As more and more vulnerable people are cared for by services in thrall to private equity firms, should we be worried?
Mitchell has worked at the Willows for 16 years, initially as a carer, but for the last decade, she has worked 30 hours a week organising residents' social lives. Until five weeks ago, Mitchell was employed by private care home operator Southern Cross, but she is now one of its 7,300 staff whose new employer is Four Seasons.
The Willows, along with 56 other homes, was taken over by Four Seasons on 30 September. A further 81 homes transferred by the end of October. It is now the largest care homes' operator in Britain, with more than 500 properties, following the transfer of more than 100 homes from Southern Cross after that company's collapse in the summer. Louise Glasgow, manager of the Willows, says staff were given no prior warning about Southern Cross's plight.
In the dark
"No one knew about [Southern Cross's insolvency] until we woke up one morning and found out the company was going under," she says. "There was stuff in the local paper saying that the home was closing. We were totally in the dark, but we just carried on while we waited for somebody to tell us what was going on. We still had 35 people to look after."
But it took two to three months before staff at the Willows found out that the home, its staff and its residents were safe. "We didn't know we were definitely transferring to Four Seasons until two weeks before it happened," Glasgow says.
Before it was floated in 2006, Southern Cross was owned by US private equity group Blackstone, and over the last decade enjoyed a period of heady growth. But its failure to meet a huge rent bill from freeholds that were offloaded to raise cash during the boom years (known as sale and leaseback), together with declining fees from local authorities – which paid for most of the 750 care homes' 31,000 residents – pushed it under.
The final homes are being transferred to other operators at the beginning of this month, including HC-One, a new care home company set up to take over a third of the estate with 10,600 residents. HC-One is a wholly owned subsidiary of former Southern Cross landlord, NHP, and is managed by Court Cavendish, led by former Priory owner, Chai Patel.
Southern Cross has revealed fatal flaws in the private equity sale and leaseback model and has raised questions about whether such a financial structure is too risky for running social care services. Private equity companies have been accused of asset stripping by the Labour leader, Ed Miliband, even though they flourished under the Labour government, which introduced tax advantages for heavily indebted companies. Miliband has described them as "predators" – a reference to the fact that many are registered overseas and pay little tax in the UK and their ownership, governance and financial arrangements are often shrouded in secrecy.
While private equity companies own high street brands including Boots and New Look, a Society investigation reveals that their tentacles stretch far and wide in the social care sector, from children with severe learning disabilities to adults with mental health issues, dementia and drug and alcohol addictions, and older people in need of residential or domiciliary care.
In total, more than 200,000 vulnerable people are being cared for in residential accommodation or in their own homes by scores of companies that have been bought out and run by a dozen or so leading private equity companies. This means that a significant proportion of all care homes in the UK are now owned by private equity firms, which are earning hundreds of millions of pounds a year from local councils and the NHS.
Some of the biggest include US-based Advent International, which owns the Priory Group, best-known for celebrity rehab. But Priory also provides an array of statutory-funded services, such as acute mental health care and specialist education for more than 7,000 people, including those at its subsidiary Craegmoor.
Geneva-based Lydian Capital uses finance structures common to private equity. It owns Castlebeck, whose services for more than 500 people with learning disabilities and complex needs at 56 locations included the now closed Winterbourne View, in Bristol, where undercover filming by the BBC revealed abuse by staff. Some of the same Irish investors are behind Jersey-based Grove Investments, which controls Barchester Healthcare. It cares for 10,000 people at 238 locations across the south-east of England.
Sovereign Capital, meanwhile, has become a major provider of domiciliary care and fostering services through its buyout of small agencies and fostering firms.
Julie Dowson, business development director at City & County Healthcare Group, says being owned by Sovereign Capital has made the business more, not less, secure. Sovereign provides back-office support, specialist training and help with marketing and meeting regulatory requirements. "[City & County Healthcare Group] wants to encourage individual companies to grow and develop, not come in and strip [them] down," she says.
Unusually for a private equity company, Sovereign Capital has not been involved in sale and leaseback transactions. "Our approach is that the outcomes for service users must come first. We take a long-term view, backing teams with many years' experience and providing the financial investment so they can continue to improve their services and build robust organisations," says Dominic Dalli, a partner at Sovereign Capital.
For critics, however, many private equity companies' extensive use of debt to finance deals makes several operators appear vulnerable, prompting fears that banks and investors could demand the debts are repaid, causing the operating company to go bust, leaving staff and residents high and dry.
"The notion that you can buy and sell old people like they are wheat futures is anathema," says Justin Bowden. The GMB union's national officer for members at Southern Cross is concerned that Four Seasons' debt levels leaves it in a precarious position.
Jon Moulton, founder of private equity firm Better Capital, has warned that the more care homes are loaded up with debt or with rent "the riskier they become".
William Laing, chief executive of care home analysts Laing & Buisson, says that although any operator carrying a high amount of borrowing is potentially at risk, he thinks Four Seasons is unlikely to go the same way as Southern Cross. "Four Seasons is viewed as being an efficient operator, but the people who own it are unlikely to pull the rug [and demand the debt is repaid in full when it's due next September]," he says.
Others argue that the problem is not so much how care homes are financed but the opacity of their ownership structures and governance arrangements. "Care wouldn't have got the level of investment it has had without the use of private money," says Peter Hay, president of the Association of Directors of Adult Social Services. "But in these very complex structures, good governance is key."
Hay, who is strategic director of adults and communities at Birmingham city council, says the local authority is asking would-be providers of social care services to open their books. "Transparency in what are institutional settings is about safety and dignity. If you are not going to be open about the financial arrangements, we are going to be less likely to use your services," he says. "We have asked providers to show us their business is sustainable, in terms of occupancy rates, cash flow, volumes and transparent accounts."
Profits cap
Moulton has called on care home operators to face a legal cap on the profits they can make from looking after vulnerable people and for regulation similar to that which a utility company would face. The care home regulator, the Care Quality Commission, says it is unable to intervene in financial matters.
Laing prefers the travel industry model, where Association of British Travel Agents members pay a bond, similar to an insurance policy, to repatriate travellers if they collapse.
The Department of Health, which hopes to open up the £23bn social care sector to more private firms, last month issued a discussion paper on the future of the sector and is inviting people's views. A DH spokesman says: "The difficulties faced by Southern Cross has highlighted the need for us to look at whether there is sufficient protection for people who rely on vital care services. We need to look carefully at the different action available including insurance bonds."
Martin Green, chief executive of the English Community Care Association, which represents care home providers, denies that private equity is putting his members at risk. "The problem is local authorities using their monopoly power to underfund the sector," he says. "We need to attract private finance into the sector, or find a £10bn fund of public money."
Back at the Willows, for Mitchell, the only disadvantage of becoming part of Four Seasons is an aesthetic one. "I've got to wear a red polo shirt. I'm not looking forward to it," she says.
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