Adult social care in the wake of Southern Cross

As published in Care & Nursing Essentials, 8th January 2013.

Following the collapse in 2011 of care home provider, Southern Cross Healthcare, the Government has launched a consultation on a number of proposed measures designed to gauge the financial health of providers. Michael Boyd, head of healthcare at business law firm DWF, examines the proposals and considers their impact.

Key elements of the proposal

The Government is aiming to avoid a repeat of the Southern Cross crisis by:

Strengthening and clarifying local authorities' (LAs) legislative dutiesIdentifying those providers which pose the greatest risk to serviceCreating a system to ensure continuity of care

Local authorities – clarification of duties

Under the proposals, LAs are set to continue to oversee the provision of social care, and will retain their duty to provide care under certain circumstances. The duty of LAs to ensure that - should a provider, fail those relying on it will still receive care - will apply 'temporarily' to both residential and non-residential care, irrespective of how it is funded, where provider failure has led to urgent and unmet needs.

LAs will be expected to have a process in place to ensure there is a diversity of local providers, which can absorb care users should a provider fail. They will also be encouraged to establish effective relationships with providers to allow information about potential failure to be obtained early.

The proposals significantly increase the level of involvement by LAs, looking to them to take a 'market management' role, which has raised concerns that there will be an increase in administrative and legal burden, without increased funding.

Which providers will be targeted?

The proposals focus on larger organisations where failure would represent a serious risk because of their scale, their share of a regional or local market or the specialist nature of the services provided.

The system

The Government is proposing a "light touch" approach, at the heart of which is the provision of information and the presence of robust contingency plans to be overseen and enforced by a regulator.

The system will operate on the basis of four tests:

1. The scale threshold

If the provider meets the scale threshold, it will move into the new proposed oversight system and will be obliged to provide metrics about itself and its business to the regulator.

2. Risk assessment

Once a provider has been identified as meeting the threshold, the regulator will consider whether the impact of its failure raises a serious risk to service continuity, and the likelihood of such a failure arising. Providers at highest risk will then be obliged to produce contingency plans for approval by the regulator and demonstrate how they would ensure continuity in the face of distress or failure (a 'Recovery Plan'). The regulator will then prepare a 'Resolution Plan', identifying measures needed to allow a smooth transition to new ownership should operations be unable to continue.

3. Distress

A pre-agreed trigger point will be identified which will denote whether a provider is in distress and therefore subject to the next stage of the regime, which would include implementing the Recovery Plan.

4. Failure

If the provider fails to recover, it is likely that it will undergo an insolvency process. The regulator would monitor this and oversee continuity of care. Although not mentioned in the consultation document, it is also likely that the regulator would also oversee the delivery of the Resolution Plan.

Provider concerns

For providers, there may be concerns regarding the extent of information that is provided, as well as how its confidentiality will be preserved. Further, some may be concerned that the regulator may interpret this information differently to their funders. This could mean the regulator decides a provider is in 'distress' before the provider actually breaches any of the terms of its agreements with its funders.


The role of regulator will be absorbed by either the Care Quality Commission or Monitor, the independent regulator of NHS foundation trusts, and will require the appointed regulator to be fully resourced if it is to be able to cope with the additional volume of work.

The deadline for responses to the consultation is Friday 1 March 2013.