Home > Care Quality Commission to report to local authority only if the likelihood of a service provider’s business failure is more than 50%

On 27 April 2022, the Administrative Court gave judgment in Advinia v Care Quality Commission [2022] EWHC 965 (Admin), a case that clarified the operation of an important aspect of the Market Oversight Regime for larger care service providers.

The Market Oversight Regime (“MOR”) was introduced by the Care Act 2014 (“the 2014 Act”), partly in response to the failure of Southern Cross Healthcare in 2011. Southern Cross was at the time the UK’s largest care homes operator, with 31,000 residents. Its failure was, at least in part, considered to be attributable to a lack of oversight of the care service market. Accordingly, the MOR was established with the underlying aim of establishing a regulatory regime that would ensure continuity of care for vulnerable care service users in the event of financial distress or market exit of a major provider of care services.

Within the MOR, both the Care Quality Commission (“CQC”) and the local authority for the area within which the service provider operates are allocated functions. Where a registered care provider becomes unable to carry on a regulated activity because of business failure, the relevant local authority comes under an obligation (s.48 of the 2014 Act) to meet all the needs for care and support of adults (as well as the support needs of carers) that were being met by the provider immediately before it became unable to carry on the regulated activity. This obligation arises whether or not the adults in question are ordinarily resident in the local authority’s area.

In advance of actual business failure, the CQC has an oversight role. The CQC is an executive non-departmental public body, overseen by the Department of Health and Social Care. The CQC was established by the Health and Social Care Act 2008. Its main purpose is identified in section 3 of the 2008 Act as being to “protect and promote the health, safety and welfare of people who use health and social care services”.

Within the MOR, the CQC is required to assess the financial sustainability of the provider’s business (s.55(1) of the 2014 Act); and is also required to assess whether the provider is “likely” to become unable to carry on its regulated activity because of business failure (s.56(1) of the 2014 Act). If the CQC concludes that the provider is likely to become unable to carry on its regulated activity, it is, amongst other things, required to inform the local authority that would come under the s.48 duty of that fact, as well as sharing with that local authority any information about the provider that it considers would assist the local authority in discharging its s.48 duty.

The detailed operation of the MOR is set out in the CQC’s guidance document Market Oversight of ‘difficult to replace’ providers of adult social care, Guidance for providers, February 2021 (“the MOR Guidance”). The MOR Guidance sets out the six-stage MOR process, which begins at stage 1 with entry into the MOR and, where the relevant requirements are met, ends at stage 6 with notification to the local authority. The MOR Guidance also makes it clear that, at Stage 6, other public bodies may also need to be informed/provided with information about the service provider.

The MOR operates largely on the basis of sensitive commercial information that is provided by service providers to the CQC to enable the CQC to discharge its statutory duties and to monitor the level of risk in the provider’s business operations. One reason why Stage 6 is of particular relevance from a service provider’s perspective is that, otherwise, the operation of the MOR is generally confidential, reflecting the sensitive commercial information that forms the basis for the CQC’s assessments.

In the proceedings, Advinia Health Care Limited, a registered provider of care services subject to the MOR, challenged by way of judicial review several aspects of the MOR Guidance. Its main ground of challenge was that the MOR Guidance misstated the law in stating that “likely” in s.56(1) meant a “real possibility”, and that the correct meaning of likely in this context was “more probable than not” (Advinia’s other grounds of challenge, which attacked particular features of the MOR Guidance, were dismissed).

The Administrative Court (Butcher J) concluded that Advinia’s argument was correct, and that “likely” in s.56(1) meant “more probable than not”. As a result, it is now clear that the CQC can only conclude that business failure of a provider is likely where it is satisfied that there is a more than 50% chance of business failure materialising; and it is only at that point that the CQC becomes obliged to inform the relevant local authority and provide information about the service provider. One of the factors that Butcher J considered in coming to the above conclusion was that the above interpretation of likely “reduces the risk of a ‘self-fulfilling prophecy’ of failure” that might arise if a notification is made prematurely.

Admas Habteslasie, alongside David Blundell QC, appeared for the Defendants.

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