Health and social care insolvencies rise by half

There has been a huge rise in insolvencies in the health and social care sector, with an increase of 49% in the first six months of this year alone, research shows.

Insolvency specialist MCR says the sector has been hit by a ‘perfect storm’ of adverse economic factors, which show no sign of going away and are affecting even the most efficient operators. Paramount among these are public spending reductions, as local authorities cut fee rates and help older people stay longer in their own homes.

Helga Pile, Unison’s national officer for social services, said that in the wake of the collapse of care home provider Southern Cross, the research shows that it is ‘time for this damaging privatisation experiment to be abandoned’.

She added: ‘The care and security of the elderly is just too important to leave to the cut and thrust world of the private sector.’

Southern Cross went out of business after it was unable to negotiate lower rents with the owners of the care homes it operated. The company’s homes are now being transferred to their landlords.

Pile said the problems that brought down Southern Cross were still prevalent, and ‘the best way to deliver quality and consistent care, is by rebuilding publicly owned, publicly run and accountable care homes’.

The MCR report says the traditional residential care home model is ‘now outdated’ as the sector is burdened by expensive and uneconomic homes and has over-borrowed.

MCR partner Sarah Bell said care homes had historically attracted investors because they could rely upon an increasingly ageing population, rising property prices and a steady flow of income from local authority contracts.

‘Times have most definitely changed,’ she said. ‘The poor performance of some care homes stems partly from a series of miscalculations by owner operators and misplaced assumptions about sector dynamics.’

This had led to the ‘perfect storm’ of reduced local authority fees, rising rents, a growing focus on alternative methods of care, an uncertain regulatory environment and increased operating costs.

Bell said the sharp rise in insolvencies is likely to continue as ‘even the most efficient operators are now feeling the squeeze’.

‘Care operators are highly operationally geared, therefore small changes in occupancy levels can have an immediate and profound impact on operational liquidity and overall profitability, which will quickly manifest itself in reduced operator investment,’ she said.

The Department of Health has confirmed that Southern Cross will continue in operation until the transfer process is complete, anticipated to be by the end of October. The company will then be closed.