Financial restructuring of Four Seasons highlights Social Care funding crisis while Government keeps avoiding urgently-needed reform
Private equity firms and hedge funds are not stable stewards for elderly care
- Independent Care Home sector has been an accident waiting to happen as financial engineering has driven ownership changes.
- Care sector also hit by rising wage and pension costs, falling council funding and Brexit-related staff shortages.
- Elderly Care should not be a financial game – it has people’s lives attached.
The news that Four Seasons, one of the UK’s largest owners of elderly care homes, has put part of its business into administration is another wake-up call to the Government that it must urgently get to grips with the social care crisis. Families are desperate for a fairer care system, but policymakers have constantly failed to rise to this challenge and no new proposals are in sight.
Social care is still being parked in the ‘too difficult’ box as Green Paper delayed again: It has just been announced that the long-awaited Green Paper on social care reform is further delayed. Hardly a day goes by without further evidence of this deepening crisis, but still no meaningful reform. Indeed, the proposals from Damian Green and the CPS were important, but are going nowhere while Brexit consumes all policy attention. It is deeply troubling that no action is being taken to protect the lives of vulnerable elderly patients.
Four Seasons has had troubled financial history for years: Four Seasons was bought for £825million by Terra Firma in 2012, with £500m of debt and a plan to financial engineer the capital structure to achieve a long-term substantial profit. There was no regulatory oversight of the transaction, which passed ownership of hundreds of care homes with more than 17,000 vulnerable residents, into the hands of a firm that was betting on financial leverage. In fact, Four Seasons had already been rescued from insolvency a few years earlier. It was owned by RBS at one stage which had left it even more highly indebted. Guy Hands injected around £100million of equity into the business to try to keep it afloat and protect his investment, he also wrote down £450million of the debt in an effort to save the company. However, hedge fund buyers H/2 purchased its debts at deep discounts and ultimately became the owners of the company.
Hedge fund owners trying to profit from asset sales and junk bond mark-ups: H/2 is now trying to restructure the business by putting parts of it into administration, perhaps selling some of the debt to other investors at a higher price than they paid and also finding a buyer for the operating companies which are still in charge of all the care homes. This is clearly a very worrying time for the residents and staff, who have been assured there will be no short-term changes, but the medium-term outlook remains uncertain. The Regulator does not have the power to force the owners to inject equity into the business, which leaves it more vulnerable.
Private equity and hedge fund firms are unstable owners: All major UK care home providers have been the subject of financial engineering of one kind or another. There are no regulatory standards imposed on Care Home owners, to ensure they have the financial stability that would normally be expected of financial firms making long-term commitments.
The independent care home sector remains an accident waiting to happen: The history of Four Seasons is a classic example of the inadequacy of the current social care system. Elderly care has not been treated with the importance it deserves. The provision of care for our aging population is still left in the hands of cash-strapped councils and uncontrolled financial operators. A company promising to look after you or your loved one for the rest of their life is not subject to strict financial checks or controls. The residents and employees are at the mercy of the owners and council budgets. In contrast, an annuity provider has stringent capital and solvency requirements. If you cannot prove that you have the capital to meet long-term commitments, you should not be allowed to make unreliable promises.
CQC cannot provide adequate protection: The Care Quality Commission does not have the power, skills or resources to protect care home residents against highly-indebted or unstable ownership. Its ultimate sanction is to threaten to close a care home, which is precisely the worst outcome for the residents and the one which would most want to be avoided. The CQC is not equipped or mandated to force care providers to improve their financial stability or to inject equity, rather than debt, into their business.
Rising costs and falling funding are a recipe for failure as social care crisis deepens: The problems of financial engineering are not the only cause of the care crisis. UK Care operators have also been hit by rising wage and pension costs due to the increase in minimum wage and auto-enrolment pension contributions, as well as ongoing falls in council funding as local authorities try to make ends meet. There are also reports of worsening Brexit-related staff shortages which are further adding to cost pressures.
Self-funders forced to pay extra to cover council shortfalls for others. Council cutbacks mean care providers cannot cover the costs of keeping care homes going without charging a premium to self-funders. This is forcing people with some savings or a family property to subsidise local authority-funded residents.
This crisis spreads across the entire sector and main problem is funding: Funding inadequacies and failures are endemic across the care sector. It is not just Care Home operators. The indebted major domiciliary care provider, Allied Healthcare, has been looking for a buyer to take over the business and many private companies are refusing to accept local authority contracts as councils pay too little. Homecare providers are also affected by councils cutting the amount they pay for care per person, the length of home-care service. Fifteen minute care visits do not allow sufficient time for decent care in many cases, which is compounded by reduced council spending on preventative measures such as meals-on-wheels or day-care centres.
Elderly Care should not be a financial game – it has people’s lives attached: I hope the Government will finally recognise the desperate urgency of this situation. There is no funding set aside, by national or local Government, no private savings or insurance incentives to meet care costs. Hundreds of care homes are quietly closing, leaving vulnerable elderly patients at risk. This is not just an inconvenience. It could be a matter of life and death, yet still there are no proper protections.