Fieldfisher warns that rising costs could limit returns for investors in care homes

Coutts

Corporate European law firm Fieldfisher is warning investors about rising costs in the care home sector that could take the shine off returns.

In an article for the commercial banking arm of Coutts, Debbie Nicholson and Sarah Ellson, of Fieldfisher’s Public and Regulatory Law Group, say that the 2014/15 was a mixed year for clients operating in the residential care sector.

While increases in rates of occupancy and fee levels (in excess of RPI inflation) were encouraging, Coutts clients also reported that rising staffing costs, including significant spending on agency workers, placed pressure on profit margins – particularly for those with local authority funded clients. There is also genuine concern surrounding the introduction of the National Living Wage.

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Significant changes were introduced last year by the Care Quality Commission (CQC) following a series of high profile failings that damaged public confidence in the sector. The regulation of adult social care services saw a move towards specialist inspectors, a return to ratings, an end to annual inspections and more careful scrutiny of compliance with mental capacity requirements.

The essential standards of quality and safety were replaced with the fundamental standards and providers were required to ensure their directors were fit and proper to lead a care organisation. In addition, a duty of candour was introduced to ensure service users and relatives were aware of serious failings in their care and providers deemed ‘too big to fail’ also became subject to a new regime of financial monitoring to ensure that they are financially sustainable.

In the consultation process and during the introduction of this raft of reform throughout 2015, there was understandable concern from those operating in the sector. However, many of the reforms have been successfully integrated into the regulatory and risk practice of businesses in a way that is proportionate to the scale of the operation, particularly those surrounding the duty of candour and the fit and proper regime.

Many within the industry shared concerns that the new enforcement powers available to CQC would lead to a significant increase in warning notices and other regulatory sanctions. In reality, while there has been a notable increase in CQC enforcement activity, this has been focused on cases where there is clear and demonstrable evidence that service users have been at risk. The regulatory regime is now more fit for purpose in that CQC no longer need to gradually escalate their enforcement activity; they can match responses to the level of concern identified based on their intelligence and findings.

Practically, more problematic areas for providers have tended to relate to the new CQC inspection model and a lack of awareness in understanding the new intelligence led ‘risk profiling’ inspections. Figures released in mid-January of this year showed that CQC were about one third of the way through inspecting their existing cohort of adult health and social care providers under the new regime – and that they had undertaken 8,280 inspections with the following ratings awarded:

Outstanding: 0.5%

Good: 63%

Requires Improvement: 33%

Inadequate: 3.5%

The CQC aims to inspect all providers by the end of 2016 which will inevitably mean that we will see a significant amount of regulatory activity within the sector this year if this target is to be achieved. This will challenge the CQC as well as providers, particularly as it moves towards being self-sufficient in its funding. Ironically it is now warning of the adverse effects of a significantly reduced budget in relation to the delivery of its statutory and organisational objectives, an argument that has been advanced by the sector for many years.

BE PREPARED

One of the most significant issues has been a sense of disappointment post inspection with a ‘requires improvement’ rating. So, what if you are a care home operator? We would in all cases recommend the following:

  • Prepare and document examples of your compliance as early as possible so that it is ready for your next inspection regardless of when it is due
  • Develop a policy and procedure for inspections so you know as an organisation how you want to approach it
  • Self-assess your own service so you are never in a position where CQC tell you something you don’t know
  • Formulate an inspection training module to be completed by all staff
  • Check that all existing policies/procedures are up to date and reference current legislation and guidance
  • Review the inspection reports of other operators in within your locality to help identify potential areas of non-compliance in other businesses and adopt any areas of best practice that inspectors have recognised elsewhere

Fieldfisher is a European law firm with market leading practices in many of the world’s most dynamic sectors including Technology, Media and Telecoms, Real Estate, Energy, Financial Services, Government and Public Services, Hotels and Leisure, Life Sciences and Media.

 

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