Council-funded care homes ‘under cloud of uncertainty’

Pic: Timothy K Hamilton

CARE HOMES are being sustained by private residents paying for their own support but the pressure on cash-strapped councils could result in a capacity crisis, a new report has warned.

The annual Care of Older People Market Report from analyst Laing Buisson shows that the care home market was worth £15.7bn in 2016, with compound annual growth of three per cent over the last five years.

The private side of the market, accounting for around 177,000 residents, is “robust and profitable”, particularly in the affluent South of England.

However, the state-paid side, accounting for around 220,000 residents, is struggling under a “cloud of uncertainty and risk” as the low fees paid by councils and the NHS continue to put pressure on providers’ prices and margins.

As a result, capacity is slowing dropping out of the market at a current rate of around 2,000 beds a year, mainly concentrated in the least affluent areas of the country.

There are some bright spots for state-paid care homes, however. Occupancy rates have strengthened as capacity has dropped, resulting in a material improvement from 2016 in what had been “dangerously low” profitability for some of the largest care home operators with high exposure to public pay.

“There is a danger that Treasury officials may conclude ‘job done – profitability restored’. Such a conclusion would be mistaken, however, because financially stretched local authorities are likely to continue to offer only sub-inflation fee uplifts to care homes,” said the report’s author, William Laing.

“If so, National Living Wage inflation will mean the recent margin improvement for state-paid clientele is likely to be fully eroded again within two to three years.

“A generalised bed shortage has been averted in the state-pay side of the market to date because local authorities have succeeded in containing placement numbers. If they cannot continue to do this in the future, the natural conclusion is a capacity crisis driven by inadequate investment incentives at a time when underlying demographic demand is rising.

“A severe and widespread capacity crisis would be painful, not least people seeking care, but it could be the only way of re-establishing investment incentive.”