2023 – A Year of Opportunity and Challenge for Social Care Providers, says RWK Goodman

By RWK Goodman Partner Mei-Ling Huang

The challenges and opportunities facing the social care sector in 2022 will continue and build in 2023, says the market-leading Health and Social Care team at the law firm RWK Goodman.

CQC in the spotlight
In 2022, CQC announced that in January 2023 it would implement changes to the way it assesses providers. This has now been delayed until later in the year to allow them to test and develop the proposed changes. There are, says RWK Goodman Partner Mei-Ling Huang, plenty of other measures providers will need to address.

“During the pandemic, CQC introduced the practice of completing remote monthly reviews of services and then deciding whether to request further information or cross the threshold and inspect. This practice will continue for now and there is no indication that CQC will not continue its practice of ‘responding to risk’. Unfortunately, this means that if it decides to inspect, there is a high likelihood that it will find problems.

“CQC is also focusing on winter pressures. Currently, it has said it wants to create more capacity for hospitals to discharge to adult social care by increasing the number of providers with a ‘good’ or ‘outstanding’ rating. It has stated that they can do this by inspecting providers with ratings of ‘requires improvement’ or ‘inadequate’ where their evidence shows there has been improvement. This will be a relief to many whose services have languished with negative ratings, but providers should be sure that they are truly ready and be prepared to show hard documentary evidence of improvement before inviting the inspectors in.

“As some of the changes CQC is proposing for 2023 are technologically based, in the spring CQC will focus on implementing and testing that technology and ‘being confident that [its] new regulatory approach is ready to launch’. In the past, it has taken CQC a lot longer than anticipated to roll out new tech and we are sceptical about whether the proposed online solutions will streamline the inspection process effectively.

“CQC has indicated that it will be launching its new online provider portal in the summer of 2023 enabling it to gather evidence in a ‘new and structured way’. It is aiming to use the portal to carry out assessments towards the end of 2023. However, IT projects can be tricky at the best of times so it remains to be seen whether this will be implemented in the summer and how effective it will actually be.”

March of AI
The adoption of new technologies will gather pace in 2023 presenting new challenges and opportunities, says RWK Goodman Tech Partner Carl Selby.

“There will be a continued push towards digitisation on all aspects of care and record keeping, along with an increase in providers offering AI and machine learning tools to enhance and supplement care and diagnostic processes, as well as matching carers to residents. Also, I expect virtual and augmented reality offerings to increase, giving care providers new and exciting opportunities to provide therapy and entertain residents. The rise of the Metaverse is upon us!

“However, progress will come with an increased focus on data protection from the Information Commissioner. Data security will continue to be important but expect the ICO to look more carefully at what personal data care providers are collecting and why, the lawful basis used to justify processing, and transparency of communication to data subjects.”

Increased rents
Care providers with leased premises and facing rent reviews or looking to lease new premises via a sale and leaseback structure should prepare for higher rents, says Rob Walton, a Commercial Property Partner at RWK Goodman.

“Many leases have rent reviews linked to the Retail Price Index (RPI). In previous years where inflation has been low this would have had only a minor impact on rent increases. With RPI now in double figures, care providers may be facing steep increases in rents and shorter timescales in between reviews

“Whilst there is little that can be done if a care provider is already locked into a lease save for seeking to negotiate with the landlord, there is more opportunity on a new lease or lease renewal.
“Ideally, tenants should be looking at open market rent instead of index-linked reviews. If that is not possible, care providers should seek to negotiate a lower and upper band, known as a ‘Collar and Cap’. This will limit the level of the rise and, from a landlord’s point of view, give reassurance of a minimum rent increase in the event of RPI falling in the future. Whilst landlords may resist, there will be pressure on them, particularly with sale and leaseback deals which should prompt negotiation.”

Workforce challenges will continue to prevail during 2023
Recruitment is more challenging than ever, with an estimated 165,000 vacant roles in the care sector and no Government strategy to fill the gaps, says James Sage, Employment law partner and Head of Health & Social Care at RWK Goodman.

“Many providers are currently unable to expand or meet existing demand for their services due to a lack of staff, and this is likely to continue. A recession and redundancies in other sectors, such as retail and hospitality, could provide some short-term respite, but it will not be a long-term solution. Any benefit may also be offset by increasing numbers of care staff leaving the sector due to the cost-of-living crisis.

“Some providers have awarded significant pay increases this year to help attract staff and we see this trend continuing next year, particularly in the high-end private market and the not-for-profit/charity market. However, those providers unable to fund staff pay increases due to reliance on public funding rates that fail to keep up with increasing costs and wage pressures will be at a disadvantage in the recruitment market.”

Staff retention will continue to be a key priority for all leadership teams in 2023. A recent RWK Goodman poll of 121 care providers revealed that 19% of providers had turnover rates of over 40% and 7% had rates of over 50%, which is not sustainable.

James adds: “Providers will need to have robust and effective recruitment processes in place to create a positive candidate experience and avoid losing candidates during the process, which has been a significant problem this year, with stiff competition for candidates. The first 90 days of employment is the highest risk area for staff attrition and perfecting the onboarding process will be key to retaining staff, with a greater and sustained focus on engagement, training, communication, and peer support during that time.

“A greater focus on culture, wellbeing, flexible working and learning and development will also be key to retaining staff in 2023.”

Availability of funding and the transaction market
Bank lending remains readily available but with tighter terms, says RWK Goodman Corporate and Banking Partner Claire Wheatley and Corporate Partner Hazel Phillips.

“Banks continue to see the Social Care sector in a positive light and are keen to make funds available to established providers wanting to expand or build new homes.

“However, as for all finance, margins along with the base rate have increased which has impacted the loan-to-value and interest cover ratios. Expect terms to be set with more headroom.”

Appetite from private equity for the sector appears to be recovering following the political upheaval in the Autumn of last year.

Sellers need to be realistic about the price and terms they can achieve given the increase in the cost of debt, energy costs and workforce issues. Those looking for an exit should take expert advice from sector-specific agents and corporate finance teams to ensure they obtain the best terms possible. Price needs to be carefully balanced against the credibility of the offer received, with close attention being paid at the offer stage to the financial backing of the buyer and speed with which they can execute the transaction.