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21 Nov 2011
John Adams, VODG general secretary

The risk in regulation: social care is not a homogenous market

If the demise of care home group Southern Cross led people to call for better economic regulation of social and health care, then recent news that more care homes are going bust has made demands for action even louder.

John AdamsOn the face of it, economic regulation of care providers might seem logical. The government’s plan is to extend the authority of health regulator Monitor so it regulates the care sector, ensuring that financial problems do not affect service delivery.

A recent report from the King’s Fund, however, suggests flaws in this plan. The regulator, it warns, has been set a “formidable task” with little precedence or supporting analysis. The new regulator might become confused about its aims, suggests the King’s Fund report, as Monitor’s evolving role and remit are already too broad. The report concludes that there is a real risk the regulator might fail unless the Health and Social Care Bill is amended.

The VODG’s recent submission to the health committee inquiry into social care focused in part on economic regulation. Generally speaking, we do not believe private equity funded companies (Private equity and care: a sector propped up by debt) are necessarily best suited to deliver value for taxpayers, or policy objectives such as personalised, high-quality support. Just as worrying is the fact that the government appears at a loss as to know what to do about regulating the social care “market” – and it is a market, as previously set out on this blog - that it has created. The government might talk of “market shaping” but there is little evidence of very much “shaping” actually taking place. In its place, it seems, is economic regulation.

Man paintingMore specifically, our concern with social care being subject to such regulation is that the distinctions between different types of providers are not properly acknowledged. There is a world of difference between a small single home owner/provider and a large international corporate provider; as there is between the ethos of say the Salvation Army, the Royal British Legion, Methodist Homes (MHA) and private equity group Blackstone, or Geneva-based Lydian Capital that owns Castlebeck the company that ran the the now notorious Winterbourne View. Of course there is no guarantee that the not-for-profits will never fall into operating difficulties, but it is clear that that the financing structures, motivation, constitutional and governance structures of not-for-profit providers are fundamentally different to companies that are principally accountable to share-holders, or to private equity investors. The risk is that on the back of Southern Cross the Government will simply lump all providers together as if they are a homogenous group.

Many of our members are charities founded in 19th century philanthropy and their entire raison d’etre is to support their beneficiaries. This is often reflected in their charitable objects and the beneficiaries themselves are often heavily involved and influence the organisation’s governance and management. Some of these not-for-profit providers are “condition specific” (the RNIB or MS Society or Epilepsy Society, for example) and again, while they are large, successful national organisations, their prime focus is not profit as an end in itself. For decades, these sorts of organisations have successfully operated without economic regulation.

Critically charities are subject to charity law and are required to to comply with the conditions in section 36 of the Charities Act 1993 (as amended), this means that although most trustees can sell their charity’s land without complication there are certain requirements that must be met. In some cases the approval of the Charity Commission is required before selling property and the proceeds can generally only be used for the purpose of supporting their charitable purposes.  Therefore this is fundamentally different from privately owned providers which can use their assets for the personal benefit of their owners or shareholders and on disposal are not obliged to re-invest the proceeds furtherance of the objects.

Another worrying issue is that the social care market for working age adults is different to that for older people. Where older people are concerned, there has been a huge growth in private-payers, which has attracted commercial suppliers and provision of significant volumes by three or four very large companies (although not large enough to trigger concerns about market dominance).

In contrast there are very few working age private payers and social care funding comes mainly from local government. Customers or clients are almost all drawn from the same source – via local government community care assessment processes – funded from statutory sources and with little movement out of the market (i.e. residents do not often change suppliers). Peoples’ movement is in any case restricted by Ordinary Residence. Additionally there are numerous providers of all sizes supporting working age adults, offering an increasingly wide and diverse portfolio of ‘products’ and the market, particularly the way fees are negotiated is generally more variable than that serving older people.

FamilyAdd to this the fact that many of our members operate different business models, offering a wide range of activities – some funded under contract to local government or the NHS, others by different income streams or paid for through fundraised income – it is hard to see how economic regulation would work practically. The often complex funding structures could be tricky for a regulator to unpick. What if buildings gifted to charities are subject to historic covenants, what about restricted versus general income? Will Monitor review all balance sheets annually, or only those of new entrants? How can they deal blanket-fashion with so many different provider types operating such wide-ranging organisations and structures? This is of a completely different scale to monitoring Foundation Trusts.

Which brings us to the next bone of contention; the potential costs of licensing and monitoring which will rest at the door of the providers. The financial burden could not come at a worse time with significant cuts in fee levels and tight operating margins.

Economic regulation of social care will add an unnecessary administrative burden and cost to the voluntary sector, one more such onus alongside, CQC, NICE, and local government contract monitoring - which often overlaps with CQC inspection functions.

We need not only distinctions between different types of providers - by scale, geographic concentration of services and operating or constitutional structures – but a lighter touch regulatory system. Monitor for example could be required to only licence social care suppliers with say more than a £50m turnover. It is worth reiterating that many voluntary providers have operated successfully in the “market” for decades without economic regulation.

If economic regulation is not designed and executed well, as the King’s Fund warns, “it may end up imposing more costs than the benefits it delivers.”

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