Mark Drakeford argues that the current system of regulating care homes is palpably incapable of defending the public interest
Following last year’s collapse of Southern Cross, 140 residential care homes – including seven in Wales – in that company’s possession were transferred to another private sector provider, Four Seasons. In the process, Four Seasons became the largest supplier of residential care in the UK, operating from 506 sites, with 24,000 beds and employing some 30,000 staff.
From the outset many commentators, including the GMB union, warned that Four Seasons, far from representing a solution to the problems faced by the sector embodied, in its own history, many of its most pressing dangers. The early years of the present century witnessed an acquisition frenzy in the residential care home market, pushed ahead by a belief that demand for such services was bound to grow, with costs very largely picked up by the public purse. Guaranteed customers, bringing with them a guaranteed revenue stream, lay behind the process in which Four Seasons has been sold and resold for more than a decade.
The height of the boom came in 2006, when the company was sold for £1.4 billion by its then-owners (a German private equity firm) to Three Delta, a fund management business, backed by investment from the Qatar Investment Authority. The deal saddled Four Seasons with unaffordable debt.
A first restructuring to save it from liquidation took place in October 2008.
In September 2009 the Qatar Investment Authority abandoned control of the company, losing many millions of pounds in the process, when the Royal Bank of Scotland took over ownership, in a debt-for-equity swap, again designed to bear down on unaffordable debt levels.
A further major restructuring became necessary in July 2010, with a promise to dispose of non-core assets in order to pay-down debt, and an extension of debt maturity to September 2012.
Despite this highly troubled history, Four Seasons was allowed to acquire Southern Cross homes, when that company collapsed in the middle of 2011. This came at a point when residents, families and staff were all calling for a secure and reliable future, to replace the uncertainty under which they had suffered for many months.
Now, we know that none of that was to be true. In September of this year Four Seasons was faced with having to pay back more than £825 million to creditors, and it very soon became clear that it would be unable to do so. Southern Cross was finally wound up by the end of 2011, and by February 2012 the financial press was reporting a bidding war to take over Four Seasons. Amongst the bidders were said to be a consortium of US healthcare specialist Formation Capital and London-based private equity firm Patron Capital, Hong Kong billionaire Li Ka-shing, private equity group Kohlberg Kravis Roberts, the Canada’s Ontario Teachers’ Pension Plan and the Abu Dhabi Investment Authority!
In the event, the bidding war has been won by private equity company, Terra Firma – itself chaired by Guernsey tax exile Guy Hands who was responsible for the disastrous debt-fuelled take over of EMI in 2007. He is a man with a track record of having used the sale-and-lease-back techniques which brought down Southern Cross. Four Seasons, which has by and large avoided that ‘opco-propco’ approach, is now in the hands of a sector which has, in its DNA, the pursuit of short-term profit extraction, followed by further sale. Here in Wales, the deal affects seven Four Seasons homes in Cardiff, Blaenau Gwent, Caerphilly and RCT.
Moreover, residential care homes are now just another business, snapped up in a wider buying spree. On 26th March Terra Firma completed acquisition of another debt-laden business, the Wyevale Garden Centre Group, valued at the knock-down price of £275 million. Less than a week later, on 2nd April, it bought a Californian wind farm. Four Seasons followed before the end of the month.
Appearing before the National Assembly’s Health and Social Care Committee, Terra Firma’s spokesperson admitted that the company had no previous experience of residential care of older people anywhere in its portfolio of ‘essential industries’, a list which, as well as Garden Centres and wind farms, includes German motorway service stations and the Odeon cinema group. Nor was the company able to provide any breakdown of the purposes to which fees charged to residents – 70 per cent of whom are paid for by local authorities – would be addressed. Specifically, it was not able to say how much would be devoted to providing care, servicing company debt and providing a return on the investment. However, a promise was made that ‘open book’ accounting procedures would be introduced, with quarterly trading statements available for public inspection.
Little wonder then, that the development has led to calls for regulatory reform. The current system is palpably incapable of defending the public interest, both because it lacks the necessary reach, and because it fails to make adequate use of the powers already at its disposal. The coalition administration in Westminster in its long-delayed White Paper, expected to be published soon, should include reformed regulation of the care home sector. As well as focusing on care itself, it needs also to introduce a new transparency in business regulation in the sector, including a requirement for bidders to disclose their business plans, in advance of acquisition. Quite certainly, there is a need for a ‘fit and proper person’ test to be placed at the heart of the process in which care homes are traded – a proposition which received an unqualified endorsement by the Four Seasons representative who appeared before the Health Committee.
Yet, more fundamentally, at the heart of all this lies a clash of views about the proper character of residential care of older people. Ever since Mrs Thatcher’s NHS and Community Care Act of 1990, local authorities have been obliged to buy such services in the market place. In Wales, there has always been resistance to that basic proposition. Care of older people ought to be driven by the pursuit of public service, not private profit. Older people are fellow citizens, not commodities, whose welfare can be bought and sold. Knock on the door of Terra Firma today and sale of a place in one of its seven residential care homes in Wales will be on a par with buying a sack of compost or a tub of geraniums.
It just isn’t good enough.
The Welsh Government is about to publish its own much-anticipated Social Care Bill. Let us hope that, as well as tackling regulatory issues, it provides for a very different future for such services, where people will come before profit, and the need for care before the needs of companies. There are many good examples of how this can be done here already, and overseas. It is not a matter of needing to devise new models. It is a matter of having the determination to put them at the forefront of residential care services in Wales.
Many thanks to Mark Drakeford for reminding us that the challenge of dignified eldercare is right up there with world hunger and climate change as the most compelling issues facing the world in the 21st century. It is nothing less than a scandal that someone like Guy Hands, one of the greatest asset strippers of his generation, should be thought fit and proper to be the steward of residential care homes. I can’t think of a less suitable steward than a man who has shamelessly put profit before people all his life and thinks so much of his country that he lives in exile from it for tax purposes. Dignified eldercare requires social innovation on a scale that brought us the NHS, the greatest social innovation of the 20th century, and I hope that new business models based on public/social partnerships will emerge to meet the challenge of dignified eldercare.
There may well be a case for reform of regulation of the care home sector, but Mark Drakeford has not made it here. All those changes of ultimate ownership don’t, in themselves, matter at all. They only matter if they impact on the care that vulnerable people receive or the price that is paid for their care. They might or they might not – Mark doesn’t provide the evidence either way. Certainly the uncertainty around the collapse of Southern Cross last year must have had a negative impact on those vulnerable people and their families, as well as care workers. But how much of that uncertainty was generated by the media and politicians like Mark? Was there any impact on the quality of care that people actually received? Did all those other changes in ownership that Mark mentions each lead to similar levels of uncertainty – perhaps not if the media and politicians did not notice them? I don’t know the answers to these questions, but I’d expect them to be addressed by someone who is trying to make the case for reform. Mark also implies that there are better models, but doesn’t say what they are or why they are better.
Everyone is right. The market model is often proving unsatisfactory and Mark Drakeford provides no alternative. When in Wales you hear “people before profit” remember to ask “which people”. Too often it is the workers in the sector who benefit from easier conditions and no more accountability for patient care than under the market system. We have not developed adequate public sector management models to prevent producer capture, which is why the whole privatisation movement acquired credibility in the first place. When Welsh politicians acquire the guts to stand up to union paymasters and insist on adequate standards it will be time enough to talk of “alternative models”. That is much to be wished but my advice: don’t hold your breath.