Also sponsored, to some extent, by New Labour. The creation of Academies involves handing over public assets (land and buildings) to private organisations. Those organisations appoint their own boards of governors. Although the mantra is “pushing up standards” there are no mechanisms for removing the private organisation if it fails to improve standards.

Hmm. How is a provider in an industry which has always been partially outside state control (there have always been private providers of care homes, such as Southern Cross) a model for NHS privitisation? Surely it is instead a model for the market as a whole – certain businesses will fail for whatever reason, but that does not mean whole sectors will fail.

This does not mean the individual care homes will fail – they can be sold on as going concerns (which would be the ideal solution) – but the business as a whole failed. The same may well happen with private providers of any form of health care (and indeed does with dentists – I’ve had it happen to mine (who wasn’t very good)), but I’d be very surprised in this case if the slack was not taken up by other companies (interestingly, there are now three practices in the same area as my former failed dentist) – the actual residents in the care home are worth something to providers, who will therefore make an effort to capture them.

But as per normal, Mr Murphy seems to assume all else is equal – he does not seem to consider the fact that the failure of Southern Cross might mean other providers take up the slack.

Yes – and you do have to be impressed by Labour’s response. Non-compromising, intelligently-judged with a full alternative clearly articulated:

http://www.labour.org.uk/people-worried-southern-cross,2011-06-01

Like the Panorama revelations the substance amounts to nothing at all . Presumably because New Labour helped install these companies, ensured they were lightly regulated and did nothing as greed superceded the warm words of their bid documents.

er, except this happened under Labour…..

Tim Clarke,

er, except this happened under Labour…..

To be fair, Mr Murphy’s rather strange hypothesis does not put blame on anyone for this – merely assuming that this is a model (strange model for anyone to want to follow – perhaps he meant inevitable result in his opinion?).

CItizen Smudge was being sarcastic about Labour’s placefiller of a response (go read it – it’ll take you 10 seconds and leave you none the wiser about what went wrong or what to do).

Watchman

But as per normal, Mr Murphy seems to assume all else is equal – he does not seem to consider the fact that the failure of Southern Cross might mean other providers take up the slack.

As usual the po-faced marketeers focus on the technicalities of their ideology while the poor patients and vulnerable people actually in care can go to hell.

This word “capture” is an odd one. Didn’t Southern Cross start by buying and building care homes? Is that what “capture” means? When firms “capture” an income stream – does that just mean being awarded a contract to provide X services for £Y?

(I think) Southern Cross got in shit after its owners split the property from the care home services side, selling off the property with crazy rent contracts with the care homes side. The right thing to do (I think) is to make clear to the owners of the property that it’s in their interests to accept lower rents. What are the alternatives? Do they fancy trying to sell a portfolio of ex old people’s homes in the current market?

I suppose it’s possible that the future of the NHS might involve whatever organization controls the hospitals deciding to do a sale and leaseback – that sort of deal certainly can go wrong – it depends on 1. how much you sell for 2. what rent contract you agree and 3. what you do with the money you raised from the sale. I suppose if X different NHS trusts (or whatever the right word is) decide to do that, some of them are going to screw it up.

And when there’s scope for directors to pay themselves lavishly after doing deals that looks good short-term but store up trouble long-term, I agree with Murphy (I feel faint) this sort of thing is probably more common than it ought to be. On the other hand, whatever organizations that do end up running hospitals needn’t be so darned stupid.

Luis,

On the other hand, whatever organizations that do end up running hospitals needn’t be so darned stupid.

If there is to be a free market in healthcare, shouldn’t that work to ensure that is the case?

Watchman

Hell no, people do all manner of daft things under free markets, misguided sale-and-leasebacks being common occurrences.

Hell no, people do all manner of daft things under free markets, misguided sale-and-leasebacks being common occurrences.

It’s what brought down Robert Tchenguiz (and mighty good riddance). Sale and leasebacks were all the rage in the mid 2000s

(1) Sale and leaseback is already common in the marketisation of the NHS – PFI often involves sale-and-leaseback, and is modelled on sale-and-leaseback schemes.
(2) Southern Cross is the product of privatisation, and a warning of the dangers of privatisation of social care: Yes there have ‘always been’ private old folks homes, but in the 80′s and 90′s the Conservative government pushed councils so hundreds and hundreds of council homes were closed /sold off. Leaving the (expanding given the ageing population) demand for old folks homes dominated by firms including Southern Cross – the state still pays the fees – the vast bulk of Southern Cross’s income comes from the state. But they take the profit. And when – as now, they run into trouble, the state cleans up the mess. Of course some people do well – like Southern Cross’s half-a-million-pound executives. And the Private Equity firm (Blackstone) that pumped up the size of the firm by selling the leases has extracted itself quite nicely
(3) this is the kind of “any willing provider” model Lansley wants for the NHS. And yes it is also a New Labour -y thing to doo – signified by the presence of Blair’s Minsiter for Women and general enforcer, Sally Morgan , on the board of Southern Cross

So far then the key point is that the income stream does not seem to have been the problem for Southern Cross – it was bad business decisions that brought them down.

Which means there is no disincentive for other companies/entrepeneurs to step into the gap – the loss of a large player in a market is surely a good thing, as the increased competition pushes down prices (unless there are huge economies of scale) and increases efficiencies.

Perhaps though those who see the collapse of providers (but not services) as a bad thing are in favour of stasis and stagnation over change? I fail to see how this works, but still, each to their own.

There’s a piece in the Telegraph this morning pointing out that it’s the landlords who will have to “pick up the pieces”.

By accepting lower rents. Either they do so now, while Southern Cross is still extant, or they do so after it goes bust and they look for other operators to run the care homes the landlords still own.

The Murphmeister seems to be thinking that the bankruptcy of an operating business (which Southern Corss is) means also the destruction of the underlying assets (the care homes).

Which is a very odd indeed thing for an accountant to believe.

The bankruptcy of an individual does not mean we destroy the house he lives in. It means that someone else buys it and lives in it.

Watchman,

the worry (as you probably know) is that unlike, say, an unsuccessful restaurant, which can go bust and people can just eat somewhere else, a failing care home cannot be allowed just to go bust and turf its residents out on the street.

this is so obviously the case, that I cannot believe contracts do not contain provisions for the continued care of residents in that eventuality. I haven’t read about this story in much detail, but it seems to be presented as something that will put the residents at risk, without saying much about what provisions are in place for continued care.

the same goes for the “and the state has to clear up the mess” angle. When you are contracting out a service that you cannot allow to fail, it ought not be beyond the wit of man to anticipate this eventuality and make sure that the failure hurts the private providers and only has a minimal cost for the state. Again, I haven’t read anything about what provisions are in place – are we to suppose none are?. If the state really is so stupid as to sign contracts with private parties that “socialize the losses and privatize the profits” there are two solutions 1. stop outsourcing 2. write tougher contracts.

I think the fear is Tim, that the disruption , moving old folk around , coming from a Southern Cross collapse will lead to dismay and premature deaths of some of the residents. The underlying assets may remain for someone to pick up in the future, but some of the old folk will be too dead to enjoy those assets.

“The underlying assets may remain for someone to pick up in the future, ”

No, the underlying assets already belong to someone else: the landlords. Who will be busting a gut to find a new operator for them. Indeed, if the Telegraph is to be believed this morning, they’re already looking for them.

SC only manage these homes, not own them. They go bust? OK, new management team please.

In fact, it’s not even that: SC really only dfinances the running of them. Sc goes bust, bring in a new financing method and the current management of each home ,the nursing staff etc, will carry on just as before.

Actually, in an odd manner, I’m looking forward to Souther Cross’ imminent bankruptcy (if it actually happens).

Because then we’ll be able to see that, when it’s cleared up quickly and simply, that those who are prophesying Armageddon are talking out of their fundaments.

So, imagine Sc goes bust, in come new financiers and the residents of the homes don’t in fact notice anything at all. How then can Ritchie freeze our blood with stories of how appalling the NHS will become?

I think the fear is Tim, that the disruption , moving old folk around , coming from a Southern Cross collapse will lead to dismay and premature deaths of some of the residents.

As I understand it, that’s not the likely outcome at present. The underlying care-home business at Southern Cross is sound (profitable even), it is the structuring of the leases that is driving them under. As a result, the care-homes are likely to be taken on as a going concern, the leases renegotiated and away we go.

The only difference that the residents will notice will be a change of letterhead.

As one of the few people who will have worked on a sale-and-leaseback project (the doomed M&B one of a few years back), the basic idea is reasonably sound (or at least not always as suicidally daft as people on here are saying). Monetise a non-productive asset.

even if things do go smoothly, reading in the paper about the company that runs your care home going bust is likely to cause anxiety.

people who write alarmist newspaper stories are killing old people!

Luis,

people who write alarmist newspaper stories are killing old people!

Which makes is slightly odd that the Daily Mail’s readership is both old and large…

As to the contract issue, is there a contract between central government and Southern Cross at all? Or is this a lot of separate contracts between individuals, perhaps with government funding for their care, and Southern Cross? Not sure it makes huge difference in the long term (the government might technically have to step in to ensure that provision continues whilst the situation is resolved) but it makes the question of provisions in the contract rather more fun (for lawyers anyway…).

I also note there are people concerned with not disrupting the residents – I am less happy that this has to be a requirement of any government service apart from possibly acute healthcare (and even then they moved the acute patients in my local hospital recently with a lower rate of death than normal days…). Is striving to allow people to stay in the same routine really a benefit to anyone (I know it’s a comfort, but I am not convinced that routine is a good way to encourage well being outside of the odd condition)?

Not all the landlords are known – Birmingham City Council had to go to the land registry to find out who owned some of the homes and in some cases they’re really none the wiser…Radio 4 have been covering it

http://www.bbc.co.uk/programmes/b011jv81#p00h9mgn

Not all the landlords are known – Birmingham City Council had to go to the land registry to find out who owned some of the homes and in some cases they’re really none the wiser…

Can I hazard a guess that the landlords know who they are? If no-one threatens to end the contract for lack of rent payment or the like, then maybe not – but then the problem is rather solved anyway.

It is the landlords, not the councils, who need to take action if Southern Cross go under.

@7. Luis Enrique: “(I think) Southern Cross got in shit after its owners split the property from the care home services side, selling off the property with crazy rent contracts with the care homes side.”

Have you confirmed that query yet, Luis? Because I think it is a significant clue about the viability of the private care home sector.

One long term question is whether other large scale providers have entered into expensive rental agreements. Another is whether global economics or anti-immigrationists are reducing the number of UK care home workers.

So Tim W. You are happy no residents will have to move due to this pile of crap company? And are you sure that no extra public money will be spent on it?
If both answers are affirmative then it is then a matter of seeing how things develop to settle this argument……

There is a difference between NHS , hospitals, GP etc and old people’s homes which is what Southern Cross is, so it’s nothing to do tory plans as NHS privatisation .Even under Labour local authorities sold off there old people’s homes, In 13 years of Labour nearly 70% of Local authority homes were sold and today 86% are private, 10% charity and 4% local authority,and that’s why no one from Labour front beach propose to take this own as a tory privatisation failure as they too believe old peoples homes are best run by private how ever badly and most were a drain of local authority resources when they did have them under there control.

Both NewLabour and the Tories appear committed to the worst kind of privatisation, This totally undermines the principle that a private company can deliver a service for better value, a principle which I think has considerable merit. The issue is that of not checking up on the companies involved and allowing cowboys to take care of frontline services. We’ve seen it with the energy companies, the rail network and now the care system.
By all means involve the private sector but there has to be some sort of quality control in place instead of merely selling to the lowest bidder, which appears to have been the track record of both main parties in the last two decades.
http://outspokenrabbit.blogspot.com/

“So Tim W. You are happy no residents will have to move due to this pile of crap company? And are you sure that no extra public money will be spent on it?”

Certain? No. Although that’s the way I do expect it to play out.

“If both answers are affirmative then it is then a matter of seeing how things develop to settle this argument……”

Agreed.

@ 11 Soloman Hughes

“And the Private Equity firm (Blackstone) that pumped up the size of the firm by selling the leases has extracted itself quite nicely”

A small point, but this is factually incorrect. Blackstone owned Southern Cross from 2004 – 2006. During this time only 3% of the 578 leasehold properties created leases and were sold.

Luis Enrique: “If the state really is so stupid as to sign contracts with private parties that “socialize the losses and privatize the profits” there are two solutions 1. stop outsourcing 2. write tougher contracts.”

Local government is really in absolutely no position to negotiate tougher contracts with the private sector.

Not only do they not have the negotiating expertise (and usually lack funds to hire it), but very often they are not in a position to seriously negotiate. Would anyone be interested in many of these contracts if the risks were not socialised and/or the incomes not guaranteed? Local government does not really have a choice in the matter but to produce a package attractive to potential bidders.

They were effectively under orders from national government to raise capital through this method.

Tim W: “So, imagine Sc goes bust, in come new financiers and the residents of the homes don’t in fact notice anything at all. How then can Ritchie freeze our blood with stories of how appalling the NHS will become?”

I would have thought that depended on Southern Cross not collapsing (i.e. being unable to pay the staff) before negotiations with any new owners are concluded.

It also depends rather heavily on the terms of various contracts.

Does the obligation to house lots of barely profitable Local Authority patients (rather than fewer much better paying private patients) come with owning/leasing the home, or does that obligation vanish with Southern Cross?