The new Aged Care Act (opens a new window) (“the Act”), which passed the Federal Parliament on 25 November 2024, marks a transformative shift in the regulatory landscape for aged care providers, with significant new responsibilities set to take effect from 1 July 2025.
For Registered Providers, the changes present not only operational and compliance challenges but also key insurable risk considerations.
Among the Act’s most notable changes is the introduction of the concept of Associated Providers, redefining the relationships between registered providers and entities that deliver services on their behalf.
Associated providers, as defined by the Act, are extensively used in the aged care sector, and play a crucial role in helping aged care service providers deliver high-quality care.
In this article, we explore the potential risk and insurance implications for aged care service providers as a result of the introduction of the concept of associated providers.
What are Associated Providers?
The Act defines associated providers and registered providers as follows:
Registered Providers refers to those providers that are registered under one or more of the six provider registration categories as defined under the Act.
Associated Providers refers to an entity that delivers services on behalf of a registered provider.
These may include registered providers delivering specific services on behalf of another registered provider, or contractors and their subcontractors providing services.
Associated providers therefore include entities providing labour hire arrangements and contractors for essential services such as cleaning, care, catering and laundry, among others.
Subcontractors operating solely as a subcontractor can remain unregistered.
Key impacts for registered providers
The introduction of the concept of associated providers under the Act is likely to materially change the insurable profile of registered provider in several ways:
1. Liability applies despite outsourcing to third party suppliers or any contracts in place
The Act broadens the scope of liability for registered providers by holding them accountable for the actions of their associated providers, regardless of whether these entities are registered or unregistered.
In addition, registered providers cannot contract out of their legal responsibilities for associated providers.
The registered provider will be responsible for ensuring their associated providers comply with relevant obligations, regardless of whether the associated provider delivering those services is registered or not, and regardless of whether they meet the conditions of their contractual obligations to the registered provider .
While the Aged Care Quality and Safety Commission (ACQSC) remains responsible for managing non-compliance for all registered providers, the Act does not stipulate whether the ACQSC will reach into registered providers’ non-compliance to address associated providers directly.
Associated providers may decide to apply to become a registered provider in their own right and will need to follow the application process managed by ACQSC to become registered under the correct registration category.
2. Associated providers’ workers (and volunteers) are now all aged care workers under the new Act
Workers of an associated provider are considered to be aged care workers under the Act and will be subject to the same obligations as registered providers’ direct employees.
The impact of this change on registered providers is significant:
Increased responsibility: Registered providers will be responsible for ensuring that the workers of their associated providers meet the same obligations as their direct employees.
Enhanced screening requirements: Registered providers must ensure that all workers, including those from associated providers, undergo the necessary background checks and obtain the required clearances. This adds an additional layer of oversight and administrative responsibility.
Compliance and monitoring: Registered providers will need to implement robust systems to monitor and ensure ongoing compliance of all workers, including those from associated providers.
Legal and financial implications: Failure to ensure compliance can lead to regulatory investigations, legal action, and financial penalties.
Training and support: Registered providers may need to provide additional training and support to ensure that all workers, including those from associated providers, understand and comply with their obligations under the Act.
3. Enhanced obligations and oversight
The Act introduces a range of enhanced obligations (opens a new window) for registered providers, designed to prioritise the rights and safety of care recipients while improving service quality.
These obligations also extend to the actions of associated providers, significantly impacting the risk profile of registered providers. The obligations include:
Adherence to the Code of Conduct for Aged Care (opens a new window): Registered providers must ensure that both their direct employees and the workers of associated providers act with integrity, respect, and transparency.
Compliance with updated Aged Care Quality Standards (opens a new window): Registered providers must demonstrate compliance with strengthened benchmarks across governance, safety, and quality management, not only for their direct operations but also for services delivered by associated providers.
Commitment to upholding the Statement of Rights (opens a new window): Registered providers are responsible for ensuring that associated providers also uphold these rights, creating a unified standard of care across all service delivery points.
Heightened Regulatory Oversight: The ACQSC now has expanded powers to monitor compliance, conduct audits, and impose penalties, which means registered providers should be especially vigilant in managing the risks associated with their associated providers as non-compliance could lead to regulatory investigations, legal action, and potential reputational damage.
Insurance policies anticipated to be impacted
Lockton anticipates that the following key insurance policies may be significantly impacted by the Act, necessitating careful review and potential adjustments to ensure adequate coverage:
Directors & Officers/Management Liability: Responsible Persons may be considered in breach of governance if the registered provider fails to implement adequate systems to address the additional responsibilities imposed by the Act.
Statutory Liability: With a potential increase in ACQSC investigations, coverage for regulatory investigation costs, including legal fees and other expenses, may become more critical.
Professional Indemnity/Medical Malpractice: The scope of cover for the registered provider in delivering quality and compliant care may need to be extended to include associated providers, their staff, and their practices.
Public & Products Liability: Registered providers’ scope of cover may need to be extended to include direct liability for associated providers and their staff, which previously could be contracted out.
Breaches by associated providers' workers may lead to investigations, fines, or operational restrictions, directly impacting registration and service delivery.
The potential impact on workers compensation recovery actions
The new regulations create uncertainty regarding the responsibility for injuries to associated provider staff.
If registered providers are ultimately responsible for the actions of associated providers, this may strengthen workers compensation recovery actions against registered providers’ public liability policies.
This means that if an associated provider's employee is injured, the registered provider could be held liable, leading to potential claims against their public liability insurance.
Consequently, Public Liability insurances may need to be reviewed to ensure they cover potential recovery actions related to workers compensation claims.
To address this, Public Liability insurances may need to be reviewed to ensure they cover potential recovery actions related to workers compensation claims.
Naming third party associated providers as Insureds
When considering Public Liability and Professional Indemnity/Medical Malpractice policies, naming associated providers as insureds can introduce potential risks for registered providers, including:
1. Policy access: By naming associated providers as insureds, they gain full access to the registered provider’s insurance policy.
This means they can utilise the policy as if it were their own, potentially leading to increased claims and usage that the registered provider might not have anticipated.
2. Subrogation rights: The insurer’s rights of subrogation are removed when associated providers are named as insureds.
Subrogation allows an insurer to pursue a third party that caused an insurance loss to the insured.
Without this right, the insurer cannot seek recovery from the associated provider if they are at fault, which could lead to higher costs for the registered provider.
3. Increased premiums and excesses: Adding associated providers, especially those whose risk management practices may not meet the standards of the registered provider, can lead to increased premiums and potentially higher excesses imposed by the insurer.
This is because the overall risk profile of the policy increases, making it more expensive to insure.
4. Policy ambiguity: Without clear legal guidance, it can be unclear how the policy will respond to the associated providers’ activities outside of their contract with the registered provider.
This ambiguity can impact the loss ratio on the policy, complicate efficient claims handling, and create challenges in policy administration.
It is essential to clarify these aspects to avoid potential disputes and ensure smooth operation of the policy.
Given these potential exposures, it is advisable to proceed with caution and seek legal advice before naming third-party associated providers as insureds on your policy.
Navigating expanded liability and insurance complexities
The cumulative effect of these changes has the potential to significantly expand the scope of liability for registered providers, with a particular emphasis on vicarious liability.
Many organisations use outsourcing as a primary method to manage risk and ensure service delivery, while also transferring associated liabilities and risks to external providers.
The ability to contract out legal liability which is not that of the insured’s (or their employees) under common law, is a longstanding risk mitigation strategy.
However, the new concept of associated providers challenges the fundamental basis of insurance policies, especially Professional Indemnity/Medical Malpractice and Public & Products Liability policies.
Currently, coverage, pricing, and deductibles for Public & Products Liability policies are based on the insured registered provider's liability under common law.
It is uncommon for insurers to cover liability accepted under contract that is not legally theirs.
If insurers agree to extend such coverage, they clearly stipulate the conditions and may either decline to extend cover or charge an additional premium.
Potential impacts of liability expansion on insurance policies for registered providers
As we continue discussions with key insurance partners in the aged care sector about these new implications, we anticipate that extending registered providers’ cover to include the liability for associated providers could potentially result in:
1. Increased premiums: Where insurers are willing to extend coverage for associated providers, premiums are likely to rise.
However, insurers will probably only consider extending coverage if registered providers can clearly demonstrate that all aspects of the associated providers’ systems, policies, procedures, and provision of workers meet the registered providers’ obligations under the Act.
2. Insurers declining to extend coverage: It is also probable that some insurers may decline to extend coverage altogether, leaving the registered provider to self-insure this considerable exposure.
Practical steps for registered providers to address identified insurable risk exposures
This heightened accountability underscores the need for robust oversight, clear contractual agreements, and comprehensive risk management practices to ensure associated providers adhere to the same high standards expected of registered providers.
1. Review contracting arrangements and relationships with associated providers
It is important to ensure detailed and rigorous initial contracting, including specific provisions to address the associated providers’ compliance and liability under the Act.
This includes explicit compliance with worker screening and adherence to quality standards.
Additionally, it is crucial to conduct regular and detailed reviews to ensure that the associated provider meets contract conditions, adequately addressing compliance and liability.
2. Obtain legal advice
It is important to note that your insurance professional is not able to offer legal advice.
Therefore, it is essential for registered providers to also work closely with their legal counsel to navigate the complexities of managing associated providers under the Act.
Specialist legal expertise can help determine which aspects of the risk can be insured and which must be retained, which can in turn assist your insurance professional to ensure that appropriate coverage is in place.
3. Review insurance coverage
It is important to confirm that your insurance policies account for the expanded responsibilities of associated providers.
To achieve this, work closely with your broker to ensure that all associated provider contracts are disclosed and reviewed by your Professional Indemnity/Medical Malpractice and Public & Products Liability insurers.
This collaboration will help identify opportunities to extend coverage to include this additional exposure, ensuring comprehensive protection under the Act.
Ensure responsible persons understand their obligations under the Act and that there is adequate coverage for fines, penalties, and similar liabilities.
4. Strengthen compliance systems
Having adequate compliance systems in place is critical to effectively monitoring associated providers.
It is essential to develop or enhance processes that enable thorough oversight of their adherence to obligations.
This includes implementing comprehensive worker screening protocols to ensure all individuals meet the required standards.
Additionally, it is important to treat associated provider workers and your volunteers on the same basis as employees wherever possible, applying the same rigorous standards and oversight.
5. Prioritise continuous improvement
Prioritising continuous improvement is essential for providers and those defined as responsible persons under the Act.
The Act mandates that providers align their risk management frameworks with its principles to enhance governance, service quality, and compliance.
Responsible persons have a duty to ensure these principles are embedded into service delivery models, fostering a culture where continuous improvement is a core focus.
Need help navigating the new Aged Care Act?
The substantial changes to be introduced under the Act underscore the importance of engaging a risk and insurance advisor who deeply understands the aged care industry, including its regulatory framework and implications.
If you need assistance with navigating the risk and insurance implications of the new Act, please get in touch.
The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. The contents of this publication are not intended as a legal commentary or advice and should not be relied on in that way. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.
