MPs fear rerun of Southern Cross care home scandal

Committee says government has failed to make clear what will happen if another provider gets into financial difficulty

The government has been warned it must get to grip with the “very real risks” to the care home market if it is to avoid another Southern Cross scandal.

A parliamentary committee will say on Tuesday that the Department of Health (DoH) has failed to tackle the social care market following the collapse of Southern Cross earlier this year.

It will claim it is “deeply worrying” that the government has failed to make clear what will happen if another provider gets into financial difficulty.

Southern Cross Healthcare was the largest provider of care homes and long-term care beds in the UK, operating 750 care homes, before it announced its impending closure in July.

Four Seasons Health Care, which has restructured debts of about £780m, took over 140 homes once operated by the Southern Cross.

Margaret Hodge, the Labour MP who chairs the public accounts committee, said: “Local authority budgets are shrinking and large-scale providers are racking up debt – Four Seasons Health Care, for instance, carries nearly £1bn of debt – yet the department is not monitoring their financial health.

“It is deeply worrying that the department has not made clear what will happen when providers fail. This is crucial to protect frail and vulnerable users of care.”

Following rapid expansion, shares in Southern Cross fell 98% from early 2008 to early 2011, reducing its market value from £1.1bn to about £12m. The collapse caused great concern among thousands of care home residents.

Four Seasons was one of the first alternative healthcare providers to come forward offering to take over Southern Cross homes .

In 2009, Four Seasons restructured its finances after the private equity operator Qatar Investment Authority walked away.

A consortium of lenders exchanged half of the £1.5bn owed to them for shares in the business, with the taxpayer-backed Royal Bank of Scotland, the largest investor, taking a stake of almost 40%. The remaining £780m debt is due to be repaid to shareholders next September, the company says.

After DoH officials were questioned in October by the committee over Four Seasons’ debt, meetings have been held with the company.

Paul Burstow, the care services minister, said he welcomed the report and wanted to make sure there were sufficient safeguards in place to oversee care providers to protect people who relied on these services.

A spokeswoman for Four Seasons insisted the company was in good financial health: “We have already shared detailed confidential information about our financial health with the government and the Association of Directors of Adult Social Services, as a result of which they recognise that we are different to Southern Cross in key respects.

“Furthermore, the various landlords of former Southern Cross homes and their respective teams of advisers have given us a vote of confidence by choosing us as their preferred operator.”