Federal Court determines that Asset Replacement Charges and Capital Refurbishment Fees are prohibited under the Aged Care Act 1997

The recent Federal Court decision of Regis Aged Care Pty Ltd v Secretary, Department of Health [2018] FCA 177 (Regis Case) examined whether capital refurbishment fees could be lawfully charged without breaching a providers’ obligations under the Aged Care Act 1997 (the Act).

Background

Since 1 May 2016 all residents entering Regis aged care facilities have been asked to enter into a contract which includes a clause stipulating an agreement to pay an ‘asset replacement charge’ (ARC).

The clause provides that the ARC would accrue daily as a fixed amount which was capped at 30 months from date of entry. The ARC was not payable until the resident was discharged from the facility and the amount of the ARC would be deducted from the refundable accommodation deposit (RAD).

The purpose in charging the ARC was to ‘……fund renovations, refurbishments and reinstatements of fixtures, fittings and infrastructure, rebuilding and constructions of or at Regis facilities across Australia’.

Facts

Regis commenced the proceeding before the court to seek a declaration that the ARC was a permitted charge which could be imposed without breaching the Act or the Principles.

Regis submitted that it is not precluded from charging the ARC or from deducting the ARC from the refundable deposit if a care recipient agrees. In its simplest form, Regis’ position is that the ‘maximum daily amount of resident fees’ if calculated in accordance with section 52C-3 of the Act may include ‘any other amounts agreed between the care recipient and the approved provider in accordance with the Fee and Payment Principles 2014 (No.2)’.

Regis asserted that the Act does not prevent contractual freedom between a resident and a provider to freely negotiate and agree to terms that include to paying other amounts not prescribed under the Act.

The Department’s position is ‘……..that ‘capital refurbishment fees’, ‘asset replacement contributions’ and similar fees would not be supported by the legislation where the fee does not provide a direct benefit to the individual or the resident cannot take up or make use of the services, or where the activities or services subject to the fee are part of the normal operation of an aged care home and fall within the scope of specified care and service’.

The Court determined that the ARC is inconsistent and is prohibited by the Act, and took the view that provisions of the Act and the Principles governs the contractual relationship between the parties.

The Court held that the clause related to the charging of the ARC did not have anything to do with contractual freedom. The charge had no connection with the provision of residential care to the individual who was asked to pay the fee and the court saw it as the unilateral imposition of a fee on a ‘take it or leave it’ basis.

The Court also held that the Act seeks to ‘interfere in a prescriptive way, with the contractual rights and obligations of those who provide aged care services to the Australian community and seek to be subsidised by the public funds for doing so’.

The Court concurred with the submissions of the Department that the Act together with the Principles established a legislative scheme whereby in exchange for receiving subsidies and other funding providers are subjected specific ‘burdens, restraints or constraints’ within which they must comply with or risk sanctions.

Possible practical implications for providers

Notwithstanding that Regis has 28 days to appeal this decision to a full bench of the Federal Court, this decision means that providers who enter into contracts with residents which have clauses which are imposed as a condition of entry and are offered on a similar ‘take it or leave it basis’ may need to review their agreements.

Clauses in resident agreements which do not provide a direct benefit or which are unrelated to the care or services provided to the resident or which do not permit residents to ‘opt in’ or ‘opt out’ may be viewed as being inconsistent with the Act and the Principles.

This decision does not mean that providers and residents cannot negotiate and agree to terms not covered by the Act, what it does is narrow the scope to terms which enhance and are of direct benefit to the resident.