Phil Burgan, CEO of Maria Mallaband says the UK is failing in its duty as a nation to provide the proper level of care for everyone.
Care Home Professional: Can you tell me how you set up Maria Mallaband Group?
Phil Burgan: By profession I’m a pharmacist. I started a chain of pharmacies in the mid 80s. By the mid 90s I owned 38 pharmacies within a 50 mile radius of Leeds. We supplied monitored dosing systems to about 50 care homes. We were a pioneer in that era. When I decided to sell that business it was a case of ‘what else do I want to do?’ I was a relatively young guy. I sold the pharmacy business at the top when the care home sector was at the bottom after the advent of the Community Care Act in 1993.
I had learned something about the care sector so I thought I would give it a go. I quietly bought a couple of care homes in 1996. I bought another two in 1998 and then the business stagnated for a while because the market was in such disarray. The government brought in some legislation related to the physical standards of care homes which were quite draconian and which many care homes in the UK just didn’t meet. 100,000 beds disappeared in a pretty short space of time, which was 20% of the market. Then the government realised it had got that wrong and said these regulations only apply to new homes, and this brought some stability. The market supply and demand came into kilter because before there had been an oversupply. Local authorities realised they needed to pay more for care services and for three years or so we enjoyed substantial fee increases. The majority of our beds at that time were local authority.
In 2002 I got the confidence to start growing again. I purchased four new homes and extended and refitted all eight. I caught the rise in the market and was able to create some equity and secure leverage to carry on growing.
In 2005 I decided to start focusing on the private end of the health care sector mainly because you could see that social service fees were going to level off. Inflation was up to 5-6% and fees were rising at 3-4% and I thought that’s not really going to work for me. I disposed of some of the social service homes and focused on building and buying in affluent locations.
At the same time I bought a company called Autism Care UK Ltd, grew that until 2015 and then sold it to Lifeways.
When the recession came along in 2008/09 I started looking inwards at what I had and decided to revamp my management team. I brought in some new people and promoted some good young people. I still have the same board of myself and six other directors and as a team we have got tighter and tighter since.
With that new team within a year we had achieved top drawer KPIs. We got the confidence of the bank back and started growing again in 2010, mainly by development. Then in 2011 the Southern Cross opportunity came along and we selected 33 purpose built assets from the whole portfolio.
I thought a lot about whether I should go back into the social service area but the low entry price made the numbers work. We branded these assets as Countrywide Care Homes to create a ‘value’ brand as opposed to the ‘premium’ brand Maria Mallaband Care Group.
CHP: How are your two brands split in terms of private fee payers and local authority?
PB: Maria Mallaband has more than 60% private clients and Countrywide 30%. The balance of clients is a mix of social services and continuing care clients.
Most of the growth between 2011 and last year was in development. In 2014 we entered into a sale and leaseback of some of our owned assets to HCP, the healthcare REIT, which enabled us to pay off all of our debt. HCP subsequently funded the acquisition of a couple of large homes in the North West and Acer Group in the South East last November. The only development we have coming out of the ground currently is at Liss in Hampshire, which is a 60 bed home with 14 extra care apartments, although we expect to start two new more developments again in the South East this year.
Most of the Countrywide properties are in the north of England, Scotland and Northern Ireland, where we have recently sold three assets to Runwood Homes.
CHP: How do your two brands compare in terms of fee levels?
PB: There’s around £200 per week average fee difference.
CHP: Is your Countrywide model sustainable?
PB: Yes for sure. It’s a one off. It’s not our focus for the future but it was a one off opportunity. It contributes a lot to our central costs and generates cash for us to grow in the private area.
CHP: Do the brands cross subsidise each other?
PB: It works both ways. If Maria Mallaband has a big cash call or a development that needs money spending on it we would use Countrywide cash flow to assist with that. The reverse also applies.
CHP: Are your private fee customers subsidising your LA fee payers?
PB: That happens everywhere. LA fees just don’t pay for the true cost of care. Within the group the private customers subsidise some of the social services, albeit our percentage of private fee payers in both companies is increasing.
CHP: Would Maria Mallaband ever be purely private fee payers?
PB: I don’t think so. There’s always going to be somebody you might take. Some private clients run out of money. We have a policy not to throw anybody out. We have to accept a social service fee or come to some arrangement with the family when the money runs out. That’s how we end up with social service clients in our private homes. We have never asked someone to leave and never will. We have a social responsibility in this business. We have to make a profit but it’s important not to forget this.
Social care is in crisis at the moment. People are being kept at home that should have been in a care home because social services think it’s going to cost more. In reality it’s always going to cost more in the community if you are providing the correct level of care.
CHP: How do you go about the development process?
PB: We have our own preferred architects, project manager and preferred builders. We don’t do turnkey. We select the site ourselves. We buy it subject to planning permission and then we build it to our design. We are a very tight team. We are able to control the costs very tightly. We have our own commissioning team who go in to establish a home as well as the general staffing for the home.
CHP: How do you finance the business?
PB: In a variety of ways. I own the business entirely so we are not a public company. We don’t have private equity investors. I have used leverage against equity, I have used forward funded sale and leaseback for developments, and I have used sale and leaseback to acquire groups. I think the REITs are all fully invested for now. They’re not looking to grow anymore in the UK. I think that funding avenue has gone but there are plenty of others.
CHP: The CQC’s rating system tends to favour smaller homes. Isn’t this a problem for you?
PB: It’s not an issue at all. It is very tough meeting their expectations for everybody. Last year 250 small homes closed. Because we are a larger group we have to send our results to the regulator’s oversight team. The government is really scared of having another Southern Cross failure, yet no groups have failed since then. Nobody seems to be looking in the direction of the smaller homes though. The reasons vary for why they have gone out of business. Some are financial. Some think they just can’t meet the expectations of the CQC anymore.
We are a better quality organisation than we were five years ago and some of that is being driven by the CQC. Our Chaucer House home in Canterbury has been rated ‘outstanding’ and we are expecting another one shortly, but there’s something wrong with the ratings system when only 1% of care homes in the country are outstanding. That can’t be right. A high proportion of our homes were ‘excellent’ under the old system and yet a few of them are struggling to get ‘requires improvement’ now. We have found that there’s a variation in the quality of inspectors because the CQC have had to expand very quickly. There’s no relationship anymore. You used to be able to ring up the inspector and let them know if you had a problem and they would let you deal with it. That doesn’t happen anymore. Some managers are getting demoralised because they feel that it is now impossible to please their inspector.
It also impacts nurse recruitment if they read a report that implies the home is not as good as it could be.
You are only as good as your staff. Two years ago there were 3m people unemployed but now there are only 1.6m. The staff pool that we choose from has shrunk markedly. At the same time the dependency of clients we get is going up and up, yet most care homes can only afford to staff to minimum staffing requirements. Some social service funded homes can’t give the standard of care that is required on minimum staffing levels whereas in a private home we can put more staff on shift as we can recoup the extra cost in fees.
The most important person in my company is the home manager. It’s not me or my fellow directors or anybody else. Good manager: good home. Bad manager: bad home. Everytime we have an issue it’s due to a manager. There is such a shortage of really good managers. Even some of the good ones are saying they have had enough of the tough new regulatory regime.
CHP: How are you coping with nursing shortages?
PB: There’s a well documented shortage of nurses. We haven’t produced enough in this country. We are forced to recruit from abroad in some cases. One of the ways we have been able to alleviate the problem is by promoting senior carers to care practitioners which has proved very popular with our staff.
The rules on bringing nurses in from outside the EU have been relaxed but the process of getting them registered once you have them here is too long winded. It can take 6-12 months in some cases, by which time some of them have given up and gone back or gone off and done something else.
For carers, back in the mid 2000s we were allowed to bring staff from outside the EU. We brought 75 in from the Philippines and they’re all still with us 12 years later, yet now we are not allowed to do that.
CHP: Are you reducing your number of nurses?
PB: No. The majority of our business is nursing. We don’t do very much residential. We have doggedly stuck to that. Our average occupancy is 92% so we have got capacity and are well placed to support the NHS. I’ve visited around two-thirds of our homes in the last three months. I like to get around every home at least once a year. What’s struck me in particular this year is how much the dependency has gone up. I was in one home in the North East where everybody was in bed. They were all really poorly people. We can cater for that. It’s a shame that no-one has woken up to that.
There was one CCG we spoke to proposing to build their own nursing homes. Why not just put them out in the community? We can deliver the same standard of care for around 30% of the cost of an NHS bed. If this offer was taken up, hospitals would be able to perform more operations as they would have more post-op beds available.
Something needs to be done. I’m sure it’s on the Prime Minister’s agenda but with Brexit I’m sure it’s not at the top. I can’t see anything happening with social care for the remainder of this government. It will have to get picked up by successive governments. It can’t be right that people can’t get the care. It’s just wrong for our society. The pressure will build and build because there are more and more elderly and their dependency levels are rising and there is a shortage of labour.
CHP: Is Brexit a worry for you?
PB: Not really. Brexit has created uncertainty which the financial markets don’t like. I think the worst is yet to come from Brexit in terms of all the hard decisions that need to be played out over a long period of time. In reality I am not sure how much Brexit is going to affect us overall. If people want to come here because the jobs are here then fine.
CHP: So you are not seeing an impact on recruitment yet?
PB: No we haven’t noticed that.
CHP: Looking to the future, do you think the big groups will increasingly dominate?
PB: There will be consolidation. I don’t think there will be another Southern Cross situation. The company failed but the industry took care of itself and not one resident got put out on the street. It was seamless. Some of the big groups will get bigger. One or two will float. There has not been a public company since Southern Cross but people forget. At the end of the day though, the government has to pay for the true cost of care. Increasing the local authority precept to 3% and allowing them to charge a 5% uplift without a referendum is just a sticking plaster. It’s gratefully received but it’s not enough. We need to do something fundamental such as putting a 1% levy on National Insurance. We have to be socially responsible. We have to catch those people at the bottom of the chain who haven’t got private funding but who deserve the same care as somebody who has. We are failing those people as a country.
CHP: Will you be looking to grow further?
PB: Yes through acquisitions and development. As I’ve said, the Southern Cross acquisitions were a one off. Prior to that we bought individual homes and we built homes. We will continue to grow. We have 74 homes now in the Maria Mallaband and Countrywide portfolios.
CHP: How crucial is technology in terms of raising your quality of care?
PB: We are rolling out a programme of using hand held i-care terminals for producing care plans and monitoring medicine supplies to our service users. We are very pleased with the progress of that. It saves time with keeping care plans up to date and reduces medicine errors. Technology will definitely have an increasing role in the future.
CHP: Are you optimistic about the future?
PB: Yes. I am very optimistic for us next year. We have gone through a business cycle where we sold Autism Care UK, developed seven new care homes and made a major acquisition. This activity will produce a marked uplift in the strength of the company.
CHP: Do you see an optimum size for the business?
PB: Yes I think you can get too big. It gets really hard when you start getting over 10,000 beds. We will be nearly 5,000 beds with our next acquisition. At the moment everybody in my homes knows me. It would get a bit more difficult above 5,000 beds. It’s more difficult to get round every home. We are a family business and are seen as a family business. The people who work for us like that.