Govt nursing home bonds monitoring inadequate

Inadequate monitoring of $8 billion in bonds lodged by nursing home residents has come under fire from the Australian National Audit Office (ANAO).

The Federal Government has had to refund $19 million in bonds after the financial collapse of three nursing home companies, the Audit Office revealed in a special report just released.

The Sydney Morning Herald reported that the Department of Health and Ageing’s management of prudential risks in regulating the rapidly expanding value of accommodation bonds which are levied on all low care nursing home residents has been questioned in the ANAO report.

The total value of bonds held by nursing homes, now at $8 billion, is growing by about 25% a year, the Audit Office revealed, with new bonds now averaging $190,000 each.

The audit report also shows that applicants for nursing home beds have lodged bonds of up to $1 million to secure a bed.

Nursing homes retain the interest earned as well as about $3,500 of the bond each year for five years, with the balance refunded to residents or their estate after death or departure.

Under the law, the aged care companies are free to determine how they invest the bond holdings as long as they can show that the bonds, and any investment income, are used for the purposes of aged care.

However, the ANAO report said the department’s approach to managing prudential arrangements to protect the residents’ money “does not sufficiently support effective regulatory oversight”.

The scale of bond holdings, the nursing homes’ self-management of bond money and the unfettered investment of the money were among reasons the Audit Office cited as posing big challenges for the department.

The department’s regulatory activities “had remained generally reactive in nature and were not informed by the systematic identification of risks to the protection of bonds.

“There is scope to strengthen the department’s capacity to identify and assess the significance of emerging threats, through effective risk management and the targeted collection of regulatory intelligence.”

Since the inception in 2006 of a bond guarantee scheme, the Government has had to intervene three times and refund $19 million because of the financial difficulties of three nursing home companies.

The Government had not so far imposed a levy on the industry to recoup its outlays, as is allowed for under law.

These events “have been administratively challenging for the Department of Health and Ageing, particularly given the lack of precedent and the change in departmental focus from traditional quality-of-care issues to prudential considerations”.

The report said that the department had “yet to comprehensively evaluate” the events which triggered the Commonwealth refunds.

Responding to the audit report, the Minister for Ageing, Justine Elliot, said the Government has taken legislative action to strengthen the protection of bonds paid by residents for entry into aged care services.

“We have strengthened the regulation of key personnel to ensure scrutiny of those pulling the financial strings. This is to provide better protection for residents and promote public confidence in the industry,” Mrs Elliot said.

The department was developing options to further enhance the regulation of bonds for the Government’s consideration. It was already moving to improve its risk-management planning and to increase monitoring of large approved providers to identify emerging compliance risks.

The ANAO report is available at http://www.anao.gov.au