Rich pickings in foster care

In January the Financial Times carried a piece about the investment potential for private companies seeking to invest in foster care. Entitled Fostering Sector Ripe For Consolidation, it begins in seductive fashion not with high finance or balance sheets but with the personal experience of carers who are clearly dedicated to the disabled child they look after. They don’t do it for the money – you couldn’t, because as they say it works out per hour at a fraction of the minimum wage. And that’s the last time children are mentioned as anything other than a commodity.

The economy of care has always been mixed and many private companies do excellent work, often with some of the most damaged children and young people. Yet the language of the balance sheet rather than the review form sticks in the craw and masks the realities of caring for vulnerable children to the standard they deserve.

Companies, including private equity, are attracted to the sector because of the potential for “cost savings” and “economies of scale”. Fostering is a “growth market” – Peter Connolly’s death and the increase in care admissions that followed becomes an investment opportunity.

Large companies from the health sector as well as private equity are gazing enviously not only at potential profits but also at the relatively high number of small to medium size firms who are ripe for a buy-out or as they call it, “consolidation”. Small-scale one or two person businesses, often started by social workers or foster carers from their spare bedroom, propelled the exponential growth in the independent fostering sector that began in earnest in the mid to late nineties. Now, IFPs care for almost 40% of children and young people in foster care.

However, many of the originals are keen to sell. Smaller providers feel pressured because of competition, the administrative tasks around Ofsted and contract compliance and the tender/contract process leaves less room for niche providers. They may also be coming toward the end of their careers and need to provide for their retirement. I’m not blaming them - these small companies led the way in the development of excellence in foster care practice in the days before and after regulation. With the big boys moving in, it’s hard to keep going.

This isn’t the world where we talk of standards of care, of healing relationships between carers and vulnerable children, not even of outcomes or aspirations. This is “the fostering space” where consolidation provides opportunities for profit, where large concerns, often multi-nationals from the health and, latterly, service sectors could invest and please their shareholders. This world has its own language: “It’s a classic private equity play. Private equity have been consolidating and investing in the fragmented domiciliary care space for the last five years and have begun to exit those investments to facilities management businesses. You can see something similar occurring in the fostering space.” I genuinely do not know what that means.

This is not new and I’ve written about it before on NSBS “Children In Care Are Big Business”, to the point where the FT article niggled away but I had not intended to go over old ground again. However, what made me write this was something I found out this week. Another private company (not the one mentioned in the piece) works at a profit margin of 30%.

That’s plain wrong. It may be irrational, it may be unusually high (although but I suspect it isn’t), for all I know I could be a wishy washy mung bean eating sandal wearing pinko liberal bleeding heart, but that’s an excessively high profit margin. As my piece from last year suggested, the best way to make money in fostering is to limit the services you provide for children and cut corners on matching, the process by which a child’s needs are matched with the capabilities of the carers. Take any placement, the money comes in and if it fails, blame the child or put it down to experience and move on to the next referral. Plain wrong.

The other way is to charge an inflated fee, which hurts cash-strapped local authorities struggling with constrained budgets precisely at the time when numbers in foster care are going up.

It chimes with other things that I have been told around and about. Carers from a private company who were told that allowances and services for children were to be cut back because local authorities were cutting their fees, when I know that company has increased the price it charges. A group of carers looking to change providers after the CEO arrived for a football match in his helicopter. Most tellingly, from my own experience on interview panels, the number of social workers seeking to move jobs because their professional standards have been compromised beyond redemption. Managers instruct them to take a placement when they know the match is not right.

I knew one of the candidates. She used to work for a small private company with a deserved reputation for long-term commitment and success with complex placements. The man who put this in place regretfully sold up after twenty years to a large national private company. Now, placement support services like therapy have been cut and she is forced to meet targets regardless of how appropriate the placement may be. That’s what is happening in the fostering space right now.

Courtesy of Abe Laurens via The Not So Big Society