Overseeing the Care Market – what can the state do?

In these troubled and uncertain times the relationship between the state and the market remains contested, uncertain and fluid.

For a micro study in the contradictions and complexities of the state’s relationship with the market I recommend a recent discussion paper produced by the Department of Health on the social care market following the high-profile collapse of Southern Cross.

Read with a critical eye it exposes the real political dilemma of those that see markets as the best way to stimulate innovation, create choice and drive up quality but who also seek to mitigate the negative consequences of market activity – overcapacity, imperfect consumer knowledge, unbalanced risk transfers and the high social costs of commercial failure.

The paper seeks contributions from experts and interested parties to a debate about how the market in care services can be maintained whilst protecting older people and adults with care needs. It makes clear that the Government does not want to impede the normal functioning of the market in this sector which sees services and homes opening and closing on a regular basis. It is not the Government’s intention to increase the regulatory burden or add unnecessary costs to providers.

Yet social care is a complex industry; diverse, jargon-filled and containing a fluid mix of not-for-profit, small owner-operated businesses and large multinationals. There is residual local authority provision but over recent years the private sector has come to dominate which a great deal of consolidation taking place particularly as the market tightens through tougher public expenditure.

However there are real issues of safety and exploitation that have to be managed in this sector. Choice needs high levels of information and ready access if it is to drive an open market but older people and their relatives and friends typically have little understanding or information about the way the care sector works. Deciding on care options and chosing a residential or nursing home are huge life-changing decisions which most of us might never face, and as past reports by regulators have shown, when faced with the need for care and support many make poor decisions about the style and cost of residential care.

For most people entering a nursing home it is a one-way journey. The state only provides a minimum of financial assistance, and none for people with assets above £23,000. With the costs of residential care typically ranging from around £600 per week to above £1000, people with assets will be forced to sell their homes in order to pay. The financial and social risks associated with these decisions are therefore monumental and quite unlike any other choice people make over their lifetime. Having chosen a residential or nursing home option residents are highly vulnerable to changes in business practices, ownership and business models made by their residential provider. Given the frailty of many residential home residents these changes can have irreversible consequences.

The paper floats a number of possible ways in which market failure might be avoided or managed better in the future. These range from activating the wider role for Monitor contained in current legislation, through to better market monitoring and financial oversight by local authorities. It highlights other industry examples that might be adopted by the sector including the regulation of the energy sector, risk pooling such as the ATOL scheme that operates in the travel industry and the recovery and resolution plans being made by the banking industry to avoid the “too big to fail” condition.

However, it is noteworthy that the paper suggests that this regulated market should only concern itself with the largest providers on the grounds that the collapse of major suppliers like Southern Cross provide the greatest distress to the largest number.  I would hope that this presumption is challenged by those that respond to the discussion paper. Unthought through it could create a framework that did the worst of things – protecting those that were too large to fail whilst condemning those that are too small to matter to an unscrutinised backwater.

At the same time, and interestingly, the paper confines itself to considering the ways in which the collapse of private sector providers might be mitigated. In this it rather makes the case for not-for-profit providers since it is implied that the charitable and co-operative parts of the sector are less prone to the dubious management practices and market volatility experienced by large private providers. This is largely a supportable contention. At the same time it proposes no change in the statutory responsibility of local authorities in overseeing the provision of care for the most vulnerable. Whilst no longer a direct provider of last resort the local state is still nevertheless the final guarantor of continuity of care for those at risk.

This paper provokes some really interesting questions and could stimulate a really fertile and challenging debate about the virtues and disadvantages of a managed market. It may have wider application than merely that which pertains to care. For my part I wonder if there are already some of the solutions before us. Models that are based on co-ownership, stake-holder capital and personal budgets may provide ways in which the huge expenditure on care by residents and the state buys more than a temporary presence in a transitory enterprise. Ways in which long-term rights and a genuine pooling of risk between citizens, providers and the state need to be created. This will provide the long term stability and quality that frail elderly deserve.

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