Private care homes
When carers fail
Southern Cross’s problems are a business failure, not a policy failure
Maintaining the continuity of care
Those wary of government plans to increase the role of private firms in public services will no doubt see Southern Cross’s problems as confirming their doubts. There is certainly plenty to criticise in the way the company, which hosts 31,000 of the estimated 230,000 residents in Britain’s care homes, was run. It financed its rapid expansion by selling the properties of firms it acquired and leasing them back at high rents. Its assumption was that bed fees would keep rising as Britain greyed, and increasing numbers of elderly people came shuffling through its doors.
However, local councils’ spending on expensive residential care was cut and non-residential services to the elderly were improved, allowing many frail old people to stay at home.
Southern Cross is not the first care firm to mess up its finances. In 2010 similar troubles led to a restructuring at Orchard Care Homes, a smaller provider. Care Principles, an operator of hospitals for the mentally ill, handed its business over to Barclays Capital in April 2009 after a highly leveraged private-equity deal failed to deliver on its promise.
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Despite their financial failures, however, these companies’ homes stayed open and the care of their residents and patients was uninterrupted. In America, where private care homes have a longer pedigree, bankruptcy has often resulted in debts being restructured and shareholders losing money, but less frequently in homes closing. In the case of Southern Cross, most of its 750 homes are also likely to keep operating, predicts William Laing of Laing & Buisson, a health-care consultancy.
Yet Southern Cross’s mismanagement also provides a salutary case study for the rise of private operators more widely. Although Britain’s ageing population convinced the firm’s backers that elderly care was a sure bet, they perhaps underestimated the effects of increasing choice and competition on the market: occupancy levels at the company’s homes have fallen every year since 2006, not because of its wobbly financial structure, but because the quality of its homes was below average, so customers went elsewhere. It was also over-reliant on local-government funding: only 20% of residents in Southern Cross homes are self-funding, as opposed to a national average of 40%.
Adding to the anxieties about private care, on May 31st “Panorama”, a BBC television investigative programme, aired a report showing widespread abuse at a facility for the mentally ill near Bristol. Four people were arrested, and the Care Quality Commission, the industry’s regulator, promised an immediate review.
The BBC’s revelations suggest serious shortcomings at the regulator: its chairman admitted it had failed to follow up repeated reports of poor treatment of residents it had received from a senior nurse at the home. But Southern Cross’s case is one of business failure, not policy failure. The lesson is not that private provision is inherently bad; it is a more familiar one about the risks of dramatic expansion funded by excessive borrowing secured on property.
Even so, as private-sector involvement in public services grows, there are bound to be more cases that provoke queasiness about the whole idea of providing care for profit. In the wake of the financial crisis, banking regulators are working on a “resolution regime” to ensure that failing banks are dealt with swiftly and with the minimum of economic damage. Putting some work into mechanisms to cope with collapses of private health- and social-care providers might be just as worthwhile.
Copyright © The Economist Newspaper Limited 2011.
