In April 2019, the ACCC commenced proceedings against Bupa alleging that it had made false or misleading representations to residents in 20 of its residential aged care facilities about extra services that it either did not, or only partially provided to those residents. The ACCC alleged that, because of this, Bupa had breached the Australian Consumer Law (ACL).

The extra services that had been offered to consumers included;

• Specialised gardens or rooms specifically designed to assist those living with dementia;
• Fully equipped physiotherapy rooms;
• Talking book libraries, to assist people who are blind or who have visual, physical or reading disabilities;
• Separate external buildings available for leisure activities;
• Hot breakfasts;
• Travel escorts for outside appointments; and
• Individually controlled heating and cooling.

After attending a Court ordered mediation with the ACCC, Bupa admitted to the Federal Court that despite representations to the contrary it did not provide, or only partially provided, those services in some of its residential aged care facilities, which affected more than 3,000 residents over a period of five years. It also admitted that this conduct constituted misleading or deceptive conduct, as well as false or misleading representations, in contravention of the ACL.

The Court Orders

In addition to making declarations that Bupa had contravened the ACL, the Court made orders requiring Bupa to:

• Pay a pecuniary penalty of $6 million;
• Implement a redress scheme under which affected residents were paid compensation;
• Publish a notice about the proceeding and its resolution in an agreed form; and
• Establish and maintain a compliance program.

When negotiating the penalty, the ACCC said that it applied a 50% discount to the amount that it would otherwise have sought, as a result of Bupa's early admission and cooperation. Further, Bupa has indicated that under the remediation program it expects to repay approximately $18 million to affected residents.

Key observations for the industry

Whilst a culture of open disclosure is required in the health and aged care sectors, providers should be mindful that self-reporting will not necessarily assist in avoiding regulatory proceedings. The ACCC's regulatory objectives include both specific and general deterrence and it is clear that, in certain cases, early admissions and co-operation will not be sufficient to avoid regulatory proceedings and significant financial consequences. The ACCC has indicated that it took this approach in this instance due to the conduct impacting a significant number of elderly and vulnerable consumers over a significant period of time. Whilst this may discourage some providers from early engagement with the ACCC, it is clear that the penalty that was imposed on Bupa and legal costs associated with defending the proceedings would have been far greater if not for Bupa taking action as soon as possible after the conduct came to its attention. We explore the case in more detail below in our Insights to consider section.

It is vital to seek legal advice as soon as possible if you are concerned that your organisation may have breached the ACL or becomes the subject of an ACCC investigation.

Insights to consider

What went wrong?

The Court characterised Bupa's explanation as to what went wrong as in effect 'a systems error'. Notably, each of the affected Bupa facilities were required to self-assess their compliance with Bupa's business policies and procedures. Those processes did not include a means by which the standard form residential agreements or specific residents' agreement were updated as when the relevant extra services ceased being provided or replaced.

While Mortimer J accepted the submission of the ACCC and BUPA that the conduct was not deliberate, she inferred from the agreed facts that Bupa's systems must have been highly inadequate. Her Honour noted that there was no evidence before the Court about how in a practical sense residents came to pay for the extra services and yet did not receive them at all or only in part other than the evidence of one complaint that gave rise to an internal audit which exposed the extent of the problem. Specifically she said that there was no evidence about whether there were other complaints and if so what Bupa did about them, commenting that "Evidence of that kind might have cast a different light on Bupa's conduct…I am compelled to accept the way the parties have put this characterisation of Bupa's conduct to the Court."

In terms of the loss suffered by the affected residents, the Court found that it was not just financial but also loss of services residents and their families had sought out to improve their quality of life and assist them in finding interest and satisfaction to make their lives more comfortable and enjoyable. Bupa's conduct had serious effects on those residents.

Residents in residential aged care facilities are innately vulnerable consumers with respect to the ACL

The Court accepted that the affected residents were an inherently vulnerable group of consumers. Mortimer J emphasised that Bupa was contracting with people and their families at a difficult stage in their lives, where their bargaining power and attention to detail may be impaired, and where they may have been less able to insist on being provided what they paid for.

This means that aged care providers are operating in a high risk environment with respect to compliance with the ACL. The ACCC expects a higher standard of conduct from those providers in dealing with residents than they do from other service providers dealing with ordinary consumers, but also that the consequences of non-compliance are going to be more serious.

The Court had to be persuaded that a $6 million fine was sufficiently high

The Court was concerned that $6 million was inadequate given the seriousness of the conduct, the vulnerability of the affected consumers and the revenues Bupa generated from extra service fees and its overall financial position. With some stated reluctance the Court accepted that penalty amount given the overall effect of the orders Bupa agreed to including the remediation scheme under which it expected to pay out $18 million.

There was evidence before the Court that Bupa had made significant changes to its internal processes as a result of the conduct including the creation of a new compliance, assurance and customer experience function including a new Customer Feedback and Complaints team. The Court specifically noted that the compliance program would be costly as would the administration of the remediations scheme.

Ultimately, the Court described the $6 million as 'on the low end of appropriate' but noted that it had to give weight to the fact it was an agreed penalty and only part of a wider set of orders against Bupa.

Competition and consumer compliance program

While compliance programs have long been part of the relief the ACCC seeks from corporations that breach the ACL, the significance of the time, cost and effort complying with them should not be underestimated. The five year program BUPA agreed to include the development and implementation of a Compliance Policy, a Complaints Handling System, whistle-blower protection, an annual review conducted by an independent reviewer and mandatory reporting of any material compliance failures. Bupa also agreed to implement any recommendations the ACCC deemed reasonably necessary to ensure that Bupa mains and implements the program.

Watch out for Section 36

While the main allegations against Bupa were that it engaged in misleading and deceptive conduct, it also admitted to contravening section 36(3) of the ACL by accepting payments for services which at the time it accepted the payment there were reasonable grounds to believe it would not be able to provide. A breach of section 36 attracts the same high maximum penalties and specific types of misleading and deceptive conduct in section 29 and unconscionable conduct. Providers should make sure compliance with the requirements of section 36 regarding accepting payments is also on their radar.

Maximum penalties for breaches of the ACL have now been increased

Bupa admitted that it failed to provide some or all of the promised extra services for a five year period from 2013 - June 2018 when the maximum penalties for a corporation breaching the relevant provisions of the ACL were $1.1 million. In September 2018, the maximum penalty was increased to the greater of $10 million, three times the value of the benefit received or 10% of annual turnover in preceding 12 months, if court cannot determine benefit obtained from the offence. It is likely, if an aged care provider engaged in similar conduct now, the ACCC would seek a much higher penalty.

Further issues and scrutiny in relation to extra services in Aged Care

Arguably, this decision reflects the greater degree of scrutiny being applied to the aged care sector, as highlighted by the decision in Regis Aged Care Pty Ltd v Secretary, Department of Health [2018] FCA 117 (Regis).

The decision in Regis, which prevented providers from charging 'asset replacement charges' and introduced the proposition that fees for additional services cannot be related to the general operation of an aged care facility and must provide a direct benefit to residents, represented a seismic shift for many in the sector. Similarly, the Bupa decision, demonstrates the need for providers to have adequate policies and procedures in place to ensure that extra services paid for by residents are being provided. As highlighted above, discovering these deficits and self-reporting will not be sufficient to protect a provider from regulatory action.

Providers that continue to provide extra services to residents in reliance on extra service places are encouraged to ensure that they continue to deliver accommodation, services and food to residents in extra services places that are of a standard that is 'significantly higher' than the average standard in residential care services, as required by the Aged Care Act 1997 (Cth) (AC Act). Similarly, where a provider is charging residents additional service fees, it is essential that the services being provided to residents in relation to those fees provide a direct benefit to the resident, are attributable to the fee being charged and are not 'packaged' as this does not enable residents to pick and choose services that they require.

Finally, we are currently aware of two applications for judicial review currently before the Federal Court in relation to actions of the Aged Care Quality and Safety Commission (ACQSC). One, which has been brought by Bupa in relation to the conduct the subject of the recent decision of the Federal Court, challenges the ability of the ACQSC to make directions in relation to the past conduct of providers, that Bupa alleges has now ceased.

The second application, brought by Arcare Pty Ltd (Arcare), relates to the proposition which has emerged post-Regis, that additional services must be presented in an itemised manner, and be clearly attributable to the additional fees being paid by residents. Arcare is alleging that its 'signature package', along with an itemised account which is provided to care recipients, is sufficient for the purposes of s56-1(e) of the AC Act.

It is critical for providers to keep up to date on these matters to ensure they remain compliant and avoid potential regulatory action.

We encourage you to reach out to a member of our aged care and ACL teams if you would like to discuss this in the context of your organisation. We regularly provide expert advice on ACL compliance, conduct ACL compliance training and assist with ACCC engagement in respect of alleged contraventions of the ACL for clients in the health and aged care sectors.