The Administrative Court has recently found that the threshold for notifying local authorities in CQC’s current guidance (issued in February 2021) on the operation of the Market Oversight regime was incorrect and should be quashed. This was in a judicial review challenge brought by Advinia Health Care Limited.[1]

The Market Oversight regime was introduced under the Care Act 2014 to provide a system for CQC to undertake monitoring of the financial viability of social care providers who would be ‘difficult to replace’ (whether on the basis of the volume or geographical concentration, or the specialist nature, of services they deliver).  In the event of concerns regarding a provider’s financial viability, the Market Oversight regime enables CQC to escalate the provider to enhanced stages of monitoring and scrutiny. When the final stage (Stage 6) is reached, CQC has a duty to notify local authorities of the concerns.

However, under section 56 of the Care Act, this duty to notify local authorities only arises where CQC is satisfied that the provider “is likely to become unable to carry on the regulated activity in respect of which it is registered because of business failure”.  It is CQC‘s interpretation of this wording, and, in particular the word “likely”, which was at the centre of the Advinia challenge.

In its original guidance on the Market Oversight regime, CQC had stated that, in order to be satisfied that the cessation of regulated activities as a result of business failure was “likely”, this meant that CQC needed to be satisfied that this was likely to happen “on the balance of probabilities”.

However, in its revised 2021 guidance, CQC appeared to reduce the threshold for notification of local authorities by stating that it only had to be satisfied that there was “a real possibility” of business failure and the cessation of regulated activities.

The main thrust of Advinia’s challenge was that this aspect of the revised guidance was erroneous and that the correct interpretation of “likely” for the purposes of section 56 of the Care Act should be that of “more probable to occur than not”.

Having heard arguments on the interpretation of the word “likely“, and having regard to the context of the Market Oversight regime as a whole, the court agreed that the correct interpretation of the word likely in this context is ‘more likely than not’.  On this basis, the court considered that the statements in the 2021 guidance that CQC’s duty to notify local authorities was triggered as long as it was satisfied that the cessation of regulated activities as a result of a provider’s business failure was “a real possibility” were unlawful.

The court concluded that the higher “more likely than not” threshold preserved CQC’s ability to give warnings to commissioners in appropriate cases, whilst also giving some protection to providers against the risk of too early a notification becoming a ‘self-fulfilling prophecy’ by actually precipitating business failure.

It should be noted that the claimant made two further challenges to the 2021 guidance: firstly, that it did not give providers a guaranteed right to make representations, or seek an independent review, in relation to CQC’s ultimate decision that the threshold for notifying local authorities is reached; and secondly that the guidance did not provide sufficient protection against the risk of onward disclosure of commercially sensitive information relating to providers.  However, the court did not consider that the guidance was unlawful in these respects.

Clearly, the Market Oversight regime has an important role to play in ensuring continuity of services for vulnerable service users. However, it is only right that this should be properly balanced so as to prevent notifications to local authorities actually causing business failure for providers. In this context, the court’s main finding, that CQC’s threshold for notifying local authorities of providers’ financial difficulties was incorrect, will provide some comfort for providers subject to the scheme who may be facing increased financial challenges given the current pressures on the sector.  It is presumed that, in the light of the judgment, CQC will re-issue its guidance and that reissued guidance is awaited.

If you would like to discuss this topic in more detail, please contact Carlton Sadler, Partner, or Siwan Griffiths, Partner.

[1] R (on the application of Advinia Health Care Limited) –v- Care Quality Commission

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