Agenda item

Review of Southern Cross


5.1  The chair opened the item by outlining the aims of the review; which are to understand the impact of the demise of Southern Cross on residents and their families and learn any lessons; consider the financial viability of present providers including any impact on care and lastly look at the procedures and contingency plans the council has in place to manage the risk of future financial collapse of care homes.


5.2  The chair noted that the in the Departments of Health evidence to the Public Accounts Committee (circulated)  that it does not scrutinise the business models of large-scale care providers as a matter of course, and has limited powers to assess the financial health of these organisations. In the evidence to the select committee senior civil servants indicated that this responsibility lies with local authorities. The chair noted that this is a matter the Department of Health is consulting on given the collapse of Southern Cross. He went on the draw members attention to the reports findings which had raised concerns about the financial viability of Four Seasons, given it has carries nearly £1 billion of debt which it is now having to re-finance for the second time . He reminded members that Four Seasons took over Burgess Park care home from Southern Cross.


5.3  The chair went on to refer to the company accounts of NHP and explained that they are the ultimate owners of HC –One .HC-One now run Tower Bridge and Camberwell Green care homes. He read out the following passage from the accounts:’ there a material uncertainty that may cast significant doubt as to the group’s ability to continue as a going concern’. The chair noted that the report stated that NHP is in breach of all its loan covenants and has a loan to value ratio of 165; this means that it has a mortgage of over 150% of its value and its assets are significantly less than its debt.


5.4  The Chair went on to note that all three of Southern Cross’s care homes are now owned  by two organisations, NHP/ HC –One and Four Season, that  are themselves at risk of collapse . Both are in significant potential financial difficulties because of a past highly leveraged buyouts which have left them with large debts and a  business that now has  with flat or declining income, and a danger that interest rates could go up. The chair read out a quote from Jon Moulton, of Better Capital who said that: "Private care-home operators should instead be treated like a power or water company and regulated as such. I actually think the only thing you can do – and this is against my natural gut reaction – is to make sure this business is sensibly regulated in line with a sort of regulated utility."


5.5  A member of the committee suggested looking at the quality of the care given in homes and the financial viability and see if the two overlap. The chair agreed and noted that if the group is in difficulty then this could mean it will cut costs and that could impact on care and safeguarding. He indicated this would be a good line of enquiry. The chair noted that questionnaires have been developed to ask residents and families about their experiences; both how they were effected by Southern Cross’s demise and also the present quality of care. There is also question for the Lay Inspectors to see if they can assist with this review.



5.6  A member commented that we cannot get away from making approaches to the government; including MPs, about the selling of assets. He went on to comment that Southwark Council should be approaching other London councils to make this case. The chair indicated his agreement. A member agreed that we need to make representations to government, but that he hopes as a council we are regularly checking the financial viability of parent companies. The chair indicated that officers would be asked to answer that.



5.7  A member noted that one contingency is accommodation in a hotel; however the council needs to do a cross borough assessment of availability. Both the council and care homes should have contingency funds. He went on to comment that the council must be alive to the risk facing care homes and have contingency plans in place. The chair noted that the review is seeking to look at lessons learned and agreed that the review would ask what contingency plans are in place now.



5.8  A member noted that we have no council run care homes; it is a market and we can’t change this. He went on to say that from his experience as the cabinet member often families want residents to go to a home near them. When the council had concerns with care home many of the families wanted the council to keep them open and continue to work with the management. This is an interesting and difficult dilemma as families want homes to work because they are local. The member went on to comment that there were concerns about adequate or even poor care in homes which begs the question how long do we continue to work with a provider; when do we introduce an embargo and when do we start withdrawing . The chair agreed that we need to look at this dilemma.



5.9  A member commented that there can be difficulties if we have a large provider; while that sometimes that allows an economy of scale, if they do get into trouble is can have a big adverse impact.  That was one of the issues of Southern Cross collapse and the difficulties faces by the council when considering where the residents would go. The chair noted that the review will be looking at the diversity of care and provision borough wide.


5.10  A member commented that he would like the review to consider what the right kind of Care Home is. Maybe we need to get off the standardised accommodation offered and the financial anchor that these care homes pose He posed the question that maybe care could be better offered in a small village type of environment. He suggested that this might be both cheaper and better because there will be more community.




Officers will be asked to provide a report on the following


What procedures are in place to measure the financial health and risk of care home providers?


Does the council regularly check the financial viability of parent companies?


How are these procedures applied to places purchased by under block contract and spot purchase?


What, if any, contingency plans does the council have in place to manage the risk of future financial collapse of care homes.






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