Four Seasons’ Chief Executive reflects on Southern Cross collapse, along with current constraints faced by the care home industry, such as increased intensity of inspections by the care home regulator CQC.
The Guardian Newspaper has published a fascinating and candid interview with Pete Calveley, who is the Chief Executive of Four Seasons Healthcare – the largest privately run care home group in the UK. The group operates 445 care homes and 61 hospital and specialist care units across the entire of the United Kingdom.
Calveley, who is a qualified doctor, and has been Chief Executive since 2008, speaks of the 20,000 care home residents within Four Seasons’ homes and the 30,000 staff that work for the organisation. Also, he reflects upon the type of care that his organisation provides and, due to the large amount of nursing care provided by Four Seasons’ home, the organisation has a lower number of self-funders to help bolster finances.
In the aftermath of the collapse last year of Southern Cross, which was then the biggest care home chain, speculation grew that Four Seasons could soon follow because of the debts it had built up during its rapid expansion. This summer, however, the company was taken over by private equity firm Terra Firma in an £825m deal partly underwritten for up to eight years by Barclays and Goldman Sachs.
“We have now got in place a stable long-term capital structure that means we have got confidence in our position,” says Calveley, noting that even the most vocal critic of the company’s financial arrangements – the GMB trade union – has gone quiet.
The now collapsed Southern Cross group managed 45 care homes that were owned by Four Seasons. Calveley, who has now taken those homes back in Four Seasons’ control, had a fair idea (as the landlord) of the state they were in, but the condition of the other 95 care homes he took over from Southern Cross after its demise left him shocked. He had budgeted £7m to spend on their capital refurbishment.
This may suggest that Southern Cross’s problems were not wholly caused by financial implications, such as crippling rent rises on its homes, as it has been widely assumed.
“It had low and falling occupancy rates and the reasons for that were issues regarding quality assurance and operational performance,” Calveley points out.
The occupancy rate of Four Seasons care homes is, on average, a healthy 88%. It is important to note that almost 80% of its beds are for providing nursing or specialist care, compared with fewer than 50% in the sector as a whole. This means that Four Seasons attracts higher fee rates. Also, the company very much influenced by the public spending squeeze on health and social care, as 80% of its residents and patients are state-funded, compared with just under 50% in the wider sector.
Care costs are rising by 4% a year, Calveley says. Yet this year, state fees received by Four Seasons have on average risen just 0.6%. Last year, they dropped 0.5%. As a result, the company’s operating profit margins have been squeezed.
He cites a recent example of the kind of cost-cutting taking place. Providers of high-dependency care across London have, he claims, been given an ultimatum by the joint NHS primary care trust (PCT) commissioners: accept a cut in the set weekly fee rate from £770 to £700 or drop off the “preferred provider” list for 2013-14.
“This isn’t commissioning; it’s just pricing,” he says. “They don’t care what happens to the clients, clearly, or what their needs are. They are just prepared to pay 10% less. And that’s not untypical.”
Four Seasons has also noticed an increase in the intensity of inspections of Four Seasons homes in the wake of the Southern Cross affair and other controversies. In 2011, he says, 45% of the company’s homes were visited by the Care Quality Commission; this year, they have all been visited at least once and 20% have been visited twice. Not all homes were fully compliant on all inspection points, he concedes, but the overall picture of 83% compliance compares favourably with that for the sector as a whole – especially as the Southern Cross homes brought with them 12 “major” concerns.
While he has no objection to this intensity of inspection in principle – he insists he welcomes outside scrutiny – he wonders aloud whether NHS units, in particular, are being inspected quite so frequently.
Like most of the bigger care home operators, Calveley regrets the passing of the old star ratings system for care services in England, and is delighted at the recent announcement by health secretary Jeremy Hunt that he wishes to bring back some form of external assessment of quality as well as compliance.
“I thought [star ratings] was a most powerful way to encourage providers to take a good look at their services against an external, objective benchmark,” Calveley says. “It was a fantastic internal tool.”
Smaller operators who were hit by a one- or zero-star rating under the old four-grade system might be less enthusiastic. But Calveley thinks the care sector needs to consolidate. Although it is the biggest chain, Four Seasons accounts for just 6% of the £15bn UK care market; the five largest providers together account for only 20%.
Four Seasons had a 40% growth in capacity last year, including the Southern Cross deal and the acquisition of the Care Principles group, and sector analysts predict that it is poised to expand further. But Calveley insists he is not anticipating major change in the market in the short term.
“I do believe that consolidation is the logical next step for the market,” he says. But in the meantime, before that happens, I can see a lot of pain.”
He predicts that many smaller operators that lack the economies of scale to absorb further fee cuts, as Four Seasons is doing, will struggle to survive.
Source: Guardian Newspaper