Call for care homes to face financial oversight

Stronger financial regulation of care providers is needed to create an early warning system for struggling companies in the wake of Southern Cross’s collapse, according to a restructuring expert.

Currently the Care Quality Commission only has powers to regulate the quality of social care and Alan Hudson, a council member of the insolvency trade body R3 and head of Ernst & Young’s UK restructuring practice, said that financial oversight of providers was a “piece that is clearly missing”.

“The challenge is, whilst there has been… a focus on the quality of care provision, no-one outside of when they get first licensed and someone looks at the balance sheet, no-one then looks financially at what the performance is, and the two are very closely linked,” he said.

“If you get the quality right, the financials follow; but if you see a deterioration in quality, it could well be that the estate is being underinvested because they’re not making enough money.”

Southern Cross is being wound down after struggling to pay rent on the 750 homes it operated. An aggressive expansion left the company with far too much debt when the credit crisis struck.

In December, the last two homes run by the company were transferred to new operators. Around a third of homes were transferred to NHP, which was the biggest landlord to Southern Cross.

Mr Hudson, who was part of a team that advised NHP and its lender during the process, said that the outcome had enabled continuity of care.

But he added that “some of the focus now is how did we get to that tipping point and are there sons and daughters of Southern Cross out there”.

Better financial oversight could create an early warning system for monitoring companies’ financial stability, he argued.

As well as financial regulation, he added that local authorities could also use their buying power to demand further disclosure of an operator’s financial health.