Adult Social Care ‘Financial Health’ Monitoring by CQC: Market Oversight or Market Intrusion?

Topics covered: Ridouts professional advice

The new market oversight scheme, introduced in the Care Act 2014 (‘the Act’) and due to be introduced by the Care and Support (Market Oversight Criteria) Regulations 2014 (the ‘Regulations’), will create a new regulatory duty for CQC from 6 April 2015 to oversee and monitor the financial health of ‘difficult-to replace’ providers of adult social care services (both domiciliary care agencies and residential homes) in England. On 29 January 2015, CQC published its draft guidance on Market Oversight for consultation. This Ridout Report will explore the purpose of the scheme, who will fall within the scheme, what it means in practice, its effect and the scope for seeking a review, as set out in the draft guidance.

Purpose of the market oversight scheme

The scheme comes in the wake of Southern Cross, when in 2011 the largest national adult social care provider collapsed and thousands of people across the UK risked losing their care service. The government’s aim is thus to create a strong system to manage situations like this.

Who falls within the scheme

CQC will be monitoring the performance and finances of ‘the most significant social care providers’ in England. Any adult social care providers of a large size is included, as are those who are particularly specialist or concentrated in one area, such that if they failed they would be difficult to replace.

What the scheme means in practice

Sections 53 to 57 of the Act introduce CQC’s market oversight duties. These are:

  • Determining whether criteria apply to a provider and informing them that they do
  • Assessing a provider’s financial sustainability
  • Informing local authorities where business failure is likely to mean a provider will be unable to continue to deliver a service
  • Acting proportionately and minimising burdens on others

According to CQC’s draft guidance for providers, published in January 2015, there is a ‘6 stage approach’ to the assessment of financial sustainability, which sets out how CQC would deal with a situation in ascending order of seriousness. CQC will be limiting their reporting to local authorities, at stage 6, when a potential business failure is likely to cause a regulated activity to cease or change. It will not be providing an ‘external commentary’ on potential risk on their website as this could bring on failure and put vulnerable people at risk.

The stages are as follows:

  1. Entry to the scheme

Residential providers will need to have a bed capacity of at least 2000 in England, or between 1000 and 2000 with at least 1 bed in 16 or more local authority areas or between 1000 and 2000, with capacity at more than 10% of the total capacity in at least 3 local authority areas. Non-residential providers must provide at least 30,000 hours of care per week in England, or provide at least 2000 people with care in England or provide at least 800 people with care in a week anywhere in England and the number of hours of care divided by the number of people cared for is more than 30. For example, if 900 people receive care in a week then more than 27,000 hours of care must be provided in that week.

The Department of Health  (DH) is also going to set up a panel of experts to make a recommendation to the Secretary of State for Health about any specialist provider they feel should be included in the scheme. Any providers brought into the scheme via a recommendation to the Secretary of State will need to be specifically named in the regulations.


  1. Regular Monitoring

CQC will be asking for information at an initial ‘Business Context Meeting’. They will be seeking ‘business context information’ on the organisational structure, financing structures, property ownership, shareholders and any other information necessary to understand the business. They will also be seeking ‘financial information’ on entry to the scheme. Providers will need to provide information on financial performance for the previous 12 months. On entry and then annually afterwards, the annual budget for the year will need to be provided, split into quarters. Following entry to the scheme, providers will need to submit information covering performance over the previous quarter on an on-going basis. Providers will have 6 weeks following the end of the previous financial quarter to get the information in to CQC. This will need to be submitted via a ‘Financial Oversight Submission Template’ available on CQC’s website. Additional information on profit and loss and profitability will also be requested.

  1. Further Risk Analysis

This information will be used to calculate a set of risk indicators based on operational issues, trading trends, the level of debt, debt payment and qualitative risk questions. There will be at least 4 key engagements with CQC every year, namely one annual financial review meeting and three meetings on quality performance, though the frequency of these meetings could increase depending on the circumstances of the case.

  1. Provider Engagement on Risk

Where the review of evidence at stage 3 proves inconclusive or identifies alarming financial sustainability risks, CQC will arrange a Risk Assessment Meeting. If the provider addresses CQC’s concerns, they will go back to stage 2 and continue to be monitored on a regular basis. If the risks are confirmed but under management control, the provider will remain at this stage. If there is the potential for the risks to escalate then the provider will move on to the next stage.

  1. Regulatory Action and Engagement

CQC will seek assurance that the provider has the continued support of lenders and shareholders. There may be meetings with them. If there needs to be a debt re-structure, CQC will shadow the negotiations it has with lenders and / or landlords. CQC state that they ‘will never engage with any stakeholders without the provider’s consent’. However, it is not clear what will happen if consent is not given. CQC’s guidance states it is not for them to be involved in any commercial decisions, except to the extent that it impacts on continuity of care. However they may seek an ‘Independent Business Review’ of the provider and request that the provider compiles a ‘Risk Mitigation Plan.’ The costs of both will be borne by the provider. The provider will also be asked for the postcodes of all people cared for in their own homes to identify local authorities should notification be required.

  1. Formal Notification to Local Authorities

Section 56 of the Act requires that CQC inform the local authorities that would be required to carry out the temporary duty to ensure continuity of care, in the event that CQC are satisfied that a provider is likely to become unable to carry on a registered regulated activity because of business failure. ‘Business failure’ is defined in the draft Care and Support (Business Failure) Regulations 2014 and includes businesses needing to appoint an administrator or receiver and winding up or bankruptcy orders being made. The condition will be regarded as having been met when such events happen to any legal entity within the wider corporate group.

The provider will have the opportunity to review the content of the notification before it is shared with the local authority, to ensure that it is based on all available facts. The notification will remind local authorities that the information is highly sensitive and not to be shared more widely by them. CQC may share the information with other relevant organisations such as NHS England, the DH or relevant CCGs and regulators. CQC state that they will be reminding organisations that the notification is of ‘likely’ failure not ‘actual failure’ because of the risk that if the information is not handled appropriately, the sharing of a notification could itself pre-empt failure.

Local authority duties to step in to meet the needs of service users pursuant to section 48 of the Care Act will only be triggered when a service has closed following the business failure of the registered provider.

The Effect of the scheme

The scheme will involve close scrutiny of large and specialist adult social care providers.  In addition to having to provide the information set out above, and being prepared for stakeholders, lenders and possibly other external stakeholders to become involved in the process, all providers in the scheme will be allocated named strategic, financial and operational leads by CQC.

The consultation adds that providers of a significant scale that do not meet the criteria for Market Oversight will be assigned an operational and strategic lead for ongoing engagement with CQC on issues of quality performance. The criteria for being a ‘provider of significant scale’ are not set out in the draft guidance.

Scope for seeking a review

Providers have 28 days from the date of the letter notifying them of their inclusion in the scheme to seek a review. For providers meeting the standard criteria, reviews will be on the basis of factual accuracy. Decisions will be made within 28 days of the request being made. This decision will be final. Providers will need to continue to comply for requests for information pending the decision.

For those providers who have been included on the scheme by a specialist panel, they will be informed of the decision by the DH. They will also have 28 days to make objections. They will not be subject to the regime during this period, so will not need to comply with requests for information. The Secretary of State will make the final decision, by reviewing the new proposed list of providers together with any further evidence and objections from the providers themselves.  If the Secretary of State does decide to put them on the scheme, the DH will inform them as to the date when they will become subject to financial monitoring by CQC.


The new scheme is potentially highly intrusive. Financial oversight of private ‘for profit’ providers of adult social care has never been carried out previously by a public body so we are entering uncharted waters with the introduction of this new scheme.

CQC are holding a live Q&A session on Market Oversight on Monday 16 February (1-2pm) which we would encourage you to participate in. They are also consulting on the draft guidance. This consultation closes on 20 February 2015. We would encourage all providers, but especially those who are likely to be personally affected by the scheme imminently, to respond to the consultation.

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