The care home crisis that long predates coronavirus
PUBLISHED: 17:07 21 May 2020 | UPDATED: 18:44 21 May 2020
2020 Karwai Tang
Just as a recession reveals businesses in bad shape, so this pandemic has exposed the disastrous state of the social care system. IAN BIRRELL investigates a broken industry in tragic turmoil.
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There is little to distinguish Burlington Court Care Home from thousands like it around Britain. It sits in a residential area of Glasgow, a purpose-built red brick building with an enclosed garden housing up to 90 people, many of them elderly and in the twilight of their lives. Inspectors gave it pretty average ratings – far from perfect, but not bad either. Some of the workers were praised for kindness.
But now, it stands out for its tragedy.
Early in April, as coronavirus was spreading across the UK and almost a fortnight after the national lockdown came into force, it emerged that 13 residents of Burlington Court had died of Covid-19 in a single week. It was the moment it became clear that the pandemic was going to cause carnage in British care homes.
This was predictable: we had seen the same horrors emerge in Italy and Spain. But suddenly these fatalities proved Britain was going to suffer the same grim fate. Since then, three more residents have died and at least two members of frontline staff have needed treatment in hospital.
The care home is owned by Four Seasons, one of Britain’s biggest providers which looks after about 10,000 of our most vulnerable citizens. Like other major care companies, it has frantically struggled to contain the disease. Almost 500 of its residents across the country are confirmed to have died from the virus, although the true death toll may be far higher given the lack of testing that is crippling national efforts to restrain the pandemic.
More than 220 Four Seasons staff have tested positive too, and two have died. Overall, recent estimates showed 10,949 people have died in English, Welsh and Scottish care homes due to Covid-19, and there have been more than 34,636 confirmed deaths from the disease in the UK, the highest rate in Europe.
In early May, as public outrage over the number of care home deaths grew, prime minister Boris Johnson said he “bitterly” regretted the fatality rates. Yet it is clear that such was the focus on protecting the National Health Service from being overwhelmed, the social care sector suffered from neglect.
The sector’s poor capacity to cope in a possible outbreak had even been predicted in pandemic planning, according to a recent leak of the 2016 Cygnus exercise report, especially if patients were moved out of hospitals to create space.
“Local responders also raised concerns about the expectation that the social care system would be able to provide the level of support needed if the NHS implemented its proposed reverse triage plans, which would entail the movement of patients from hospitals into social care facilities,” the report said. It found the social care sector was “currently under significant pressure during business as usual,” and that in the event of a pandemic, staff absences through illness added to the threat of widespread infection rates “could be very challenging”.
Even in mid-March, government advice published on its own website claimed “it remains very unlikely that people receiving care in a care home or the community will become infected”. There was a lack of protective kit; one key political source told me the initial reason for these deficiencies was down to the NHS procurement behemoth taking all available supplies as Whitehall lurched into action.
Just as a recession reveals businesses in bad shape, so this pandemic has exposed the disastrous state of the social care system. The problem is frequently stated: a sector hit by austerity, filled with struggling providers, poorly paid staff, and with politicians making empty promises. On the steps of Downing Street in July last year when he took office, Boris Johnson promised a “clear plan we have prepared” for the salvation of the sector and to properly care for every older person in the country. It never materialised.
Yet it is not only the government and deficient state funding that are to blame for the flaws now proving so devastating amid the coronavirus pandemic. This is a sector that has been exploited by corporate giants, using offshore tax havens hidden behind opaque corporate structures. Lurking behind the provision of care homes lies the world of global finance, in which some of the country’s most vulnerable citizens have become a source of profit for billionaire owners, hedge fund operators and private equity barons.
“What this crisis has brought into sharp relief are all the systemic problems plaguing the social care sector,” said Gavin Edwards, trade union Unison’s senior national officer dealing with social care. “It is a perfect storm. Some care providers are big organisations with complex, shadowy ownership and tax arrangements. Some are overstretched not-for profits. Across the sector the work of carers is hugely undervalued. This was the context before pandemic. Now it has become a matter of life and death.”
Social care is cash-strapped. Over the past decade, government spending fell in real terms by about £300 million, despite a 21% rise in the number of citizens aged over 65, while national health spending rose about £26 billion. Demand for support from working-age adults, a group too often neglected in this discussion, surged more than twice as rapidly as from pensioners, partly due to falling mortality rates – the life expectancy for someone with Down’s syndrome, for instance, has almost tripled over the last four decades.
One in four requests for help from vulnerable citizens and their families is now rejected by local authorities. Every exhausted parent of a disabled child (of whom I am one) can tell of constant struggle to access services supposed to support them, often ending in frightening legal fights.
Forget tribal prejudices: some private providers are superb, some state services shambolic. But one consequence governments starving the sector of cash has been a trend towards bigger providers, who use economies of scale to drive down costs – of which the biggest is staffing.
“It is all about sustainability,” said Natasha Curry, deputy director of policy at the Nuffield Trust health think tank. A recent study by the charity Future Care Capital showed the number of homes declined by more than 2,000 over seven years to 15,661 last year, while the average number of beds rose. “Only large care homes – defined as having 45 or more beds – have increased in number,” it said. “This is ultimately a very human crisis, and one that extends into the daily lives of millions of people in communities across the country.”
Slowly but surely, there has been a shift towards housing elderly and disabled people into bigger, often purpose-built places that feel more institutionalised and less like real homes in the heart of communities. Private companies dominate the market as charity provision declines. Bigger firms often focus on self-funders, who pay higher fees (on average £12,000, or 41%, more) than those supported by the state even in adjacent rooms, so there has been a stealthy slide in provision away from poorer areas to more prosperous parts of the country.
And when a virus rips through them, as we are seeing now, the death toll is inevitably higher since larger numbers of the very people most at risk are crammed together inside these units – as has been shown in studies from previous outbreaks of sickness in New York and Hong Kong.
Now look at those major providers. An analysis by Chris Hatton, professor of public health and disability at Lancaster University, found the four biggest providers in terms of revenue – Four Seasons, HC-One, Bupa and Barchester – had the worst English records in terms of inspection ratings for safety among the top 10 by the Care Quality Commission watchdog. “This suggests that the biggest care home chains with the biggest homes and the biggest profits are no guarantee of safety for people living in them,” he said. “Bigger is not, in this case, better.”
This was echoed by Compassion in Care, a pressure group that has been issuing weekly bulletins during the pandemic on whistleblowing concerns. The most recent report listed 108 calls to its helpline from alarmed workers in residential care homes over the past eight weeks, mainly revolving around a lack of staff or personal protective equipment. “The worst are the big companies,” said Eileen Chubb, a former carer who set up the organisation after witnessing abuse of elderly people. “They have a different culture. It is all profit-driven, so everything is done on a shoestring. All we hear is the need for more money but that is just part of the problem – the whole system is broken.”
We knew before this crisis that staff turnover was among the highest in the economy and rising, with almost one-third of directly-employed workers in social care leaving their jobs last year – a clear sign of dissatisfaction.
Many of the gaps were filled by foreign-born workers, who account for about one in five carers nationally, and more than half in London. Among many despairing recent calls and emails to Compassion in Care was this testimony from a distraught care worker: “This is not the place I used to work in, it’s changed so much, the job has changed. It was always hard work but now it is punishing because all I can think of is the people I have been forced to neglect. The company treats staff like s**t on their shoes. They know what is going on but do not care at all. I am out of here. I don’t want to work for people like that, risk your life going to work with no PPE for a company who treats you like s**t.”
Now let us return to Four Seasons, owner of the tragically afflicted home in Glasgow. This provider had come to be seen as the symbol of much that has gone wrong with outsourced care. The group was started by a former hotelier in Fife in 1989, shortly after Margaret Thatcher made councils put social care services out to competitive tender.
It changed hands four times in 13 years among private equity firms in what one think tank called “a pass-the-parcel game where each seller made a profit because the next buyer was prepared to pay more and cover the cost by issuing debt”.
Previous owners include Alchemy Partners, which spent £133m on buying and merging Four Seasons and a second care company in 1999; five years later, after further takeovers, it was sold for £775m to Allianz Capital Partners, part of the German insurance giant, with Alchemy’s boss Jon Moulton calling it “our best deal” that made four times their initial £75m investment.
Four Seasons was traded again in 2006 as part of a heavily-leveraged £1.4bn purchase of the firm’s healthcare business by Qatari-backed Three Delta – a deal that was followed from 2008 by four years of debt problems resulting in 38% ending up with Royal Bank of Scotland.
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In April 2012, Four Seasons was bought for £825m by Terra Firma, the private equity group of financier Guy Hands, who boasted that debt had been reduced. At the time of the takeover, Labour MP John Spellar warned: “The problem with private equity firms is, unlike pension funds, they are usually not in it for the long haul. They want to be in, make a quick profit, and get out.”
But Terra Firma failed to meet interest payments, and so today Four Seasons lies in the hands of a hedge fund called H/2 Capital Partners. This Connecticut-based outfit was set up by Spencer Haber, a little-known financier who made his fortune doing real estate deals at Lehman Brothers, and has a talent for “bagging distressed loans at knock-down prices” according to Guardian columnist Nils Pratley.
This firm, with its ultimate parent company in Guernsey, was described to me by one analyst as “the real big daddy of obscure tax planning and secrecy.” Four Seasons has 181 companies in its complex structure, which stretches from the Channel Islands to the Caribbean by way of the Isle of Man. Latest available figures indicate gearing – the ratio between debt and assets – of 227%, which will almost certainly have grown worse amid the costs of this crisis with extra equipment costs and more agency staff to cover those sick or isolating. Over the five years between 2014 and 2018, the firm had a total turnover of £3.38bn and made operating profits before exceptional items of £74.2m.
Against this backdrop, and despite its high debts, it still managed to hand its highest-paid director almost £2.4m over the two most recent years for which there is published account information – and £10.1m to all its directors over four years. It is currently advertising for care assistants in several homes at £8.73 an hour – 1p above the adult minimum wage.
One source at Four Seasons insisted this complicated set-up was the legacy of changing hands so often and while admitting they paid “limited corporation tax” due to “limited taxable profits” claimed the sums would be even smaller if all its firms were UK registered. “Gearing ratio is not a valid measure of the group’s financial stability as the holding companies for the debt are in administration and the debt is not being serviced,” said the source, adding that they did not recognise the gearing figure. The highest paid director, she added, oversaw “numerous companies in the group and their remuneration relates to their directorships of the company and all its subsidiaries.”
The analysis of these figures was carried out for the Tortoise website by Nick Hood, a senior adviser at insolvency firm Opus, which works with social care operators. He says the sector has £6.4bn of debt, concentrated heavily across the top 75 operators, and found one struggling big provider paying interest on borrowings at a hefty 15% on a big chunk of borrowing. “Debt matters,” said Hood. “If these firms have a lot of debt due to their private equity structures then they can end up paying very high rates. Private equity firms load up debt, cut costs, take management returns on their share capital and then sell on.”
So why did financial titans move in on this sector? The answer, according to Hood, is simple: “They were dazzled by demographics.” Analysts predicted that as the wealthy generation of baby boomers aged, the market for residential care would expand dramatically. They saw a near-certain bet: essentially a property play with many new buildings in nice areas, yet as demand rose their expectation was that prices would also rise. They did not anticipate the arrival of austerity, which led to a sharp reduction in the fees they could charge from local authorities – and then they found this loss of income could not be entirely offset by raking in more from better-off residents. Some big gambles failed – such as Terra Firma’s £825m punt on Four Seasons.
This fuelled pressure on self-funders. One woman told me she had seen fees at a home for her mother in north London rise from £1,023 a week in 2017 to £1,440 this year, a hike of 41%, while local authority fees in the same home run by one of the biggest operators are largely unchanged at £992. “This discrepancy got worse as the fees increased at ludicrous rates. We can accept a discrepancy but not that large,” she said.
These problems have been highlighted in a Nuffield Trust article that points out fees paid by councils have failed to keep pace with costs, leaving poorer areas hit hard by closures. It says the crisis has “shone a light” on the complexity, fragility and lack of understanding about this sector. “There are rapid changes in the market – with frequent entry, exit, mergers and acquisitions – making it difficult to maintain an overview of the financial health of the market.” Yet, as the authors note, the CQC only oversees the financial health of about one-quarter of the market – effectively the biggest firms.
HC-One is another major player, with £321.9m turnover. It was founded by Chai Patel, a former Labour party donor who recently stepped down as chairman but retains a big stake. Previously he set up the Priory mental healthcare group, now owned by Acadia, a massive American firm which also takes huge sums from the state yet has been at the centre of concerns over fatalities and poor services in mental health provision.
Recently-filed HC-One accounts reported pre-tax profit of £1.95m with £6m paid to shareholders in dividends and an £809,000 pay package handed to its highest paid executive, up from £469,000 the previous year. It recently appointed Sir David Behan, a former head of the CQC watchdog, as its executive chairman.
The firm, which has suffered Covid-19 outbreaks in about two-thirds of its 238 care homes with more than 1,000 deaths linked to the disease, warned earlier this month that reduced occupancy, extra funding for equipment and higher staff costs were fuelling pressure on its finances. These are, however, hard for outsiders to unravel when it has an opaque structure of 62 companies under an ultimate parent company called FC Skyfall in the Cayman Islands, along with 17 more companies registered in this secretive tax haven. Delve into these and you find payments such as £5.43m over two years in “transaction and management fees” from a firm called FC Skyfall Holdings SVP – 10.7% owned by Patel and his family – to Court Cavendish Ltd, which is 90% owned by Patel and his family.
HC-One says it has invested millions into improving the quality of its homes. “Our group structure is in line with most others in the care sector,” said a spokesperson. “We have made no shareholder dividend payments since 2017 and pay an asset management fee of just 1% of revenue. We own the majority of homes we operate, and our debt is therefore modest in comparison to our assets. Moreover, HC-One is a committed UK taxpayer and all our income is subject to UK taxes.”
Professor Bob Hudson, from the Centre for Health Service Studies at Kent University, believes there should be far greater transparency over the ownership of any firms receiving public contracts along with stronger control by commissioners. He talks about “a widespread delusion” that we can separate out austerity from greed when looking into the corrosion of social care in recent years. “There is a deep irony in hearing these big companies say they will go out of business if taxpayers do not give them more money,” he said.
He was backed by Liz Kendall, Labour’s shadow care minister, who said risks tied to big providers had been obvious since the collapse of Southern Cross, once Britain’s biggest care home operator, in 2011. “The issue of care home companies being too big to fail has arguably increased,” she said. “The complex and opaque financial structure of some care companies is a real cause for concern. It is right the government supports social care with extra funding during this crisis. But any company that fails to pay their fair share of tax in the good times shouldn’t expect help from the public purse in the bad times.”
About half the £15bn income in the social care industry comes from the state, with the remainder paid by self-funded residents. A report last year by the Centre for Health and the Public Interest examined the finances of 830 adult care firms and estimated that one pound in every 10 of this income ‘leaks’ in the form of rent, profit, fees and debt repayment rather than being spent on frontline staff and services. This leakage was twice as large in the 18 biggest providers – and much of the money ended up with owners, or firms closely linked to them. It was pointed out, for instance, the cost of debt per bed for the five biggest private equity-owned care home providers was 16% of average weekly fees, while 18 of the 26 biggest providers had corporate structures that separated the firm running homes from the firm owning the buildings. By unfortunate coincidence, the estimated leakage of £1.5bn identified in this report is the same sum as the government pledged to start rectifying difficulties caused by the imposition of austerity.
Certainly it would be foolish to condemn all their services. One prominent analyst told me his own sibling, who suffers from dementia, was in a care home owned by HC-One. “It is a very nice home although the fees are crazy and her savings running out, so we are getting to the point when we will need to go for help to the council. The staff are wonderful, although no doubt paid a pittance,” he said. “I am not against private providers but we need to get ethics back into the care sector.”
Like many other firms in a sector with about 122,000 job vacancies at start of this year, HC-One is searching for carers amid a crisis that has caused more than 700 deaths in its homes. Its recruitment advertising talks about a firm that values kindness and recognises the need “to rally together”. Yet while that highest-earning boss was awarded a £340,000 pay rise over the previous year, many frontline posts offer minimum wages of £8.72 an hour or marginally higher. Senior staff “planning and implementing the kind of care that will give our residents a real sense of security, dignity and independence” are offered £9.22 an hour. It does at least work with unions, unlike some others that actively prevent staff from organising.
Barchester, another care behemoth that saw a tragic 1,200 deaths in its homes last month due to Covid-19, is owned by three prominent Irish billionaires – Dermot Desmond, JP McManus and John Magnier – through a parent company in Jersey with 72 other firms in its structure. Latest accounts show the highest paid director was handed remuneration of £915,000, a rise of £213,000 over two years. A spokesman said they ran two homes in Jersey while structural complexities were due to legacy, acquisitions and development of new properties. “Our CQC rating has never been higher,” he added.
CareTech is less well-known, operating under a variety of names, but has become the biggest provider of foster care and children’s homes while also running services for adults. Its two founding brothers, Farouq and Haroon Sheikh, who began with one property, collected pay packages worth a combined £1.7m last year with bonuses that doubled their salaries. Their family took home another £1.48m in dividends as revenues doubled and profits surged to more than £50m. The firm has declared that the pair will each get another £50,000 on basic pay – all while hiring vital night staff on minimum wages.
There are many more such firms. Former pharmacist and Ferrari race driver Phil Burgan built the Maria Mallaband group – named after his grandmother – into a chain of residential homes for the elderly after buying his first two places in 1996. He talks about social responsibility and argues that “the government has to pay for the true cost of care” through something drastic such as a 1% levy on national insurance. Accounts show the highest-paid director in this private firm has collected £4.64m over the past five years in pay packages.
Clearly some people are making good money. Another expanding group is Achieve Together, which snapped up three firms in six months under the ultimate ownership of a global investment operator, AMP Capital, through a firm based in Luxembourg called AMP Capital Investors (European Infrastructure) No 5 S.ar.l. Bupa handed its two top earners more than £4m in remuneration. A spokesman argued the UK “aged care business” represents just 3% of global business in terms of revenue.
Then there is Runwood Homes, set up by property developer Gordon Sanders in 1988 and running 72 care homes. It has just filed accounts showing turnover rose 7.3% to £139.6m and profits increased almost three fold to £11.5m. The highest paid director was rewarded with £3,031,804 remuneration. Yet even this impressive sum was dwarfed by the £17.2m – which included long-term incentive payments – handed the previous year to a former managing director.
He resigned in June 2018 after an investigation condemned the “horrific catalogue of inhuman and degrading treatment” at one of its homes in Northern Ireland. The company later apologised. Runwood Homes did not respond to a request to comment.
On the frontline, many staff feel betrayed by their bosses. One worker called Sheila (not her real name) told me she adores her job as a care worker. “Some of the people here are so interesting and they love to tell me what they’ve done in their lives.” It is tough work, of course, tending to elderly men and women with dementia and other debilitating conditions in a care home close to London. The pay is barely above minimum wage, despite spending more than a decade developing the arsenal of skills to assist, protect and soothe fragile patients with declining facilities in the twilight of their lives. But as she says: “It is nice to be able to make them laugh, to make their day a little better.”
She was frightened when coronavirus struck the country. Staff at her medium-sized care home owned by a major operator had only basic protective equipment – “those flimsy aprons and thin gloves” – but she and her colleagues followed official advice so far as possible. “Of course you can’t do social distancing as a carer because you are working up close and very personal with people, even showering and dressing them.” But they took care when travelling, stayed in at home with their own families, changed clothes at work, shut down all outside visits.
Soon after the virus began ripping through Britain, one resident fell ill and went into hospital. The elderly woman returned after a few days, so they put her in isolation and carried on with their duties, simply changing aprons after spending time with her. “Management later told us this was a dummy run and that we had failed,” said Sheila, clearly still annoyed since staff followed advice but were given no extra protective kit. “It was the management that failed. We were never given any rules for hospitalised residents.” Her team has now been given boxes of paper masks, although the elasticated string hooking round their ears often breaks. “It’s just like the cleaning gear – always the cheapest possible supplies. It is scary but we’ll do our best for the residents.”
In Italy and Spain criminal investigations have been launched into care home deaths. Steve Broach, a barrister specialising in disability cases, believes there may be a flurry of legal claims after this crisis under human rights legislation protecting the right to life. “These firms have to be compliant with their duties and if there has been any unlawful conduct they can be sued. I hope there are some cases because it will help to shine a light on what has happened in care homes.”
Care England, which represents independent providers, said it was too busy helping its members to discuss the issues raised in this article. The group has several representatives of big firms on its board, while its directors include executives from Barchester, HC-One and Priory Group. But chief executive Martin Green reacted angrily when Nick Robinson, the BBC Radio 4 Today presenter, suggested recently that it was a “front organisation” for billionaires and millionaires buying up care homes to extract huge profits. “That is totally untrue,” he said, adding that one large player had just told him its bill for protective equipment had risen from £200,000 to £2.7m in this crisis.
“It is very easy to make a swipe at investors but let me tell you there has been no government investment in new services in the last 30 years in the social care sector. It’s completely a noises-off moment for you to talk about this in relation to anything other than our focus which should be on Covid-19 and making sure that services are supported by the government and by the rest of society. I absolutely refute your suggestion it is all about profit,” Green said, while suggesting that there should be a reappraisal of social care after this crisis.
But let us return to Runwood, running 72 care homes and profits of £11.5m, which like others in this beleaguered sector is searching hard for care staff at its homes from Armagh through to Warwick amid this pandemic. It offers recruits barely the minimum wage, while even experienced team leaders looking after old people suffering from dementia will earn just £10.35 an hour. In the eyes of this firm, one top earning executive is worth almost 200 carers. Even now. Even in this deadly crisis.
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