Government proposes tough regulation of care home finances

Topics covered: Ridouts professional advice

The government is considering a series of measures for residential care homes following the collapse of Southern Cross.

The proposals were revealed on Monday in a formal government discussion paper and include requiring companies to post capital upfront as a condition of their licence, and giving councils and regulators the power to intervene in the management of homes if they come under the threat of closure.

The proposals have been described as similar to the existing regulatory framework for NHS foundation trust hospitals. Under that regime, trusts must maintain predetermined earnings before interest, tax, depreciation and amortisation, liquidity and return on asset ratios, or else risk formal intervention by Monitor, their regulator, which may remove the trust’s entire board.

This could mean that a privately run business would have to undergo a “more rigorous financial check” as a condition of their licence.

The business’ financial position would be reviewed either periodically, or after significant changes “such as a securitisation or highly leveraged transaction”.

The paper suggests that in the “event of persistent financial weakness” the regulator could intervene and ultimately remove the licence to operate.

Such proposals are still under consideration, with ministers consulting on whether existing licensing requirements could be changed to “make sure that a care home cannot close suddenly, for example, by posting capital upfront in a segregated account or through a risk-pooling scheme”.

In a written statement to the House of Commons, Paul Burstow, care minster, said: “At this stage the government has not formed a firm view on what would be the best approach. It wants to take this opportunity to hear different views, before settling its position ahead of next year’s white paper.”

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