of Health and Aged Care (the Department) over the next 12 months.

This expanded role recognises the link between emerging financial viability issues, risk of non-compliance with prudential obligations and potential quality and safety issues. 

Delivering aged care services is complex. It requires a range of resources to be carefully coordinated based on the needs and wants of the consumer. Sitting around this are environmental and operational risks that have the potential to knock even the best laid plans off track. Then there is the ongoing competition between what a provider is doing now, and what it needs to invest in for the future to meet changing consumer demand. Navigating that complexity while under financial pressure makes decision-making even more difficult, increasing the risk of prudential standards not being complied with, or expenditure being cut in ways that impact quality and safety of care or, in the worst case scenario, even leading to the sudden disorderly closure of a service. 

Identifying early signs of emerging financial viability problems provides an opportunity for the Commission to engage with aged care providers at a time when there is a greater range of options available to providers to remediate their situation, such as improving financial governance and controls and exploring restructuring options. In such cases the Commission will be looking to take a preventative regulatory posture that reflects the contemporary approach taken by other prudential regulators. One that is ‘… designed to prevent problems emerging, rather than providing a means to take action after harm is caused. The reason for this pre-emptive approach is that it’s wiser and less costly to prevent a crisis, or to mitigate its impact, than to clean up after the event'.1

Over the coming months you will see the Commission taking a more active case-management role in response to emerging financial viability problems. As we do that we will be working closely with the Department to ensure that the transfer of responsibilities from the Department to the Commission is as seamless as possible.

In the next couple of posts I will reflect on learnings from the Royal Commission into Aged Care Quality and Safety, contrasting the Commission’s regulatory role with the Department’s market stewardship role. Through this I hope to explain how these different areas of focus complement each other to support a well governed aged care system.

Peter Edwards
Executive Director, Financial and Prudential Regulation

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