Posted by Nicola Cutler, Associate
Insolvency in the health and social care sector – what service providers need to know
Between 2010 and 2016 over 380 care homes, ranging from single site to national operators were declared insolvent, with many more at risk due to their financial health. As the tipping point in the funding crisis in the health and social care sector approaches, service providers need to be aware of and understand the law and regulatory framework surrounding insolvency.
The current situation
We have all seen the recent headlines surrounding the financial crisis in the health and social care sector and nobody can say that they are just tabloid scaremongering tactics; things are rapidly reaching the point where they are ringing true. The staffing crisis, including shortages, uncertainty about migrant worker status, the national living wage and regular reliance on expensive agency staff is one of the significant contributing factors to the funding situation. The government is being urged to address the immense challenge of finding a sustainable way to deliver and pay for health and social care in the future.
The latest fiscal sustainability report from the Office for Budget Responsibility, published on 18 January, warns that healthcare costs will continue to rise across the board and will be one of the chancellor’s greatest challenges in the next budget, having overlooked the crisis completely in the Autumn Statement.
Understanding the risks
Compounding the issue of rising costs and staffing shortages is the risk that suppliers will simply decide to withdraw from the industry or refuse to work with care homes who are struggling to meet their debts. Getting a reputation as a ‘bad payer’ can have an immediate and damaging impact on a provider’s ability to get credit from suppliers, including staffing agencies, and it is not uncommon for suppliers to pull the plug at a critical time.
It is then not hard to see why under-funded care providers are unable to maintain a high standard of care, which is something that will soon come to the attention of the CQC.
As a care provider, if you do reach breaking point, when you are simply unable to meet the costs of providing your services, those in charge need to be aware of their personal obligations both as company directors and responsible individuals. Beyond the point that a company becomes technically insolvent, continuing to trade can put the directors and managers at risk of personal liability.
Having a limited liability company will protect directors if the company fails, provided that they have acted properly and in a timely manner. In addition to the duties of company directors, as a care provider you have duties under the Registration Regulations to ensure the financial viability of continuing to provide services for the benefit of the residents, in a manner that will meet the requirements of your registration. This focusses on viability, rather than profitability, meaning that the CQC’s overriding concern is any impact on the quality of service provided rather than the loss of profit.
In the event of formal insolvency action, or when any insolvency action is proposed, the CQC must be notified. During this time, the company concerned will continue to operate the care home(s) and the relevant registrations will remain in place. The outcome, and the continuation of CQC registration, will depend on how the insolvency is resolved.
Failure to do so could lead to investigations and claims by the company’s liquidators and the CQC.
How we can help
Finally the most important thing to consider as a provider facing financial trouble is securing the on-going care for residents and service users should you face insolvency. Seeking advice for your situation as early as possible will be the best way to ensure you can deliver a safe and effective service for the benefit of your service users and your business.
If you'd like to know more regarding the laws and regulations surrounding insolvency in the Health & Social care sector then get in touch with us now
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