The older people’s care home market in England is fragile and a Southern Cross-style collapse of a major provider cannot be ruled out, a report for the Care Quality Commission has found.
The report, by the Institute of Public Care at Oxford Brookes University, identified a number of conditions in the market that could lead to another big provider failing, in the way that Southern Cross did in 2011.
It noted that “very few of the providers and financial advisors we interviewed ruled out the possibility of another Southern Cross-style crisis”.
The study, The Stability of the Care Market and Market Oversight in England, was commissioned to inform the CQC’s preparation for its new role of market oversight over the social care sector in England, from April 2015. This is designed to help prevent a market destabilising failure by enabling the CQC to monitor the financial position of large or specialist providers.
Big providers that rent homes in poor areas most at risk
The report examined the markets for older people’s and learning disability care, in the light of the failures of Southern Cross and Winterbourne View provider Castlebeck, which went into administration and was sold in 2013 two years on from the hospital abuse scandal.
The failure of Southern Cross – at the time the country’s biggest care home provider – was driven by a number of factors: a high rental bill, arising from fact that it had sold and leased back its properties on terms that involved annual rental increases; under-investment in homes leading to reduced occupancy levels and hence lower income; high dependence on business from local authorities, and high levels of debt coupled with high interest rates on loans.
In the event, Southern Cross’s homes were all successfully sold to other providers, ensuring continuity of care, but the report quoted commentators as saying that their rescue was a “close run thing”.
The report found that many of the factors that affected Southern Cross were still present among some older people’s residential care providers, including high levels of debt, concerns about occupancy levels and the sale and lease back of care home properties.
It found that the greatest risk to market stability was where a large care home provider which did not own its properties had a concentration of homes in a limited number of less affluent areas.
Factors leading to greater instability
With both Labour and Conservatives discussing an above-inflation rise in the minimum wage, the Bank of England signalling future rises in interest rates and public sector cuts set to drive further cuts in fees for care providers, the report said these factors could trigger a “financial crisis” in the sector. This would particularly affect providers with a large number of local authority-funded clients, large number of low paid staff and high levels of debt.
It also said there was “always the potential for a Castlebeck type failure to occur” – where failings in quality lead to a business collapsing – particularly in the learning disability sector. However, it said there was little evidence of any imminent failure of a learning disability provider.
Professor Andrew Kerslake, IPC associate director and an author of the report said: “When we look at the market rationally there are a number of providers for whom the coming year will clearly be a struggle.”
However the report also said that large scale provider failure is still rare and it was hard to see how the care market could collapse to such an extent that care was not available for people who needed it.
Market intelligence should be part of new CQC oversight regime
The market oversight regime is intended to ensure the CQC scrutinises more closely providers that would be hard to replace if they went out of business. Under the system the CQC should mitigate the risks or ensure the process of transferring clients to a new care provider is handled sensitively.
The report’s authors suggested several ways in which the CQC could strengthen its new market oversight regime, which comes in from 1 April 2015 as part of the Care Act.
Professor Kerslake said the regime could not simply rely on financial indicators because published accounts are backward looking and some popular financial metrics take no account of the large amounts of debt carried by some care companies. Also, relying solely on financial metrics could mean the regime would not be aware of companies like Castlebeck which are financially viable until they are hit by a scandal and then collapse fast.
He said the CQC should also use market intelligence such as information gained during inspections, from care home users, company reports and local authorities. It should also use formal metrics and be flexible enough to consider the different risks faced by different companies. He said the quality inspection and market oversight arms of the CQC should be in close communication because poor maintenance of homes was often a sign of financial difficulties.
He added: “I would like to see the local authorities and the CQC working more closely together and sharing market knowledge. Often one of the first people to pick up that things are not going well is the local authority because they get complaints from people they fund.”
New skills needed for regulators
The report said the CQC may need to strengthen the role of its relationship managers, who work with providers, as the job did not did not include skills to financially analyse company performance or sustainability.
In January, MPs on the health select committee said the CQC did not have the financial skills to monitor large care providers and that the role should go to foundation trusts regulator Monitor. But the CQC said quality and financial stability were linked and should be regulated together.