The Health Secretary, Wes Streeting, has declared that the Care Quality Commission (CQC) is ‘not fit for purpose’. His remark comes after the release of a damning interim report on 26 July 2024 and final report on 15 October 2024, detailing the outcome of a review into the CQC's operational effectiveness.
The review, led by Dr Penny Dash, uncovers multiple shortcomings that undermine the CQC's ability to effectively regulate health and adult social care services in England. Among its key findings are significant delays in inspecting health and social care providers, with some newer providers having never been inspected at all.
In this article, we look at Dr Dash's findings on CQC inspection frequency and consider the potential impact that inspection delays can have on mergers and acquisitions in the healthcare sector.
The CQC is the independent statutory regulator for health and adult social care in England. Its ambit is to ensure that the services it regulates deliver safe, effective, compassionate and high quality care. To fulfil this role, the CQC monitors, inspects and rates registered health and social care providers as ‘Outstanding’, ‘Good’, ‘Requires Improvement’ or ‘Inadequate’.
When services fail to meet required standards, the CQC can take various actions, such as:
In May 2024, the Department of Health and Social Care commissioned a review to assess the operational effectiveness of the CQC's new single assessment framework. Led by Dr Dash, an interim report was published on 26 July 2024, offering a critical analysis that exposed various failing of the regulatory body. These failings were re-affirmed in a final report published on 15 October 2024.
The key findings identified issues around the CQC’s IT systems, a lack of internal expertise across the regulator, inconsistency and lack of transparency in assessment processes and significant inspection delays. In particular, inspection delays are a major cause for concern, with Dr Dash’s review identifying that:
To improve its operations, Dr Dash recommends that the CQC take several key actions. These include:
The CQC should also rebuild expertise, restore relationships with providers to regain credibility, and review its single assessment framework to ensure it is fit for purpose, with clearer descriptors and a stronger focus on outcomes, innovation, and resource use.
In addition, Dr Dash urges the CQC to clarify how ratings are calculated, improve local authority assessments, pause Integrated Care System assessments, and strengthen sponsorship arrangements for more accountable and effective services.
In light of Dr Dash’s findings, the Health Secretary, Wes Streeting, has warned that CQC ratings cannot be trusted and should be taken ‘with a pinch of salt’. He has called for an overhaul of all bodies responsible for regulating patient safety in England, including the CQC, National Guardian’s Office, Healthwatch England, the Health Services Safety Investigations Body, the Patient Safety Commissioner and NHS Resolution.
Further reviews are planned with the aim of streamlining these six overlapping bodies and addressing the systemic issues that have allowed major problems to persist.
For those trade buyers or investors looking to acquire a healthcare operator or provider, or parts of its business, effective regulatory due diligence is a critical part of the acquisition process. This will typically include a detailed review of the target’s authorisations, registrations, regulatory audits and inspections, ratings and compliance history, as well as in some cases a more in-depth examination of the systems and processes in place to manage regulatory risks.
Like other areas of due diligence, this kind of review, which we undertake for many of our clients, helps a buyer identify potential risks, liabilities and opportunities associated with acquiring the business. It also seeks to mitigate the risk of unforeseen problems that could affect the success of the deal and allows for better negotiation of terms, from specific indemnities from the seller to enhanced insurance coverage, ultimately protecting the interests of the acquiring party.
When considering regulatory compliance in the context of an acquisition of a healthcare business, and the same can be true on some financing deals, delayed CQC inspections can present significant challenges.
Putting aside the criticisms following Dr Dash’s review around the potential unreliability of CQC reports, without an up-to-date inspection report and CQC rating for the target at all, a buyer has no helpful starting point to assess the current operational performance of the target and the quality of its services.
The target business itself or the seller may equally be less aware of likely perceived shortcomings in its services or compliance record than it would be in the case of a more recent inspection. This lack of insight may obscure critical areas where the target could be underperforming or non-compliant with relevant law and regulation, potentially exposing the buyer to unforeseen risks and liabilities and also leaving the seller open to claims.
In such circumstances, the buyer will need to conduct more enhanced due diligence of the target’s management systems in order to gain insight into the target’s compliance and may need to engage specialists to carry out an audit of the target’s regulated services, with a degree of more in-depth sampling of compliance in some parts of the business. In some cases, the uncertainty about the target’s compliance record may lead to a buyer reassessing its risk appetite and willingness to invest in the relevant business.
Enhanced regulatory due diligence involves a deeper investigation into a target business, often covering a longer period of its history. Where the target is a healthcare business, it usually involves an examination of:
Where a recent CQC report exists, many of the above would have been interrogated by the regulator which can ease the burden of due diligence, though some buyer’s may prefer to form their own view.
The review conducted by Dr Dash highlights serious shortcomings in the CQC’s operational effectiveness, with delays in inspections posing substantial risks to healthcare service regulation in England. As the CQC faces mounting pressure to improve its operational effectiveness, the implementation of Dr Dash's recommendations will be crucial in restoring its role as a reliable regulatory authority and ensuring patient safety and care quality across the sector.
For those involved in acquisitions within the healthcare sector, the lack of up to date inspection reports and ratings from an effective regulator, means that buyers may not have reliable information to enable them to interrogate and benchmark the target’s compliance in a sector where service user care and safety is a key metric. This in turn means that buyers need to carry out more in-depth due diligence in order to understand the critical operational and compliance systems and procedures underpinning the target’s activities, if they are to proceed with the acquisition.
It’s hoped that the CQC will now take steps to increase the frequency of inspections and the accuracy of ratings across registered services.
For further information, please contact our business risk and regulation and corporate teams.
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