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Outsourcing 9: Care homes crisis

Before 1990, healthcare in the United Kingdom was provided by health authorities which were given a budget to run hospitals and community health services in their area. The National Health Service and Community Care Act 1990 introduced an internal market into the supply of healthcare in the United Kingdom, making the state an ‘enabler’ rather than a supplier of health and social care provision.

Care homes were then outsourced by local authorities to the private sector which employed large numbers of low-paid workers with weak representation by unions and professional organisations. Spending on social care is now below 2010 levels.

Gill Plimmer describes the way in which global private equity, sovereign wealth and hedge funds have piled into the sector in the past three decades, lured by the promise of a steady government income and the long-term demographics of Britain’s ageing population.

Three of the biggest chains — HC-One, Four Seasons and Care UK — are in the hands of buyout groups.

At the Four Seasons Whitchurch Care Home in Bristol (above), emergency buzzers went unanswered, some medicines were not dispensed and many of its frail and elderly residents had not been given a bath, shower or a wash for a month, an official inspector’s report found. A broken elevator meant residents on the second floor could not be taken to hospital appointments.

Problems are in part a result of:

  • a long-term decline in fees paid to providers for social care,
  • a state mandated rise in the minimum wage,
  • a decline in state funding for local governments, which pay for 60% of their residents,
  • short term investment and speculation,
  • larger private equity-owned care homeowners have a short-term investment focus and complex structures, involving scores of subsidiary companies, many of which are listed offshore and
  • the money to fund the trading coming from taxpayers or from middle class people running down their savings.

When Terra Firma (building better businesses) bought the Four Seasons chain in a £825m deal in 2012, there was still £780m of outstanding borrowings hanging over the business. Now around £1.2bn of interest-bearing debt and loans from unspecified “related” parties.

Nick Hood, analyst at Opus Restructuring & Insolvency, which has advised several care home chains, said “owners are playing with the debt and expecting returns of 12 or 14 per cent and that is simply unsuitable for businesses with heavy social responsibilities”

He adds that the watchdog — the Care Quality Commission — should require the entire corporate structure to be held within the UK

Jon Moulton, the private equity veteran who ran Four Seasons in the early 2000s recommends that care home chains should hold a certain amount of capital, just as banks are requited to do by the Financial Conduct Authority.

Toothless regulator/watchdog places all responsibility on Britain’s cash-strapped local authorities

Kate Terroni, chief inspector of adult social care at the CQC, says that for now it has no authority to introduce minimum capital requirements or to intervene to prevent business failure. “Our powers are to provide a notification to assist local authorities who are responsible for ensuring continuity of peoples care

Meanwhile, as Four Seasons “hurtles towards insolvency”, directors are paid lavishly and their care homes continue to close.

 

 

 

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Yet another Thatcher-privatised-off-shored-debt-laden industry is seeking subsidies

Most UK care homes were managed by local authorities until Margaret Thatcher ‘reformed’ the system in the 1980s; now just 8% are said to be under state control.

In April, the shadow minister for social care and mental health said, There are major concerns about the debt-driven business models of some companies in the care sector and the role of foreign private equity firms and hedge funds in deciding the future care arrangements for large numbers of vulnerable people. The real price of this instability and underfunding is now being paid by the 17,000 older people in Four Seasons care homes and their families who face an uncertain future”.

The Bracknell care home and Kingsmills care home (above) are two of more than 300 owned by Four Seasons Health Care. In May, administrators were called in by the firm which has struggled to repay its debts.

All four of Britain’s biggest care-home businesses have been up for sale in the past year and have failed to secure deals.

recent report by the Association of Directors of Adult Social Services reported that almost half of councils have seen the closure of domestic home care providers in their area in the past year and a third had seen residential care homes closed, collectively affecting more than 8,000 clients and residents.

Gill Plimmer reports an estimate by Care England, which represents the independent providers, that around £4bn is needed from the government to stabilise the sector.

In addition to sharp cuts to social care budgets due to the government’s austerity policy, private care providers have had to deal with an increase in the minimum wage and rising food costs.

Ms Plimmer comments that understanding where taxpayers’ money is going is essential if Britain is to resolve the funding crisis in elderly care, adding, “This is made difficult by the companies’ complex, multi-layered offshore private equity structures”.

Nick Hood, debt restructuring adviser at Opus, the social-care analysts, said, “We don’t know whether taxpayers’ money is going to the private equity owners or the financiers, or indeed how much is being paid in cash and how much rolled up on the debt”.

He pointed out that the care companies’ debt interest payments which average £4,800 per bed per year, contributed to overall losses at the companies of £900m from 2015 to 2017, adding:

“The figures showed that the “debt-laden model, which demands an unsustainable level of return, is completely inappropriate for social care. Hundreds of millions of pounds that could be going into improving facilities and care are being sucked out of the industry every year to fund the debt”.

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and reality

Some question the whole concept of residential care as inspections by the Care Quality Commission, which oversees provision of social care, find that some homes shamefully neglect residents – citing here an establishment owned and controlled by a US property investment group.

 

 

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Forming Britain’s indiscriminate political-corporate relationships

RV sent a link to news that, a few months after accepting an invitation to the Conservatives’ summer party last year, and as the Government announced a new crackdown on poorly performing care homes, the director of the Gold Care chain of nursing homes and many other companies spared £50,000 for the Conservative Party.

This donation entitled him to be a member of the Conservative Leader’s Group, at which he could meet David Cameron and other senior Conservatives.

Gold Care advertIt was relatively small change from the very large profits made from Gold Care’s 23 nursing homes, where Care Quality Commission inspections found residents in a third of the homes lying “in visible distress”. Readers who can bear the truly appalling details, which portray a very different outcome from the GC ad (left), read on here.

A Conservative spokesman said: “All donations to the Conservative Party are fully permissible and declared to the Electoral Commission in accordance with the rules.”

Update: Christie’s corporate ‘turnaround and recovery’ company site reports:

Gold Care in admin