Local authority and children’s services leaders have called for greater scrutiny of private sector children’s social care providers in a bid to minimise the risks posed by a large operator collapsing.
The Local Government Association (LGA) said it would like to see the creation of a role to monitor the financial health of large children’s social care placement providers, while the Association of Directors of Children’s Services (ADCS) wants to see changes to the regulatory system to require providers to be registered instead of settings.
The concerns were raised in responses to the Competitions and Markets Authority (CMA) call for evidence on the children’s social care market study. Launched in March on the request of Care Review chair Josh MacAlister, the CMA market study – responses to which have just been published - could lead to a full investigation later this year.
In their submissions, both organisations said they were concerned about the growing influence of private equity (PE) investors in the children’s social care sector.
The LGA cites research that shows private equity-owned provision “carries a higher financial risk profile than other types of providers”.
It states: “Four of the seven largest groups of independent providers carry more debts and liabilities than tangible assets, with all of these being PE-owned. In total, six of the 20 groups of providers (the largest in the market) in the study reported negative net assets, with all but one of these having PE ownership.”
The LGA highlights that the collapse of adult care home provider Southern Cross in 2011 led to a legal duty for the Care Quality Commission to monitor the financial health of the “most difficult to replace” adult social care service providers – but that no such duty exists for the children’s sector.
“We would like to see a role introduced to oversee the financial health of large children’s social care placement providers to prevent a ‘Southern Cross situation’ in children’s social care, and also incorporate consideration of how mergers and acquisitions impact on quality of care and the experiences and outcomes of children,” it states.
In its submission, the ADCS echoes growing concerns about the role of private equity in the residential care sector and its impact on the stability of providers.
It states: “For some time, ADCS members have been concerned about how private equity is driving rapid changes in the ownership, financial models and service delivery in residential services for vulnerable children.
“The proportion of the market controlled by just a small number of providers, along with multi-million-pound mergers between providers who are diversifying across the sector and buying up smaller firms, increases the risk within the system. The risks associated with the impact of provider failure are significant and only increase as ownership continues to contract.”
The ADCS highlights that the current regulatory framework is nearly 20 years old and focused on the performance of individual homes rather than “the efficacy of the increasingly common large provider chains/organisations or the contribution they make to children’s outcomes”.
There is little focus on – or scrutiny of – the financial stability of parent companies, no single record of who owns the services that deliver care for children available for authorities to refer to as corporate parents, nor a mechanism for recording or managing the risk of provider failure, it adds.
Moving to a system that registered providers instead of settings “would allow the flexibility needed to make emergency/crisis placements while also allowing authorities to tailor the care and support around the individual needs of children and young people”, it added.
The CMA received submissions from 35 organisations to its study. A decision on whether to hold an investigation will be made by September.
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