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Federal Court decision on “Asset Replacement Charge”

07 Mar 2018

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On Friday, 2 March 2018, the Federal Court of Australia handed down its decision concerning the validity of the  “Asset Replacement Charge” which Regis Aged Care has been charging to residents (a copy of the decision can be found here).

The Federal Court ultimately found that the Charge is inconsistent with the Aged Care Act 1997 (Cth) (the Act) and Principles and is not properly chargeable.

Key issue

In September 2016, the Department published guidelines and advice regarding the practice of charging a ‘capital refurbishment fee’ to residents and that these fees were not supported by the legislation (the Department’s publication can be found here).

Following this, Regis applied to the Court for a ruling as to whether the Act contains any explicit or implied prohibitions on the imposition of charges which do not directly benefit the resident and argued that the charge is properly chargeable.

The Charge

As part of its resident agreement, Regis were charging residents a fee described as being charged to “…fund renovations, refurbishments and reinstatements of fixtures, fittings and infrastructure, rebuilding and construction of or at Regis facilities across Australia”. The Department argued the charge was for future activities and not charged for services or works from which the resident is likely to derive any benefit.

Characteristics of the charge:   

  • a fixed daily amount (between $16.69 and $17.98) which increased by 1.5% on 1 February each year;
  • charged for a maximum period of 30 months from the date of admission;
  • not charged until the resident is permanently discharged; and
  • deducted from the RAD paid.

The Court found  that the charge was not used:

  • To provide accommodation to the resident.
  • For the maintenance of the building and grounds used by the resident to address normal wear and tear during the normal economic life of the buildings and grounds.
  • To provide care and services that are the responsibility of the provider to provider pursuant to the Act and associated Principles.

The Court’s decision

The Court found that the charge is inconsistent with the scheme established by the Act and Principles and that providers cannot charge residents fees where the resident derives no benefit (for example, where the fee does not secure better living conditions for the resident, additional services or more one-on-one care).

The Court also went on to make several key points as follows:

  • If the Court were to accept Regis’ argument that the charge is to be construed as a contractual matter to be agreed between the parties (as opposed to it falling under the Act), there would be no accountability or supervision to ensure that the monies received were actually expended for the purposes for which they were levied. The Secretary would have no power to inquire about this, as it would be a matter which falls outside of the statutory scheme.
  • The charge was in effect a condition of entry imposed by Regis of any individual into one of its care facilities (except where the individual is fully supported or admitted for respite). This, coupled with the fact that residents derive no benefit from paying the Charge, was an important feature and in-part led to the finding that the Charge was not properly chargeable under the Act. It was left open as to whether, had residents been able to ‘opt out’ of the charge or negotiate, this would have had any effect on the validity of the Charge under the scheme.
  • The Court rejected Regis’ argument that the charge enhances choice and flexibility for residents. The Court instead found that, where the resident derives no benefit from a Charge, there is a unilateral imposition of a charge and there is no evidence to suggest payment of a charge is negotiable or that its rates are negotiable – resident choice is not enhanced, rather it is inhibited.

The Court has not yet made any orders in relation to the decision e.g. whether the charge paid by residents should be refunded. Other providers who were charging a similar fee have elected to stop charging the fee and or refund the fees paid to residents.

For further information please contact us here.

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