Southern Cross care home collapse could happen again

Tuesday, 06 December 2011

The Government needs to take action to prevent a repeat of the Southern Cross care home crisis, according to a powerful group of MPs.

The Public Accounts Committee said the Department of Health and local authorities do not know if one care home operator is becoming too dominant.

They are also unaware whether any are on the brink of collapse as there are currently no early warning systems, the MPs warned.

Margaret Hodge, the Labour MP who chairs the committee cited the Four Seasons Health Care, which took over several former Southern Cross Homes, as a potential risk.

She said the company had almost £1 billion of debt - but it claims to be in good health and unlike the firm which collapsed earlier this year.

"The Department of Health must get to grip with the very real risks to the social care market, if we are to avoid another Southern Cross," she said.

"No one, government or local authorities, really knows what is going on locally or whether one provider is becoming too dominant.

"Local authority budgets are shrinking and large-scale providers are racking up debt - Four Seasons Health Care, for instance, carries nearly £1 billion of debt - yet the Department is not monitoring their financial health. 

"There is currently no early warning system for providers getting into difficulty.

"It is deeply worrying that the Department has not made clear what will happen when providers fail. 

"This is crucial to protect frail and vulnerable users of care and to provide reassurance that the responsibilities of the failed providers will be transferred quickly and with minimum disruption to users."

Currently, the Department of Health sets the policy framework for care but local councils fund many of the services.

Smaller care home owners have recently been swallowed up by large companies, which have run into trouble due to councils freezing their fees and funding less residents.

Southern Cross had become Britain's biggest care home operator with 750 homes but collapsed over the summer due to a drop in income and a #250 million rental bill.

The committee claim the Department of Health was "concerned" about Southern Cross' business model as far back as 2007 but was "unaware of the true state" of problems.

They say government officials only look at the national picture and do not assess how much local or regional areas are dominated by one care home provider.

There is also no early warning system for companies at risk, or a failure regime for those that have gone under.

Liz Kendall, Labour’s Shadow Care and Older People Minister, said: "The Government is dangerously complacent about what is really happening in social care.

"They have done nothing to prevent another Southern Cross from happening again. 

"Four Seasons, which has taken over more than a hundred Southern Cross homes, is seeking to restructure its finance but we have no idea how this is progressing, or whether it is possible."

But Four Seasons, majority owned by the Royal Bank of Scotland, claims it is "very different" to Southern Cross as it is more profitable.

It said it has inherited debts from previous private-equity owners and has reduced them to about £750 million.

The company claims to be worth more than £950 million - more than its debts - and making a "modest profit" running 500 facilities, with a capacity of 24,400 beds.

A spokesman said: "It should be remembered that the Southern Cross situation was a private sector problem that has been resolved by the private sector.

"Despite all the gloomy predictions there was not the scenario of elderly residents being made homeless or having to move to other homes; there were not mass redundancies among care staff; there was not a massive additional burden on local authorities."

The Care Services Minister, Paul Burstow, added: "We want to make sure that there are sufficient safeguards in place to oversee care providers to protect people who rely on these essential services.

"In October we set out a range of possible approaches to market oversight. The feedback we are receiving, including the PAC report, will inform the Government's White Paper, which will be published next spring."