By Tinashe HarrisPartner
26 October 2021
Changes within the Aged Care industry are not hard to come by, with more plans in the coming years set to change the way bed licences are managed for providers.
The Aged Care industry has received substantial scrutiny in the past decade, gradually shifting towards a greater 'customer service centric' approach, this including many significant milestones:
- July 2014 – Ushered in the beginning of significant changes with the effective start to consumer directed care in Home and Community Care;
- July 2015 – Tighter asset and income criteria (in both in-home and refundable accommodation contributions) were established;
- February 2017 – All in-home/community funding care to be consumer directed; and
- October 2018 – February 2021 the Royal Commission into Aged Care Quality and Safety (the 'Royal Commission').
The Royal Commission has been a real legislative game-changer, catapulting increased compliance and quality standards on those charged with governance. This included the Australian Government Department of Health announcing a new Aged Care system, effective from 1 July 2024, which discontinues the Aged Care Approvals Round (ACAR) and, which consequently, may result in the discontinuation of bed licenses.
Bed licences were initially allocated by the Government, and as such did not have a cost base. However, upon the introduction of IFRS/AASB many Aged Care facilities had to interpret if bed licences were intangible assets. AASB 138 Intangible Assets, provides that intangible assets can be measured using either the cost model (from a previous acquisition) or the revaluation model, and these can have a finite or infinite life. Recording bed licences at fair value has been a contentious issue over the years, with some arguing the bed licences are homogeneous and there is an active market.
From 1 July 2024, approved Aged Care providers will likely no longer be restricted by the number of bed licences allocated through the ACAR, but rather be able to make more independent business decisions about adjusting and expanding their service offering to better meet demand.
Essentially, after 1 July 2024, Aged Care providers will no longer have a right to funding based on bed licences. This may impact the value of bed licences for Aged Care providers who include them as intangible assets on their Statement of Financial Position. It is currently highly probable that the licences can no-longer have an indefinite useful life as there is an apparent looming expiry date of 30 June 2023. Such Aged Care providers should consider the following:
- Bed licences carried at cost should have their useful lives reassessed if they were previously considered to have an indefinite useful life. It is likely these will have to be amortised to 30 June 2023.
- Bed licences carried at fair value should have the cashflows available for the next three years assessed, given the probability that licences will no longer be able to generate cash flows after 2023.
These changes should not impact the overall viability of the Aged Care sector since this does not change businesses cash flows and their ability to continue as a going concern.
Do you need help preparing for the new changes? Contact our specialist Aged Care team at PKF.