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Contract Failures in Long-term care

Long-term care and intermediate care includes services provided by residential nursing/care homes and care provided within your own home. This is a complicated area where care provided free by the NHS meets means-tested care provided by social services. After 30 years of a policy of privatisation in this sector, service provision is almost exclusively by the private sector, with only a small amount provided by local authorities and the not-for-profit sector.

Funding for this sector has been a major target of austerity policies and as a result providers are facing financial melt-down and a workforce crisis. The level of privatisation in this sector means that local authorities and NHS organisations have very little control over service provision and if companies go bankrupt or decide to leave the market, all they can do is pick up the pieces.

One of the most well-known contract failures in long-term care, was that of Southern Cross in 2011. Southern Cross was a large national care home provider which had 9% of the market nationally, although within the northeast, Southern Cross accounted for around 30% of all care home places. The company’s collapse risked the care of 37,000 people. Its collapse has been put down to factors all related to the fact that as a private company it needed to make a profit.  The company’s finances involved a complex mix of creditors, property investors, bondholders, banks, shareholders and landlords and the think-tank CHPI notes that as the company struggled with debt and a reduction in income there was “a reduction in property maintenance, which in turn led to lower occupancy; loans attracting higher interest rates because the company no longer had properties against which to secure loans; a fall in market confidence and the share price; and poor management and quality of care, which led to adverse inspection reports and further decreases in occupancy levels.” As it was a private company, the local authorities had no control over the situation, all they could do was try and pick up the pieces after its final collapse.

In March 2017, an investigation by OPUS, Company Watch and BBC Panorama found that care firms have cancelled contracts with 95 councils, saying they cannot deliver services for the amount they are being paid. The research also found that 69 home care companies had closed in the preceding three months and one in four of the UK’s 2,500 home care companies is at risk of insolvency.

In March 2017, Mitie sold its home care division to specialist healthcare investor Apposite Capital for just £2; Mitie bought the division for £111 million in 2012. Mitie blamed cuts to payments by local authorities and the increase in minimum wage.

More recently in November 2018, the CQC issued a report on the financial status of Allied Healthcare, one of the UK’s leading homecare providers; Allied Healthcare was due to make a large loan repayment at the end of November 2018 but there appeared to be insufficient funds. The report noted that the company might not continue trading after the end of November 2018. A letter to all councils and CCGs advised them to make contingency arrangements in the event of the company withdrawing from contracts.

Allied Healthcare provides care and support to over 13,000 elderly and disabled people in their homes. The company’s Primecare subsidiary has contracts for out-of-hours and urgent care throughout the midlands. CCGs and GPs have been sent letters advising them to find new providers of these services by the end of November.

Allied Healthcare is owned by German private equity investor Aurelius. In a statement the company said it was “actively exploring a range of options in order to minimise disruption to continuity of care, including the sale or transition of care and support services on a regional or contract-by-contract basis to alternative providers best placed to deliver care at a local level”.

See below for further reading on contract failures.

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