Houses Built on Sand – Residential Care Dilemma 2

In the residential care sector, elderly people have become a commodity. I talked about it in my earlier blog – Residential Care Dilemma dated 12 October 2010.  Southern Cross, the UK’s largest provider of residential care, is much talked about in the financial press, but sadly it is its survival that is being discussed. This is a new and in some ways more dangerous sub-prime mortgage crisis. The outcome could well have to be another huge state funded bail out – although nobody, least of all the Government, is talking about that yet.

The seeds of this potential destruction were sown in the 1980’s with the birth in the corporate sector in residential care. That in itself was not a bad thing. The sector needed vast investment to respond to meet the increasing needs of frail older people. The public sector had already priced itself out of the market and was starved of capital funds by the Government of the time.

The rapid growth of the more commercial corporate sector was seen as life saving at the time. They were building on a private sector cottage industry often with out of date buildings, poorly trained staff and a reputation for poor quality service. Corporate providers were seen as the strategic way of bringing in large scale investment and raising quality standards. Initially this worked. The biggest corporate providers TakeCare and Westminster Health Care focussed on newly built projects with single bedrooms and later en-suite facilities. This certainly succeeded in raising the bar of building standards but it did cost much more in capital investment. Some of the money came from traditional bank lending but as headlong growth was pursued, new more entrepreneurial investors entered the market with business start-up capital, venture capital and mezzanine finance. Each new avenue of money became more expensive to borrow but was underpinned by the seemingly endless growth in the market. In the 1980’s, elderly people could walk through the doors unchallenged and if they had no money the state would pay.

One day in 1993, the Government woke up and realised they were paying for all of this. From then on the game changed and Social Services were required to assess people before they moved in. Investors did not appreciate the subtlety of this change; they were interested in money not people and the money kept rolling in. The need for places had not diminished but Social Services’ purse had strings and gradually they were pulled more tightly. Fees were held down by a state monopoly purchaser while at the same time the Government continued to attempt to raise standards, expect higher staffing levels with more training and introduce the minimum wage.

Something had to give. Occupancy levels dropped, profit margins shrank. In the world of high finance, sale and leaseback and mergers and acquisitions became the new order of the day. Companies and company names changed hands as frequently as revellers on a merry-go-round change horses. The elderly are truly a commodity now.

The toothless regulators are way out of their financial depth, in this world of high finance. Even though financial viability is supposed to be one of their key measures of performance, they can only watch the unfolding drama. In theory they have the power to intervene on behalf of the thousands of vulnerable adults who are caught up in this crisis. But in practice they would have to propose an alternative solution and thinking creativity is not one of their core skills. Indeed their only significant act so far seems to be to block future admissions to 19 of Southern Cross’s homes. As necessary as this may have been, it is definitely not going to help matters. Southern Cross’s occupancy levels are already dangerously low at 85%.

So if thousands of elderly people are now to be sacrificed on the Southern Cross, what is the solution? One option being considered by some of the landlords, who now own their buildings, is to switch to another operator. But it all sounds like the thrashing around of drowning men. Particularly when you realise that many of the landlords are themselves already in administration. Not exactly the best people to resolve the situation you might think!

Still, the alternative is even more difficult to contemplate. Southern Cross could be left to go bankrupt. Surely this would never happen? Well, in the world of commodities, it does. Administrators would be appointed to start picking over the bones, but financiers won’t worry about the residents’ worries, they will just want to get their money back. What a pity old people aren’t just widgets, or perhaps they are in the world of high finance.

The eventual answer may be for the Government to step in, but they won’t act too soon for fear of having another banking bail out on their hands. It will not be a cheap option if they have to pay off the landlords so best let them go bust first. Then step in and like a white knight on his charger, the politicians can be seen to rescue the residents from a fate that Governments have had a significant hand in creating.

A second alternative more in line with Coalition Government thinking would be to close all the Local Authority old peoples’ homes which at £824 per week cost almost twice as much to run compared with the private and voluntary sector places. Many Local Authority homes are well past their sell by date in terms of building standards but a move into the private sector would be staunchly resisted by residents, staff and trade unions. It would nonetheless, if we accept old people as a commodity to be moved around at will, fit perfectly with the Government’s desire to reduce the size of the public sector, whilst at the same time increasing the occupancy in private sector homes. The public sector homes having to close to bail out the private sector might seem a particularly cruel injustice but it is the logical conclusion of an unspoken strategy that has been in existence for many years. It also addresses the longstanding and unfair disparity between the fees paid by Local Authorities for residential care places and the costs of their own homes. An even more innovative move would be to radically alter NHS provision and move many elderly patients out of acute hospitals and into nursing and residential care homes. This too would be very strongly resisted by the NHS unions. It would have potentially even greater financial savings since the cost of NHS beds are probably quadruple the cost of residential care beds, and many elderly people spend weeks in hospital waiting around for tests or waiting to be discharged – the time spent actually with clinicians is relatively brief. Without question the residential care sector would have to very significantly increase their rehabilitation skill levels to accommodate an influx of frailer residents, but this is very much in line with the move towards GP commissioned services. Sadly bold solutions like these will only come after a crisis and so it will probably mean that an organisation like Southern Cross will have to go to the wall before any action is taken.

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5 Responses to Houses Built on Sand – Residential Care Dilemma 2

  1. david freeman says:

    Hello I sent a blogg 2 day at 13.30, twice I note it is not posted on sight. Any comments

  2. The Flower pot man says:

    What an interesting development on site with the TAG Cloud and the latest blogs. I rather like it. Best wishes Regards, The Flower Pot man

  3. The Vicar says:

    Yesterday 16 02 2011 the media was full of the lack of care and attention for the elderly in the NHS in general. It is very difficult to be rational in thought as I am one or am now becoming one of the oldies! and in my way I submit my thoughts to the press, and yesterday to my MP to express concerns, and offer views on the subject. I suspect I will get no where but the feeling is great. Next time I am asked in open forum by voting or submitting an opinion, I feel I will have done my bit.

  4. Vicar says:

    Southern Cross Health Care Homes is recieving a lot of attention from the press and financial institution today, and recently. I do not understand the complete problem? To me it looks like a lease back arrangement with the local authorities for the rental of the Care Home buildings, and then a fair charge being levied by the Local councils to pay Southern Cross for their management and expertise in offering care to the elderly of the UK? Have I got this right?
    So where is the rub, who has the gripe Southern Cross or the local councils. What ever happens the local authority citezen pays the cost financially or in the level of care and attention it recieves. Are The Local councils charging the private providers greater rent than they charge their own premises,and are they providing services to a higher standard at an uneconomic rate in their locally controlled housing? Are the private sector being duped into subsiding the local authority homes? or are the economic realities such that neither Southern Cross, nor the Local council can provide the residential and care homes at an economic and socially acceptable standard for the elderly? What is the true story. If Southern Cross goes bust then what happens to its residents? do they become local problems?
    Is this a polictical problem for us all to discuss, or one for the finacial pages of the press?

    What are the CARE STANDARDS Authority doing in this case:? Who checks the checkers?

  5. John Graham says:

    More questions than answers in this comment,David. I will try and answer some of them.

    The lease back arrangements are not with the Local Authorities they are generally with banks and/or venture capital funds as far as I understand. The rental costs are then part of the fees charged to residents. In turn many of the residents are funded by Social Services.
    Social Services have held down the amount they will pay, which has squeezed the care home operators. To add to the pain, new referrals are being rationed as Social Services budgets are cut.
    Southern Cross are particularly vulnerable because they have a very high number of state funded residents and very high, indexed-linked rents
    What happens if Southern Cross goes bust ?— this is the $64,000 question. We won’t be the only people pondering the answer !
    I will write more in another blog shortly.

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