The Casino in the Care Home: How Private Equity Broke the Market

If you discovered that 98.5% of all food poisoning cases occurred in restaurants owned by private equity firms, you would probably stop eating there. You might also ask why the health inspector allowed them to open the kitchen in the first place.

Yet we currently accept this precise level of failure in a sector that is significantly more important than hospitality.

New research from the University of Oxford has landed with the sort of statistical thud that usually signals a major scandal. It reveals that 98.5% of forced care home closures involve for-profit providers. This suggests that the pursuit of efficiency has once again mutated into the pursuit of fragility.

The Mathematics of Failure

The numbers are difficult to argue with. Between 2011 and 2023, the Care Quality Commission involuntarily closed 816 care homes. These were not voluntary exits. These were regulators stepping in because the care was dangerous.

Of those 816 closures, 804 were run for profit. Only 12 were non-profit or public sector providers.

To put this in perspective, for-profit providers operate about 85% of homes. If the market was working as the textbooks say it should, their failure rate would be roughly proportional to their market share. Instead, they account for nearly every single forced closure. We have created a system where one in four homes is now at risk of collapse.

A House of Cards Built on Debt

The problem is not just that these businesses are run for profit. The problem is how they are financed.

Research from the Centre for Health and the Public Interest shows that the largest private equity-backed providers have an average gearing of 75%. In plain English, this means they are mortgaged to the hilt.

The top five private equity-owned providers have borrowed £35,072 for every single bed they own. Consequently, £102 of the weekly fee you pay for your mother's care does not go to nurses or food or heating. It goes to service debt.

Compare this to the non-profit sector where debt costs are just £19 per bed. We have allowed financial engineers to turn care homes into highly leveraged real estate assets that happen to contain elderly people.

The Robin Hood in Reverse Model

The business model is also reliant on a bizarre form of cross-subsidisation that would make no sense in any other industry.

Care homes lose an average of £200 per week for every resident funded by the council. To plug this gap, they must overcharge "self-funders" who pay for their own care.

This creates perverse incentives. It encourages providers to build luxury homes in affluent areas where they can find wealthy residents to subsidise the state's underfunding. It creates "care deserts" in poorer areas where there are not enough rich people to make the maths work.

The result is a fragile ecosystem where providers are chasing the highest payer rather than the highest need.

The Cost of False Efficiency

We are told that private equity brings discipline and efficiency to the market. The data suggests it brings instability.

When these highly leveraged businesses hit a bump in the road, they do not just have a bad quarter. They collapse. Since 2011, we have lost nearly 20,000 beds through involuntary closures.

The human cost of this is unquantifiable. Moving a frail 90-year-old with dementia because the bailiffs are at the door is a traumatic event that often shortens lives.

The financial cost is also huge. When a home fails, the local authority has to step in and pick up the pieces. We are essentially privatising the profits while socialising the risk.

A Systemic Design Flaw

We need to recognise that the current model is a failure of design. We have allowed providers to extract money through complex debt structures and offshore entities while the actual service teeters on the brink of insolvency.

The solution is not just more money, though that is needed. The solution is transparency. We cannot have a sector where 16% of revenue leaves the building to pay interest on loans that shouldn't exist.

As the data shows, 98.5% of the failures are coming from one specific type of business model. In any other industry, we would call that a defective product. In social care, we call it "the market." It is time we stopped pretending this is working.

Key Data Summary

Methodology

This analysis is based on comprehensive research from the University of Oxford, which analysed CQC data on care home closures from 2011 to 2023. The research team received a comprehensive list of CQC-enforced involuntary closures directly from the regulator and linked this to publicly available CQC registration data to explore the characteristics of closed care homes.

Additional financial analysis comes from the Centre for Health and the Public Interest, which examined the accounts of over 830 companies in the adult residential and nursing care home industry, analysing debt levels, rental costs, profit margins, and financial structures.