For the past decade the UK’s healthcare sector has attracted often unwelcome attention following well publicised scandals such as Winterbourne View/Castlebeck, each of which involves a complex story of political and regulatory influences, funding pressures, the demands of a growing and ageing population, difficulty in recruiting , training and retaining the right type of staff, public scrutiny, increases in operating costs and tension between the need to remain financially viable and the requirement to provide a high quality, compassionate social welfare function.
In their foreword to the Care Quality Commission Report “The state of health care and adult social care in England 2016/17”, Peter Wyman and Sir David Behan make the stark but accurate comment: “The future of care for older people and the adult care system is one of the greatest unresolved public policy issues of our time”.
It is perhaps for these reasons that, for many years, care homes have been a key industry sector for insolvency appointments – a pattern which is unlikely to change in the short to medium term.
The manner in which residential care home tend to fail shows great consistency, illustrated by the cycle set out below.
Insolvency practitioners play a central role when called upon to intervene in a failing care facility; not only do we have to understand the financial context of each situation but also the specific risks that have to be assessed, monitored and mitigated.
On a macro-level the UK’s ability to provide appropriate public and privately funded health care services is inextricably linked to the dynamics of a population that is not only growing but simultaneously ageing thanks to improvements in diet, medicine and working conditions.
By the end of 2016 the proportion of over 65’s had doubled since the early 1960s. Moreover, the proportion of people in the very elderly category (over 85’s) is increasing much faster than average population growth.
The comparisons in Figure 1 below of census data from 2001 and 2011 shows that the 85 – 89 age category grew by 22% over the ten year period, whilst the general rate of net population growth was below 10%. The proportion of those aged 60 – 64 increased by a whopping 33% whilst the proportion of those aged over 90 increased by an equally impressive 28%.
That translated into a real term increase in the UK’s population of over 75’s of 425,000 people between 2001 and 2011, many of whom will eventually suffer from conditions associated with old age requiring expensive medical intervention or complex nursing care.
Information from the Office for National Statistics summarised in Figure 2 below also illustrates stark regional and gender based differences in life expectancy. At present a boy born and living in Blackpool is predicted, on average, to live a staggering 12 years less than a girl born and living in living in the comparatively wealthy district of Chiltern in Buckinghamshire.
The implications of these demographic factors in terms of pressure on care services seems clear, providing a fundamental driver of public policy on a national and regional basis. However, the UK is yet to see concomitant changes to the size and shape of service provision on a universal basis. Indeed, if anything, the reverse has been true.
Herein lies the crux of the major challenge facing the UK’s care sector: for a significant minority of facilities – in particular those reliant upon local authority and NHS funded clients – sustained deflation in fee rates continues to threaten their viability at a time when the sector needs to grow, not shrink. Furthermore, the length of time that elderly people spend in residential care has been increasing whilst the needs of residents have become more complex and more expensive to provide for.
Notwithstanding demographic and funding pressures, the age of the UK’s care home stock also presents a challenge, with analysis by Christie & Co. suggesting that nearly 40% of open care homes were built before 1990.
Older building require more intensive maintenance and capital expenditure to prevent them deteriorating and becoming obsolete or, worse still, posing a danger to their users.
Regulatory changes, developments in health and safety legislation and shifts in best practice may compel operators of such homes to reconfigure facilities and, at this point, the associated capital expenditure can begin to place an unsustainable financial burden on the business. The cycle of decline often starts here and the circle soon becomes a vicious one.
The other key pressure point for many operators is the costs of staff and the ability to recruit. And now it is not only the living wage that is the cause of the problem but, following recent Employment Tribunal decisions, the need to pay overnight staff for time spent sleeping whilst at work.
If a care facility fails and a formal insolvency process ensues, a rescue strategy will often be predicated on the trade being maintained so a going concern purchaser can be identified. However, there are a number of insurance and legal risks that have to be addressed when considering whether to keep an insolvent care home open.
For short terms fixes there are few problems that money cannot solve so the first issue is to identify funding for working and capital expenditure. In most cases this will be provided by secured creditors, motivated by a desire to prevent the complete erosion of the value of assets over which their loans are secured.
Client and staff safety is paramount so ensuring the business is compliant with a raft of employee regulation and health and safety legislation is essential. This will typically include gas and electrical safety audits, food hygiene certification, monitoring and prevention of legionella risks, avoidance of trip hazards, fire safety certification, measures to avoid scalding incidents, asbestosis surveys (particularly in older properties), mechanical and engineering surveys, infection control, hoist and manual handling training, controlled substance protocols, EU working time directives and monitoring of potential violent or dangerous residents.
If any one of these risk areas cannot be adequately mitigated then insurance policy conditions may be compromised, statutory warning notices issued and, for the licensed insolvency practitioner acting as responsible person, prosecutions proceedings issued.
In such cases it is simply not appropriate to keep a failed care home trading in order to secure a going concern sale, in which case a controlled wind down will take place as a precursor to a vacant-possession disposal. At this point a different set of risks will arise with a far great focus on the property itself.
A Helping Hand for Care Home Facilities
Quantuma are trusted advisers to the owners, operators and funders of care facilities across the UK.
Our specialist care home sector team understand the myriad of challenges care home operators face.
We have extensive experience in working with care home operators at key stages of their business lifecycle, providing a range of innovative solutions to support operators, whether they are seeking transactional support or are facing a range of financial and operational challenges.
• Provide thorough understanding of financial, operational and regulatory issues
• Assist with care facilities of all shapes and sizes, from single-site older generation facilities to multi-site groups
• Deliver positive advice and guidance, working together with your business for the benefit of residents, employees and investors.
Whether you are a care home owner, a director of a care group or a secured lender, we would be happy to talk to you on a confidential basis.
Let our professional and caring approach support you and your business through difficult times.
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Tel: 0203 8566730