What will the changes to the Aged Care Act mean for the sale and purchase of residential aged care homes?

This article was updated on 4 December 2024.

This article is part of our series 'The New Aged Care Act: Are you ready?' and takes a closer look at what the changes under the new Act mean for the sale and purchase of residential aged care homes from 1 July 2025.

Buyers and sellers of residential aged care businesses are familiar with the process of requiring the consent of the Australian Government Department of Health and Aged Care (Department) to the transfer of an approved provider’s allocated places to the incoming provider. This is a statutory process under section 16-2 of the current Aged Care Act 1997 (Cth) (current Act). The period for approval (which is taken to be given by the Department not issuing a veto notice regarding the transfer of places) is generally 60 days where the incoming provider is an approved provider.

From 1 July 2025, these processes will change and this will need to be factored into sale and purchase documentation.

Approved providers will become registered providers

Under the new Act, there is no longer a requirement for providers of residential aged care to be ‘approved providers’. Instead they will become ‘registered providers’ in one of six provider registration categories. The approval of an entity as a registered provider will generally be for a period of 3 years, unless the Commissioner of the Aged Care Quality and Safety Commission (Commissioner) determines that a shorter or longer period may be appropriate having regard to all of the circumstances of the provider. The provider’s registration will need to be renewed at the end of each approval period. Whether this change will have implications for how lenders view the status and viability of loans to registered providers in the sector remains to be seen.

Places will be allocated to the recipients of care

Places will no longer be allocated to registered providers with the exception of certain specialist programs (the Transition Care Program and the Multi-Purpose Service Program). Places will be allocated to the individuals requiring residential care. Each registered provider will be required to have each of its residential care homes (the terminology used in the new Act) approved and listed against its registration, including in respect of the number of beds available.

Approval of residential care homes

If a provider is a registered provider or has made an application under section 104 of the new Act for approval as a registered provider, it may apply to the Commissioner to approve a residential care home for the provider. The application to approve the home must be in an approved form and accompanied by the application fee prescribed by the Aged Care Rules (the consultation draft for the relevant Rules is not likely to be available before March 2025).

Any application to approve a residential care home must specify the total number of beds which will be covered by the approval, with the number of beds not permitted to exceed the number of beds stated in the certificate of occupancy for the home. The provisions in the new Act relating to subsidies payable for individuals receiving care make it clear that a registered provider cannot claim subsidies, and subsidies will not be paid, in excess of the number of beds available as approved for the home (section 227(5) of the new Act).

Under the new Act, if the Commissioner decides to approve the home then it must give the provider notice of the decision within 14 days of making the decision. There is no specified time frame for making the decision in the new Act: this detail will be in the Aged Care Rules.

The approval of a residential care home starts on the day that the decision is made to approve the home and ends on:

• the day on which the approval is revoked; or
• the end of the day on which the home is no longer covered by the registration of any registered provider.

The drafting of the latter provision of section 119 (b)(i) of the Bill, suggests that:

• approval for each home does not need to be sought on the renewal of registration of a registered provider (which will generally occur each three years); and
• it does not appear that the home will need to be approved again if it transfers to another provider’s registration under a variation.

Once approved the residential care home will be listed against the registered provider’s registration.

Transfer of residential care home to a new provider

Under the new Act:

• a registered provider that is acquiring or intends to acquire a residential care home from another registered provider will need to make an application for the variation of the provider’s registration under section 124(1)(e) of the new Act. The variation would seek to include the residential care home against the registration of the acquiring registered provider; and
• the registered provider that is divesting or intends to divest a residential care home to another registered provider will also need to make an application for the variation of the provider’s registration under section 124(1)(f) of the new Act. The variation would seek to remove the residential care home from the approved residential care homes covered by the registration.

We assume that the Aged Care Rules will streamline this process such that a single approved form can be used by both registered providers to make the applications noted above. More will be known when the consultation of the relevant Aged Care Rules is released in March 2025.

If the Commission is required to register the acquiring provider in another category in order to facilitate the acquisition (for example if the provider is registered to provide homecare services only (a different classification category) and wishes to now provide residential aged care services), then the Commission must be satisfied of all of the matters set out in section 109 (Registration and renewal requirements) of the new Act.

In deciding whether to add a residential care home to a registered provider’s registration and where the home is covered by another registered provider’s registration, the Commissioner must have regard to what arrangements are put in place by the current registered provider to ensure continuity of care for the individuals at the home. While not specified in the new Act, this might include such matters as the transfer of the existing staff to the incoming registered provider, and communications to the residents and their families about the changes.

Similarly, if the Commissioner is considering whether to remove the residential care home from a provider’s registration, the Commissioner must also consider whether the registered provider has put appropriate arrangements in place to ensure continuity of care for individuals in the home.

If the Commissioner decides not to vary the registration of a registered provider by adding the home to its registration, it must by written notice, tell the registered provider that it is considering making that decision (section 126(1)). The notice must:

• tell the provider the reasons why it is considering making the decision;
• invite the registered provider to make submission about the matter within 14 days of receiving the notice (or longer if so specified in the notice);
• tell the registered provider that it may decide, after considering any submissions, not to vary the registration of the registered provider.

Similarly, if the Commissioner decides to vary the registration of the registered provider it must tell the provider within 14 days of the making the decision.

This is a different process from that currently in place, where approval for a transfer of places is assumed provided that no veto notice is issued by the Department. In practice however, the Department will notify the provider of the approval and confirm the Transfer Date. As is evident from the discussion above, under the new Act, the requirement for approval to vary the provider’s registration by adding a home to the provider’s registration will be the responsibility of the Commission.

Under the new Act, a decision not to vary a provider’s registration is a reviewable decision.

Again, there are no time frames specifying how long the Commissioner may take to make that initial decision.

It is not clear whether the yet to be published Aged Care Rules may specify a statutory time frame for making any decisions regarding the variation of a provider’s registration. If they do not, these requirements will create some uncertainty for buyers and sellers of residential care homes. Until now, those parties have generally had the certainty of a 60 day approval process (unless further information was required to be provided).

The publication of the consultation draft of the relevant Rules, which is not likely to be available before March 2025, may shed some further light on the proposed processes.

What will this mean for transactions already in the pipeline?

In the meantime, transactions relating to residential aged care homes will continue to require approval by the Department of the transfer of allocated places.

It is not yet clear what this may mean for any transactions which sign before 1 July 2025 but which do not complete until after that date. In that case, would an application to transfer the places still be made under the current Act with the approval process remaining the same? This is something that providers who are considering selling a home in 2025 will need to factor into the sale process and timetable. If a decision to sell is made, clarifying the required process with the Department and the Commission will be essential.

The approach to take in agreements with a longer term (e.g. management service agreements and other relationship agreements) will need to be carefully considered. While we await additional information from the Department, we are advising our clients to include provisions to ensure that the parties can continue to operate under such arrangements following the commencement of the new Aged Care Act. One such strategy is ensuring that the agreement contains a statement of intent for the parties to fall back on once concepts under the current Act have only historical significance.

What if services are disrupted and there is a risk to the continuity of funded care, such as for an insolvent or distressed registered provider?

Under the new Act, one of the functions of the System Governor (i.e. the Secretary of the Department) is to “support the continuity of funded aged care services when the delivery of services by a registered provider is disrupted”.

Further to this function, the Secretary may determine that an entity is taken to be registered as a registered provider and/or may determine that a residential care home is taken to be approved in relation to a registered provider. The registration and/or approval period is 3 months or longer.

Any such determination must not be made unless the Secretary is satisfied of certain specified matters set out in the new Act and any other requirements prescribed by the Aged Care Rules.

However, it is clear from the Explanatory Memorandum that these provisions in the new Act are “intended to provide the System Governor with a mechanism to quickly address or prevent a sudden, significant, specific, immediate and urgent gap in the delivery of funded aged care services to an individual”.

The potential exercise of these powers raises interesting questions for other stakeholders including financiers, landlords (where a home is owned and operated by separate entities) and any administrators and/or receivers who may be appointed in insolvency situation. We will be interested to follow when and how these powers are invoked and what it may mean for other regulatory regimes.