Australia: Recent Challenges For Healthcare Providers

Last Updated: 8 May 2009
Article by Alison Choy Flannigan

Preparing for Change - National Health and Hospitals Reform Commission & The Global Financial Crisis

The Australian Health and Aged Care industry is facing an unprecedented period change to its economic and regulatory environment. The question that arises for health care providers is whether or not they are keeping up to date on regulatory and economic changes and are flexible enough to quickly adapt to the changes that are required.

National Health and Hospitals Reform Commission

As most of you are aware, the Interim Report of the National Health and Hospitals Reform Commission (NHHRC) - ' A Healthier Future for all Australians', was released on 16 February 2009. The final report is due in June 2009.

Four themes were developed for the directions for reform:

  • Taking responsibility – individual and collective action to build good health and wellbeing by people, families, communities, health professionals, employers and governments
  • Connecting care – comprehensive care for people over their lifetime
  • Facing inequities – recognise and tackle the causes and impacts of health inequities and
  • Driving quality performance – better use of people, resources and evolving knowledge.

Some of the suggested reforms include:

  • Governments commit to establishing a rolling series of ten year goals for health promotion and prevention and the establishment of an independent national health promotion and prevention agency.
  • The establishment of comprehensive primary health care centres.
  • The implementation of a person-controlled electronic personal health record.
  • The development and adoption of national access targets for emergency care, improving access to emergency care and elective procedures and treatment and better hospital planning.
  • Increasing choice in aged care by lifting the restrictions on the number of aged care places while retaining control over the number of people receiving subsidies at any one time. Providers of aged care would still need to meet existing criteria to be eligible for government support, including being an approved provider and their facilities must still be accredited.
  • Tackling the causes and impacts of health inequities that affect Aboriginal and Torres Strait Islander people and delivering better health outcomes for remote and rural communities.
  • Supporting people with mental health care and improving oral health and access to dental care.
  • Proposals to tackle the challenges of a sustainable health workforce and fostering continuous learning in the health system.
  • Strengthening the governance of health and health care, including reviewing various options for the roles of the Commonwealth and the States in the provision of health care in Australia and funding models. This element of the review could see the whole Australian hospital and health system undergo significant structural reform.

We have already seen changes implemented including:

  • The establishment of various GP super clinics.
  • Changes to the Medicare Levy.

All health care providers (both in the public sector and private sector) should be aware of these reforms and position themselves to be capable of changing their business with the reforms.

The Global Financial Crisis

The current economic conditions have created challenges for us all. Most health care providers (both public sector and private sector) are reviewing their funding arrangements, budgets and workforce.

The government has announced a number of reforms which may affect health care operators (particularly private sector operators). These include:

  • Executive remuneration – The Government has announced that the Productivity Commission will hold an inquiry into the issue of executive pay. Federal Treasurer Wayne Swan has stated that the Government will amend the Corporations Act so that shareholders will have to approve any payout which exceeds one year's base salary. The Government will also legislate to extend the range of executives whose termination payments can be subject to shareholder approval and broaden the definition of 'termination benefit' to catch all types of payment and rewards given at termination. The reforms will not prevent existing contracts on termination payments from proceeding.
  • Directors' duties – Senator Nick Sherry, Minister for Superannuation and Corporate Law confirmed on 17 April that the Commonwealth will conduct an audit of its laws that impact on the issue of company director liability and will do so against the principles developed by the Council of Australian Governments (COAG). The COAG principles state:
    • Where companies contravene statutory requirements, liability should be imposed in the first instance on the company itself;
    • Personal criminal liability of a corporate officer for the misconduct of the corporation should generally be limited to situations where the officer encourages or assists the commission of the offence (accessorial liability); and
    • In exceptional circumstances, where there is a public policy need to go beyond the ordinary principles of accessorial liability, a form of deemed liability could be imposed on a corporate officer only using a 'designated officer' approach' (for minor offences) or a 'modified accessorial approach' (for more serious offences).
  • Fundraising – With very restricted access to debt markets in the current climate, many companies are turning to equity capital markets to satisfy their funding requirements. In conducting equity fund raisings, all companies should be aware of the fundraising and takeover provisions under the Corporations Act 2001 (Cth) (Corporations Act) and if they are listed on the ASX, the ASX Listing Rules. Generally, an offer of securities requires disclosure under the Corporations Act, often in the form of a prospectus, unless certain limited exceptions apply such as personal offers to no more than 20 investors and to raise no more than $2 million in any 12 month period; offers to professional and sophisticated investors or rights issues to shareholders of listed companies. Further, companies should be aware of the takeover provisions under the Corporations Act which may be triggered if a person acquires a relevant interest in more than 20% of a company's securities (unless certain exceptions apply). ASIC has issued a consultation paper in which it proposes measures to facilitate equity capital raising, in particular to encourage participation by retail investors, including broadening the takeovers exemption for rights issues and permitting companies which have been suspended from trading for more than five days to take advantage of the disclosure of the disclosure exemption for rights issues so that they do not need to prepare a prospective. ASIC requested comments on the proposed reforms by 30 March 2009 and the changes are due to take effect in May this year.

Being Prepared for Change

Health care providers, like all business operators, need to position themselves so that they are able to adapt and change their businesses. In order to prepare for such changes they should:

  • Review their Constituting documents such as Constitution and Shareholders Agreements to ascertain if there are any unnecessary restrictions on what they can do. For example, pre-emptive rights clauses can restrict the issue or transfer of shares to investors. If they are a public sector organisation the legislation or policy which governs them may restrict their activities.
  • Review their structures to ascertain if there are any unnecessary restrictions. For example, a proprietary company must have no more than 50 non-employee shareholders. Therefore, if more than 50 shareholders are required, the company should convert to a public company. Further, proprietary companies are much more restricted as to how they can raise funds by way of equity fundraisings.
  • Review their management structures. For example, most constitutions limit the number of directors which a Company may have. The Company may need to amend it's Constitution to increase the number of permitted directors to enable an investor to invest in the Company and appoint an additional director to the Board.
  • All directors should be aware of their duties, including in relation to insolvent trading. Companies need to be pro-active in monitoring the company's financial position and should review corporate governance procedures to ensure that appropriate steps are being taken to protect the company and the directors.
  • Companies may wish to review their obligations under employment laws in relation to redundancy and antidiscrimination laws.
  • All health care organisations should ensure that they have adequate directors and officers insurance and review the financial health of their insurers.
  • All health care organisations should keep up to date with regulatory reforms. DLA Phillips Fox has a number of publications on health and corporate regulatory reforms which are provided on a complimentary basis.
  • Review Contracts to understand, manage and plan for consents which may be required. For example, most major Government funding contracts and banking agreements have clauses which restrict the assignment of rights and obligations by a service provider and/or restrict a change in control of the service provider and require the relevant third party's consent.
  • Review health regulatory requirements to understand, manage and plan for changes. For example, most licensing requirements require notification or consent for a change in control of the licensee.
  • Also be aware of other restrictions which may be relevant when a Company enters into a merger, acquisition or divestment such as trade practices and Foreign Investment Review Board requirement.
  • Directors must also understand their duties should their company be the subject of a takeover offer or other acquisition.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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