Is Allied Healthcare A Warning For The Rest Of The Care Industry?

Allied healthcare has pressed the button to summon help and shelter the company from creditors.

My first encounter with Allied Healthcare was a very long time ago. So long ago in fact that the business was called Allied Medicare, the logo was a quaint line drawing of a ‘lady with a lamp, channelling Florence herself no doubt!

My Mother was an RGN (Registered General Nurse), she signed up to work for ‘Medicare’ as it was universally known back then and enjoyed the experience immensely. The freedom to work when and where she wanted, the weekly pay, the luxury of being able to say ‘no’ to shifts, and instead say ‘I’m spending the weekend with my family’ all added to the positive experience.

Of course this was a long time before the VC’s and Equity Funds got involved in running care businesses.

Allied Healthcare was started by a married couple in the Midlands, they built the business into a well-known brand with branches throughout the country. They employed trained nurses in what was effectively a franchise operation, but without an up-front franchise fee.

It was a much copied model and it worked extremely well for a long time.

Allied was sold to an American corporation in the late 1990’s. It’s probably true to say the American firm didn’t really understand what they’d bought. For them it was a bridgehead into the UK, and then Europe, they possibly had ideas of using it to bring staff into the US, the US, like the UK now, was critically short of trained nurses.

It became pretty clear that what they’d actually bought was not a vehicle to further their US ideas, but a very efficient and cash rich business which, after the collapse of the BNA (British Nursing Agency), a leading competitor, became the UK’s market leader in temporary nursing and care services.

Eventually Allied was bought by Saga, the company best known for supplying holidays, insurance and other services to the over 50’s.

For Saga this was something of a risky move. By now Allied were specialising in Domiciliary Care contracts with local authorities. The nature of these contracts is such that companies like Allied are obliged to employ carers on the national minimum wage to provide services to some of the most vulnerable people in society; the staff are under severe pressure and inevitably and regrettably sometimes mistakes happen.

Care companies are used to this environment, it comes with the territory, it’s not that a mistake happens, it’s how the company deals with the mistake.

But for a company like Saga, who’ve built their reputation on service and high quality, potential problems relating to their core market demographic was anathema.

After a relatively short tenure they too sold Allied, to Aurelius Group a pan European investment firm, Saga is believed to have received £19m, but crucially they were required to pay £10m in to the Allied pension scheme.

This was a considerable drop in the value of a business once considered the market leader in temporary nursing & care staff, with a turnover in the £100m’s not that long ago.

Now the bubble has burst completely and Allied is seeking a CVA (company voluntary arrangement) an official arrangement to protect the company from its creditors, most likely HMRC and their funders.

So, What Happened?

Well back when my Mum worked for Allied they provided temporary staff to hospitals, nursing homes, care homes, schools, prisons, factories in fact anywhere you can think of where nurses worked.

They provided temporary staff to cover maternity leave, long and short term sick leave and contracted periods.

In effect it was a zero hours contract long before anyone thought of calling it a zero hours contract.

It was not a one sided arrangement like many zero-hour contracts are now, it worked for the benefit of the nurses and carers who wanted the flexibility that NHS hospitals and other employers couldn’t or wouldn’t offer. The nurses and carers were paid a premium for working at short notice and were often paid an allowance for travelling to shifts at anti-social hours.

The temporary nursing industry has moved more towards provision of domiciliary care in the last 10 years, mainly following local authority’s decision to outsource most of their commitments to caring for elderly and vulnerable people.

However this has resulted in severe pressure on fees and consequently margins. Allied had concentrated almost all of its efforts into the Dom care sector and ignored the traditional provision of temporary nurses to the NHS etc.

Two factors have now combined, adding to the squeeze on fees and finally bring Allied, and potentially several other providers to their knees.

Firstly, the living wage has eroded any remaining margin, effectively employers will be paying the local authority to run contracts, obviously this is not sustainable, and secondly, the government’s decision to push ahead with plans to retrospectively enforce companies who underpaid staff for night work in the past.

On the face of it, these two separate issues seem perfectly fair. All workers should be paid a living wage, no argument. However, when a company has signed a binding agreement with a local authority to provide services at a set price for up to 5 years, and then central government changes the rules, surely those companies are entitled to go back to the commissioners of care within the local authority and ask for a variation to the contract?

Local authorities have steadfastly refused to budge on their original contracts.

Regarding the night work issue, care providers have been asking for clarification on how much to pay staff for ‘sleep in’s’ for a number of years. To clarify, a ‘sleep in’ is where a carer or nurse is required to stay on a client’s premises overnight, but the client ‘may’ be asleep through the night, the nurse or carer is there ‘just in case’.

Many contracts were lost because a care provider tendered using an hourly rate, but the commissioner preferred a supplier who paid the staff a set amount and charged accordingly. No guidance was offered, if clarification was sought the failed provider was simply told they were ‘uneconomical’, another way of saying, too expensive. Believe it or not this was still regularly happening just 12 months ago.

Have We Now Reached A ‘Tipping Point’?

Of course, in the past local authorities provided care services themselves. Employing people though is an expensive business, never more so when you factor in generous local government pensions, holidays and sick pay schemes. So, they outsourced provision and saved a packet! But in the rush to outsource they became so self-congratulatory they forgot, or never realised, there was a commercial element, private firms have to make a profit to survive.

Private care companies have been voting with their feet. Mears, a private company which previously provided a large amount of Dom care took the decision several years ago to withdraw from this area of the marketplace.

Commissioners of care from CCG’s and local authorities have been used to hiding behind care companies when problems in the provision of care arise; now however they run the risk of leaving themselves open to criticism for failing to adequately provide services to the most vulnerable members of society, because they haven’t taken adequate steps to ensure that what they’re asking those companies to do is economically viable.

The future for Allied Healthcare is uncertain, but one thing is certain, we’re all living longer, surviving accidents and diseases that would have killed us not too long ago, so the requirement for care of the elderly, the sick and the vulnerable is only going to increase, we need to find a funding solution and we need to find it sooner rather than later.

Read more about Allied Healthcare’s crisis here.

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About Me

Small businesses make up the vast majority of the UK economy, we employ more people, generate more tax revenues and create more wealth than the rest of the UK economy put together.

All businesses need a little help from time to time, that maybe the oversight of a Non Executive Director, or an interim manager who offers help and support at a time of need or crisis or simply an outside eye to offer support and pracical advice at regular intervals.

I've been involved in small and medium-sized businesses for over 30 years. My first career was in the Hospitality sector, I then moved into temporary healthcare staffing, healthcare provision and finally international recruitment.

I've been involved in businesses that experienced extraordinary growth, and stagnation. Both can be problematic and need management, different styles of management, but management none the less.

Many issues draw a business owner away from their primary role; to strategise, to ensure success and make sure the business is still trading a year from now. Often, that re-focusing requires an outside eye, that's where a good business adviser is invaluable.

I offer practical no-nonsense advice and support. I can't honestly say I've seen every eventuality that a business may encounter, I don't believe anyone can, however when times get difficult, as they do in all businesses, it's good to have someone you can call on who's prepared to roll up their sleeves and get stuck in.