The implications of privatisation and profit in social care

The collapse of Southern Cross has crystallised some of the long-standing concerns about financial structures in the private care sector.

The collapse of Southern Cross has crystallised some of the long-standing concerns about financial structures in the private care sector. UNISON first warned in 2008, in a report called The Rise of the ‘Public Services Industry (which was updated this year), of problems caused by what it called the “marketisation experiment”.

In particular, it identified the role of private equity investors in “transferring public sector assets into commercial activities”, by purchasing these assets then selling them on for huge profits.

The private sector has hovered up large chunks of the residential care sector in the past two decades. In 1990, according to UNISON, nearly 200,000 of the 500,000 people in residential care were placed in homes owned and run by local authorities and the NHS. But only 31,000 people are now cared for in the public care sector.

It’s clear that a combination of factors led to the very high-profile failure of Southern Cross (see box below), and there are, of course, many viable and successful private sector care providers.

“What we have recently witnessed was provider, not market, failure,” says Peter Hay, president of the Association of Directors of Adult Social Services. “There is plenty of evidence of continued investment in the sector.”

But UNISON’s national officer for social care, Helga Pile, says that a major change in the approach of many local authorities is required. She claims too many are driven by a desire to make savings by outsourcing services to private providers, who in turn don’t always fulfil the terms of their contracts because they need to hold down costs.

“Very often it takes local service user groups to draw to the attention of local authorities that contracts are not being properly fulfilled,” she says. “They [councils] are not living up to their responsibilities as commissioners.”

But local authorities themselves also face financial pressures, and market analysts have predicted that these could lead to wider problems in the private care sector, particularly in residential care for adults.

Laing and Buisson warned in July that councils were cutting fees to providers by an average of 2.5% in real terms, making further failures likely.

Meanwhile, corporate restructuring firm MCR has said insolvencies in the social care and health sectors increased by 49% year-on-year in the first half of 2011.

“The poor performance of some care homes stems partly from a series of miscalculations by owner-operators and misplaced assumptions about sector dynamics,” said MCR partner Sarah Bell in July.

“Reduced local authority fees, rising rents, a growing focus on alternative methods of care, an uncertain regulatory environment and increased operating costs are just some of the factors that have contributed to the perfect storm that has landed in the care homes sector.”

The Association for Public Service Excellence has been looking at the implications of the Southern Cross collapse, and members of its social care advisory group want “much stronger protection or ‘buffers’ surrounding the use of residential homes”, according to Mo Baines, APSE principal adviser.

“Members raised concerns that homes in the past have been used by landlords as attractive investments – divorcing the ‘business’ of caring for vulnerable people from the market mechanisms that seek greater returns on property investments and rental streams,” she says.

“Members also warned about a tipping point on capacity. While it is accepted that there will be plurality in service provision, councils should consider the ability to retain some local capacity to intervene and to also act as a market regulator.”

The Southern Cross case has highlighted the need for councils to plan for provider failures so vulnerable service users are not affected.

Adass has hosted two closed seminars looking at all aspects of contingency planning, and Hay says it had been helping local authorities to plan for emergencies “long before Southern Cross hit the headlines”.

Meanwhile, APSE is providing advice for members through Walker Morris Solicitors. This highlights the obligations of providers and local authorities in the event of a failure, particularly the duty on councils to make arrangements for residential accommodation.

MCR managing partner Andy Stoneman says that when his firm is appointed as administrator to deal with care homes in financial trouble, local authorities are generally well prepared for potential closures.

“When we embark on the procedure to close down a home, they are fairly in tune with that,” he says.

The government has been working with Adass to address the impact of the Southern Cross failure, and both organisations have guaranteed that no one will be made homeless as a result of market failures, says Hay.

Although the failure of Southern Cross has created massive uncertainty, it could have one positive effect, with experts saying it has highlighted the need for an economic regulator to monitor larger private care providers.

Adass has pledged to look closely at any proposals that emerge, and Care Quality Commission chief executive Cynthia Bower has said she would support health regulator Monitor being given powers in this area.

The rights of workers

As UNISON’s Helga Pile points out, the Southern Cross case has created “massive uncertainty” for the firm’s employees.

There is, however, a wealth of information available for social care workers worried about their jobs and terms and conditions in the event of their employer’s closure or sale to another business.

In particular, the Worksmart website, run by the TUC, highlights employees’ rights in the event of takeovers and transfers as well as when a company goes bust.

The government also provides a range of guides to employee rights.

The Southern Cross story

Southern Cross was bought by Blackstone, a US-based private equity group, in September 2004 for £162m. Blackstone subsequently bought NHP, which owned a portfolio of properties and a company called Highfield Care, which operated 192 homes leased mainly from NHP.

Southern Cross merged with Highfield, and Blackstone then sold the NHP property.

In November 2005, Southern Cross bought Ashbourne Care, which had 190 homes. But before this deal, Ashbourne’s previous owners sold its property too.

Blackstone floated Southern Cross on the stock market in 2006, ending its involvement, but the sale and leaseback of properties later proved to be unsustainable when government spending cuts lead to a decrease in referrals and local authorities were unable to increase the fees they paid to Southern Cross.

After trying to force through a 30% cut in the rent it paid to landlords, Southern Cross was forced to admit defeat in July when the owners of all 752 of its care home properties said they wanted to leave the group.

Southern Cross is in the process of arranging the transfer of its homes to landlords, who will then decide who will operate them. But the group’s staff and 31,000 residents have suffered months of uncertainty.

Find out more: The big issues facing the UNISON socical care workforce: information and advice to help you do your job on the UNISON Workplace Zone.

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