Prudential targeted review: Room price approval and publishing

Insights report

On this page:

Introduction
Background
Our approach
Our findings
Things to think about
Commission actions
Further information
Contact us

Introduction

We do targeted reviews to help raise providers’ awareness of their financial and prudential responsibilities. These reviews help us to identify risks and improve provider compliance.

This targeted review focused on educating providers about their responsibilities for room price approvals and publishing. When we did this targeted review in July to September 2024, the maximum allowed refundable deposit or equivalent daily accommodation payment (DAP) was $550,000. On 1 January 2025, this amount increased to $750,000. However, providers cannot increase the cost for residents already in care. We’ve included 2 case studies to highlight the types of issues we see when working with providers.

Background

When providers charge refundable deposits, they need to comply with:

section 52G-4 of the Aged Care Act 1997
section 19 and section 21of the Fees and Payment Principles 2014 (No.2) (Principles).

Aged care legislation specifies the maximum amount that providers are permitted to charge.

To charge above the maximum amount, providers must get approval from the Independent Health and Aged Care Pricing Authority (IHACPA, previously the Aged Care Pricing Commissioner).

All providers must publish their room pricing rate on their website and on My Aged Care. They also need to provide written information, including the room rate, for older people thinking about using their service.

In early 2024, IHACPA found that some providers had charged refundable deposits, or the equivalent DAP, above the maximum amount, without approval.

Since then, we have done case investigations with 51 providers. We did these investigations because we had referrals of possible room pricing non-compliance from:

IHACPA
providers reporting their own non-compliance to us
other work with providers on their prudential requirements.

These investigations made it clear that we need to:

improve providers’ understanding of their legal requirements
support providers to improve their governance for how they approve and publish room pricing.

To support providers, we ran a targeted review on this between July and September 2024. This review was with 40 providers that we had not already engaged with on this issue. It was aimed at getting involved early to educate and support providers to improve their compliance.

This report shares the findings from our 51 case investigations and the targeted review of 40 other providers.

Our approach

We address any risks to compliance we find in a risk-based way. This means we base how we fix issues in a way that is in proportion to the level of risk older people face. We explain this in our Compliance and enforcement policy. We expect providers to reduce these risks and show that they comply. Providers who don’t manage or show that they will address these risks may face enforcement actions.

Our findings

We were pleased to find that where providers had charged refundable deposits or DAPs above the maximum amount without approval, it wasn’t on purpose. Overcharging was mainly because of administration errors, or gaps in processes and procedures or governance systems. Some providers also weren’t publishing room prices correctly and in a timely way.

If providers haven’t complied, they need to follow the guidance in the Overcharged accommodation payments – Protecting residents' financial interest fact sheet. We worked with providers to fix any overcharges and improve their systems and governance so they don’t not comply again. Most providers were proactive and quick to fix the overcharges.

Common reasons providers didn’t comply

Our analysis shows 3 main reasons providers overcharge:

Expiry of approval – Some providers continued to charge above the maximum amount after their approval had expired. In these cases, they had applied for a renewal after the expiry date and it hadn’t yet been approved.
Conditional approval – Some providers thought that a conditional approval from IHACPA was the same as an approval. Others didn’t complete the actions to meet conditions and get approval. A conditional approval from IHACPA gives providers a suggested price that they may be able to charge once they’ve met conditions.
No approval – Some providers never applied for IHAPCA approval and advertised and charged prices above the maximum amount.

Other issues behind providers not complying included:

poorly managing and supervising when approvals expired
changes in key staff and poor handover planning that affected their governance
gaps in processes, procedures and governance systems for managing pricing approvals and publishing
little understanding of the process to apply to IHACPA for pricing approval
gaps in providers’ internal communications
not enough provider knowledge and sector experience.

Case study 1 – Overcharged refundable deposits

A provider audited their refundable deposits and found they charged a refundable deposit above the maximum amount for 7 rooms without approval from IHACPA.

They reported this to us, and we worked with them to fix the issue. First, we asked for the IHACPA approval letters (current and past). We checked for any other overcharged refundable deposit payments during the time when the provider didn’t have approval. We compared this with information from the refundable deposits register for that time. We were pleased that we didn’t find any.

We asked the provider to refund the overcharged amounts to the people receiving care within 28 days of finding out about the overcharged payments. We explained to the provider that if the refunds weren’t made within 28 days, interest (the maximum allowed interest rate) would accrue from the date the provider found out, until the date the overcharged payments were refunded.

After our first discussion, the provider made all refunds within the 28 days. The provider also decided to pay a ‘grace’ interest for the time that they held the overpaid refundable deposits. They offered this grace interest as a ‘good will’ payment as it’s not a legal requirement.

After working with the provider, they updated their policies and procedures to reduce the risk of charging people over the maximum amount for rooms without approvals from IHACPA. This included re-educating the sales and marketing team and the CEO/CFO to regularly review and monitor the IHACPA room approvals. This will help to make sure they are correct and to record any changes.

Case study 2 – Understanding refundable deposits

A provider contacted IHACPA for approval to charge a higher refundable deposit payment for a type of room at their service. IHACPA told the provider that their current approval had expired and there were people receiving care who were now being overcharged from the expiry date.

We contacted the provider to understand the reason they were not complying and to help them fix it. The provider cooperated and agreed to start a refund process. We asked for copies of their refund calculations. After reviewing the documents, we identified some issues such as the provider:

calculating the maximum allowed interest rate on overpaid amounts from after the 28-day payment period only
giving refunds to some people receiving care when there was approval to charge a higher refundable deposit.

We educated the provider on the legal requirements to:

refund the overcharged fees within 28 days from when the provider finds out about the overcharge, if not earlier
pay the maximum allowed interest rate on the overcharged fees from the date the provider found out, if the refund is processed after that 28-day period.

The provider also didn’t understand the legal requirements for refunding under S75 of the Principles. They thought that when approval had expired, all people receiving care would be affected and need a refund.

We explained that older people moving to their service while they had IHACPA approval to charge higher refundable deposits could still be charged the higher amount. However, older people that moved to the service once the IHACPA approval had expired couldn’t be charged a refundable deposit of more than the maximum amount without getting approval from IHACPA.

Our review helped the provider to fix the overcharge and follow a strong governance system to avoid overcharging in the future.

Things to think about

You should review your governance arrangements for managing refundable deposit pricing and publishing now, and regularly in the future.
If you’re charging more than the maximum amount for any rooms, do you have approval from IHACPA (or the former Aged Care Pricing Commissioner)?
You can’t charge more than the maximum amount based on a conditional approval. You must make sure you’ve met the conditions you’re asked to and that you get approval from IHACPA.
Do you start to re-apply for approval 6 months before the expiry date of any current approvals?
You should make sure you keep a live document that explains all room types with the most recent approval date, expiry date and when you need to apply for a new approval (90 days before the expiry date).
Do you make sure you regularly (for example, each quarter) review your room prices on the My Aged Care portal and your website to make sure that they’re correct?
Do you make sure that any amounts you advertise over the maximum amount have IHACPA approval?
Do you make sure that where you overcharged a refundable deposit, that you tell the person receiving care about their right to a refund and interest if it applies?
Do you share our Overcharged accommodation payments – Your rights fact sheet with people receiving care and help them understand their rights if they’re overcharged on their refundable deposit or daily accommodation payment?
Do you follow the advice in our Overcharged accommodation payments - Protecting care recipients’ financial interest fact sheet?
Do you make sure that you report any non-compliance with room price publishing requirements you find in your next Annual Prudential Compliance Statement? You need to do this so you comply with your disclosure

Commission actions

We will provide you with guidance and education on refundable deposits to help providers understand their legal responsibilities.
We will use the information we collect during our targeted reviews and investigations to improve our systems to identify risk. This allows us to find and address possible areas of concern more effectively.
We will carry out future audits or targeted reviews about refundable deposits.
We will continue to investigate any non-compliance we identify to make sure providers fix the issue quickly and effectively.
We will work closely with all stakeholders and take steps to encourage providers to comply to stop them from overcharging in future.