On the edge?
Colin Angel asks whether a Carillion-style collapse could happen in homecare
Following the sudden collapse of Carillion, a number of people have asked whether the same thing could happen in other UK public services outsourced to the private market.
In the case of homecare services, UKHCA believes that while there are a few similarities, for example public outsourcing at low prices, contracts for home-based personal care are outsourced to a very different provider market.
Outsourcing of public sector contracts in the UK is widespread and has delivered some significant benefits to government and the public purse.
Outsourcing has freed-up central government so that it can focus on developing national policy and has enabled local government to focus on understanding and planning for the needs of local citizens.
Private sector providers offer the public sector considerable productivity gains by their ability to draw on commercial expertise by being specialists focused on delivery and by the use of modernised working practices, which by-and-large are not employed in the public sector. Larger providers are also able to run lower back-office costs for volume business.
What’s different between Carillion and the homecare market?
Carillion (and other large-scale outsourcing specialists) generally cover a wide and diverse range of business sectors, and may – in the view of some – have become too complex to control well.
The homecare sector, on the other hand, is characterised by organisations which specialise in one core service (or in few cases, combine homecare and residential care).
While each of these services carries their own complexity, the services are, generally, delivered according to a reasonably consistent model. We cannot think of any examples in the current market where organisations delivering homecare also offer significant services in other business sectors.
The UK homecare sector is characterised by a large number of small and medium enterprises (SMEs) and a relatively few larger providers, none of which is thought to have more than 3.5% market share.
Local councils tend to contract directly with provider organisations and there is relatively little subcontracting within the independent sector, and no long or complex subcontracting chains.
The state-funded homecare market is characterised by public sector purchasers which, for a variety of reasons, have used their dominant purchasing power to drive down the prices paid for care.
There is the potential for providers to withdraw voluntarily from the market, or for the financial failure of individual provider organisations.
However, the last two years have seen a number of businesses actively reducing their exposure to what they consider to be unsustainable contracts by early termination and declining to bid for new business which is not appropriately funded.
A number of factors help mitigate the impact of market failures in the UK.
For example, councils often limit their total exposure by contracting with several (often many) providers in their local area. We believe that the largest exposure in any local market is unlikely to be more than 20% of total services purchased from any one provider.
In addition, England’s statutory social care regulator, the Care Quality Commission, operates a ‘market oversight’ regime which monitors the financial performance of the largest and hardest-to-replace care providers. This regime is intended to act as an early warning system for central and local government should a provider be at immediate risk of financial failure.
The Care Act 2014 also placed new market-shaping responsibilities on councils (in England), which were accompanied by statutory guidance to assist their actions.
Where local authorities take a responsible approach to these market-shaping responsibilities, conditions in local markets generally improve.
In the event of actual business failure, the primary requirement is the need to identify a new provider willing and able to pick-up and run existing services and maintain continuity of care for the people supported.
Local councils are well equipped to deal with changes of provider, as they have a regular re-procurement cycle, with contracts which generally last between just three to five years.
Such changes of provider are assisted by the Transfer of Undertakings (Protection of Employment) Regulations (‘TUPE’), which provide the workforce with a right to transfer to a new employer when contracts change hands and given that the homecare sector is largely a managed staffing solution, there are extremely low capital assets which need to change hands in the event of such a transfer.
Given the benefits that outsourcing has brought to public sector contracts and the fact that the cost of these services tends to be two-and-a-half or three times as much when run by local councils, UKHCA does not believe that there is a compelling argument to bring homecare services back in-house.
Large-scale insourcing of homecare services is either likely to threaten the financial viability of many councils, or create a radical need to ration the care provided to such an extent that many more older and disabled people’s care needs would not be met.
UKHCA’s view is that market stability will be enhanced by a number of factors which would be more effective and ultimately less costly, including:
Councils funding homecare services in a responsible way, recognising the actual costs of services to remain sustainable;
A critical review of existing and forthcoming contracts with a view to reducing disproportionate and avoidable costs to providers’ businesses;
Proper engagement with providers to develop more efficient and less costly models of purchase and delivery;
Ensuring that public sector purchasers support providers’ cash flow by adopting prompt payment mechanisms which – at minimum – comply with The Public Contracts Regulations 2015 and the accompanying statutory guidance.
Developing robust monitoring to ensure that councils in England undertake the ‘market shaping’ responsibilities under the Care Act 2014, and its accompanying statutory guidance.
The risk of a large Carillion-style collapse appears to be low in the homecare sector. However, taking the steps outlined above would increase the stability of the market and provide reassurances to the population that their needs will continue to be met.
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