With those involved in social care hoping for some long-term funding for the social care system in the upcoming budget on 11 March, there is another crisis bubbling slowly in the residential care sector – the precarious financial state of many of the largest private companies involved in the sector.
These companies entered the market over the last three decades to take on residential care that had previously been provided by councils. The sector seemed to be a safe bet for good returns due to the guaranteed income stream from councils and an ageing population.
But then austerity led to dwindling council resources and cuts to council budgets and suddenly the income wasn’t quite as good, despite the companies charging ever inflated fees.
Private equity takeover
Since the 1980s global private equity, sovereign wealth funds and hedge funds have seen the residential care sector as a source of steady income. Hundreds of care homes passed into the control of companies with a focus on short-term investment. These companies, such as HC-One, Four Seasons and Care UK, have complex structures, including off-shore funds.
The companies have been lumbered with vast amounts of debt as the companies were sold and then restructured.
A prime example is Four Seasons, once owned by the Guernsey-based company Terra Firma, and now, due to being unable to pay its debts, owned by its largest creditor, the Connecticut-based hedge fund H/2 Capital Partners.
According to a recent Financial Times article, Four Seasons “consists of 200 companies arranged in 12 layers in at least five jurisdictions, including several offshore territories.” Despite the difficulties tracking the company’s finances, the FT notes that it is clear that the company is laden with debt – around £1.2bn of interest-bearing debt and loans from unspecified “related” parties.
High levels of debt and the company heading for insolvency, did not deter the directors of Four Seasons from taking substantial salaries from the company; the FT reports that in 2016 the directors’ pay totalled £2.71m, of which the highest paid received £1.58m and in 2017 five company directors shared £2.04m, and the highest paid received £833,000.
Councils short-changed on social care
The behaviour of these companies has been highlighted before, the CHPI reported in November 2019 in Plugging the Leaks in the Care Home Industry, on the staggering amount of money paid out to directors, on loan repayments, and rent. The report notes that £261m of the annual income received by the largest 26 care home providers goes towards paying off their debts, and £117mn (45%) of this are payments to related, and often offshore, companies.
If the government eventually comes up with a workable solution to the crisis in care, it’s clear that some form of tighter regulation is needed for companies who run these homes. At present the Care Quality Commission has few regulatory powers over these companies – all it can do is warn local authorities if companies are on the brink of bankruptcy to give the local authorities time to find new providers so that vulnerable people are protected. The CHPI report recommends full disclosure of income, regulation to prevent companies with certain financial set-ups providing care in the UK, and greater involvement from the government with capital provision for new care homes.
Social care adds to winter pressure: what’s being done?
According to the FT article, it is even now clear to people involved in the sector that more regulation is needed – Jon Moulton, who ran Four Seasons in the early 2000s, told the FT “that regulators should be taking stiffer action, requiring care home chains to hold a certain amount of capital, much like the Financial Conduct Authority requires of banks.”
Dear Reader,
If you like our content please support our campaigning journalism to protect health care for all.
Our goal is to inform people, hold our politicians to account and help to build change through evidence based ideas.
Everyone should have access to comprehensive healthcare, but our NHS needs support. You can help us to continue to counter bad policy, battle neglect of the NHS and correct dangerous mis-infomation.
Supporters of the NHS are crucial in sustaining our health service and with your help we will be able to engage more people in securing its future.
Please donate to help support our campaigning NHS research and journalism.
Comments are closed.