A complex regulatory landscape

Gill Weatherill, partner at DAC Beachcroft, explains what international investors need to know about Britain’s Care Quality Commission.

Health and Social Care providers in the UK are increasingly familiar with the complex regulatory framework within which they function, and particularly the role of the Care Quality Commission (CQC) as the lead inspection and ratings body. However, this is a less
familiar, and indeed less comfortable, landscape for many US investors.

The CQC is the lead enforcement body in the context of patient safety and quality in the UK, and has a dual role (which some may describe as a conflict) between regulation and enforcement. This potential overlap can cause significant challenges, particularly for international investors. And, while their role in registering, inspecting and providing
ratings to operators in this space is usually well understood, their enforcement and prosecution role is still developing. Consequently, there is a very real risk of prosecution, with the associated financial and reputational risk often underestimated. It is important that international investors in UK healthcare understand the regulatory landscape and how they can mitigate the regulatory risks that they face.

New entrants to the UK market need to appreciate that neither the police nor the CQC work on the basis of any grace period. Therefore, if a new owner takes over a provider with weak governance systems, and an incident occurs on day one post completion, the new owner will carry the risk and suffer the damage.

Proper and detailed due diligence is essential to ensure any skeletons in the closet are exposed and managed.

In a worst case scenario, prosecution by the police is a possibility, and something we expect to see more of in UK health and social care in future years.

Corporate manslaughter charges can be brought against the provider organisation, or gross negligence manslaughter charges against individuals. Various additional criminal charges have also been introduced over recent years, including wilful neglect.

More commonly, we see prosecution direct by the CQC which can cover issues ranging from a failure to obtain proper consent, to a failure to meet duty of candour requirements. However, the standard approach in our experience is prosecution for a breach of Regulation
12, which requires care and treatment to be provided safely. The CQC has repeatedly reinforced in recent months, their intention to continue to increase the level of scrutiny and enforcement via this route.

‘In the rare cases where people receive care that results in harm or death that could have been avoided as a result of systemic failings, we have a duty to explore whether criminal prosecution is appropriate’.

CQC chief executive Ian Trenholm, November 2018

Regulation in practice

In 2016 an English care home was convicted of corporate manslaughter in respect of a death, and an individual director convicted of gross negligence manslaughter. The company was fined £300,000 and the director sentenced to three years in prison. Such penalties
are expected to increase, with some high profile (and likely to be high value) sentencing decisions currently in the pipeline.

It is important to highlight that fines represent only one component of the potential risk to providers, given the reputational damage resulting from a prosecution. Commissioners will
scrutinise ongoing contractual arrangements closely, with the commensurate risk of occupancy in care settings being adversely affected. Intensive scrutiny from the CQC also has a significant impact in terms of resource, staff morale and the costs involved in demonstrating ongoing compliance. Prosecutions are usually long, in the years rather than
months, and the investigation process is draining, resource heavy and damaging to reputation regardless of the outcome. Even where no prosecution ultimately materialises, commissioners may withdraw on the basis of suspicions and concern.

CQC enforcement activity is also not limited to prosecution. We are seeing increased use of cancellation or suspension of registration, or conditions on registration, which again hit bed
occupancy and margins hard. Prosecution may become a marginal concern if the business has folded due to a lack of funding flowing from the restrictions imposed.

This expectation that prosecution will be appropriate in the context of health and social care is a significant cultural change. Whereas ten years ago, prosecution of health and social care professionals would usually be limited to extreme cases of gross negligence
or deliberate harm, criminal investigations into patient safety issues such as pressure sores, choking and failures to identify deteriorating community patients, are now common. Prosecutions have also resulted from cases involving ligatures, medication errors, falls, burns, and entrapment in bed rails.

To demonstrate that services are provided in accordance with Regulation 12, providers need to evidence good practice in key areas such as risk assessment, mitigation of risk, training of staff, provision of safe premises and equipment, proper and safe management of medicines, and timely information sharing with partner agencies. Providers can defend any prosecution on the basis that they took all reasonable steps and exercised all due diligence to prevent the breach, but the onus is on them to prove that this was the case.

The challenge for investors

The challenges can be particularly acute for investors and providers involved in the burgeoning community health and social care market. Government policies such as the Transforming Care Agenda, together with a significant decrease in the number of beds for
mental health inpatients, have created enormous demand for specialist, smallscale
community placements providing home environments which are not institutionalised.

While few would doubt the potential benefits of bespoke community care, the difficulties of managing certain cohorts of patients, for example those with learning disabilities and autism, can be understated. Mental health and behavioural health needs are often
accompanied by co-existing acute health problems, in circumstances where service users may be unable to make decisions for themselves. The clinical challenges of keeping such individuals safe is further complicated by a complex legal framework, which must balance the need to maintain service users’ safety against the legal limitations on depriving individuals of their liberty.

Providers therefore need to carefully manage their regulatory compliance through robust internal governance systems. They need to consider and stress test the adequacy of their
documentation of incidents and near misses, together with the action taken at a regional or national management level to minimise risk and respond to learning. For investors looking at the health and social care market in the UK, they need a clear understanding of the complexities of the regulatory system and the risks involved in circumstances where patient safety is not sufficiently prioritised or protected.

Where an incident does occur, there needs to be a robust response with appropriate support and input to ensure that the legal, PR and financial risks are managed carefully from the outset. Once the CQC, police or other regulators are looking at an incident, it is essential that this is quickly recognised by the provider and managed accordingly.

A strategic approach can limit the damage and positively affect the outcome. This requires careful management of documentation and regulators, preparation and support for staff and keeping control of the process. Well managed investigations can significantly affect the final enforcement outcome, which in turn will protect the reputation and value of the business.

International investors need to be alive to these risks and have robust response plans in place in the event of an incident, to allow them to respond in an appropriate and robust way to protect their underlying investment.