Joel de Lara

Calls for the Government to step in to bail out Southern Cross Care Homes raises the question: how do we prevent profiteers from corrupting our healthcare system?

Following announcements that the care home operator Southern Cross will be cutting 3,000 jobs and deferring on 30 per cent of its rent to private leaseholders, the head of the GMB union Paul Kenny has called for immediate Government action. Kenny commented: “This is the trigger for the Government to step in with immediate financial support to ensure that Southern Cross continues to operate and continues to provide a home for 31,000 elderly and vulnerable residents looked after by 44,000 staff”.

Southern Cross has been teetering on the edge of collapse since the private equity firm, Blackstone, bought the company in 2004 and proceeded to sell off its nursing home freeholds in order to fund a failed expansion program. As a result, Southern Cross is in the unusual position of not owning its homes whilst also being locked into expensive agreements which guarantee landlords rent rises of 2.5% every year. The problem of the company’s debt baggage of £250 million is exacerbated by the fact that these landlords aren’t all entirely willing to accept the reduction in rent now that Southern Cross cannot afford to pay the full amount.

Even if Southern Cross manages to somehow crawl out of the financial pit it is languishing in, the closure of at least some of their homes looks inevitable (recent estimates are as high as 180 homes). The Government will have to step in at council level in the cases where care homes are forced to close otherwise there will be thousands of elderly people left with nowhere to go. With an industry where the product being traded is an essential social need, opening this industry up to the vagaries of free-market competition entails that the Government has to step-in when a company which holds a monopoly in that market goes bust. The case is similar to how governments across the globe have bailed out failing banks that have gambled with their customers’ money, since the alternative is simply saying, ‘Sorry, the bank has lost your money – tough luck!’ As Ed Miliband put it last week, “Just as with the banks, in the end the government would have to step in and pick up the tab…corporate failure can have consequences far beyond the loss to shareholders and investors.”

That private companies can make vast profits selling healthcare, all the while with the assurance that if they go bust they will be bailed out by government, is surely not in the best interests of the public? The unions representing Southern Cross Care workers certainly don’t think so. But nevertheless, the calls for the Government to step in are increasing. Yesterday, Dave Prentis, general secretary of Unison, said: "The government must step in to regulate the privatised care market.” Meanwhile, in response to Vince Cable’s announcement that the government could or would not bail out Southern Cross, a GMB officer issued a statement saying that “If government can bail out the banks, what about a business that looks after 31,000 of society's most vulnerable people?” The GMB moreover said that given the firm's precarious finances "government is obliged to step in and provide immediate financial support". It seems doubtful that there is a realistic and justifiable alternative for the Government that wouldn’t cause a PR disaster.

This particular crisis ironically coincided with Andrew Lansley’s proposals to further privatise the UK’s healthcare system. Among other initiatives designed to ‘reduce bureaucracy’, and decentralise the running of the NHS, Lansley’s Health and Social Care Bill dressed-up the standard Conservative free-market ideology in the cloak of ‘choice’ and ‘healthy competition’. To prevent the NHS becoming a burden on the government’s reduced budget, and to implement cuts that won’t interfere with the running of the NHS, Lansley proposes that allowing private healthcare companies to bid for NHS contracts, and effectively compete for patients, will result in a better service for patients as the best and most cost-effective companies will secure the contracts and thereby stop the NHS from being a burden on the tax-payer. With increasingly less governmental control of the NHS will come less government spend on healthcare, and a more efficient, less bureaucratic system.

An oversimplified account, of course, but this is the outline in broad brushstrokes, as I see it, of the Conservative’s vision for the NHS. So, what’s the problem?

The problem comes when we hit the inevitable market failures. When there’s a crash with a company comparable to Southern Cross, who has to be there to pick-up the pieces? When hospitals that don’t have enough market-demand, or have failing budgets, have to start closing over the next 5 years who’s going to have to step-in when people have nowhere to go for healthcare? The government will also have to regulate the market to guard against unethical corporate practice and to ensure that private healthcare companies don’t form consortia and instigate unnatural price hikes. When the underlying motivation for providing good healthcare becomes purely the financial bottom line rather than the duty of providing an essential social good, consumer benefits are always going to be secondary to the consideration of profit.

However, you might say, it’s all very well attacking this plan but what else can the Government do? How else can they make the necessary savings and ensure that our healthcare system functions well and in the interests of patients?

I can’t profess to have a well-thought out alternative other than to halt the privatisation and raise taxes to cover shortfalls. I have always struggled to understand the typical Conservative disgust of taxes. France, which is widely recognised to have one of the world’s best healthcare systems – which is also a mix of private and public services – spends 11% of its GDP on healthcare, compared to the UK’s 7%. Through the taxation system, public services are held accountable to the tax-payer, and an emphasis is put upon safeguards to ensure that healthcare providers don’t go bust and drain away the public’s money. We all know that this system has its problems, but it’s surely preferable to the kind of boom and bust that we’re still reeling from in the financial sector?