Care home crisis set to worsen as local authority cutbacks kick in

The financial crisis surrounding the long-term care sector looks set to worsen over the next year as local authorities again fail to match the increasing costs facing care home operators, according to research published today.

The annual study of local authority “baseline fee rates” carried out by market analyst Laing & Buisson highlights concerns that in the wake of the collapse of the UK’s largest independent care home provider Southern Cross Healthcare, more operators of residential care homes for the elderly could be forced into administration thanks to ever-tightening margins.

According to the survey, the majority of local authorities across England have frozen, or reduced, the amount that they pay for care home placements. Although providers with facilities in Wales and Scotland have fared slightly better with some authorities boosting the amount they pay, this move has resulted in an average UK fee uplift for 2011/12 of just 0.3%.

The increase of 0.3% identified by the survey is significantly below a figure of 2.8% which Laing & Buisson estimates is needed by providers in the coming year simply in order to keep pace with care home cost inflation.  

Taking current levels of inflation into account, care home operators across the UK will now face an average 2.5% reduction in their margins on local authority-funded residents during financial year 2011/2012. This is a “dramatic” step up from the 1.4% real terms cut calculated for the previous year and, if councils continue as expected, could pave the wave to similar or even greater cuts in the April 2012 fee settlements, Laing & Buisson said.

Of the councils providing figures for 2011/12, 158 councils gave below “standstill’ uplifts, including 140 which froze or reduced fees. Eleven gave fee revisions in the "standstill" band (2–2.9%) while just seven increased baseline fees at a margin enhancing rate of 3% or above, all of them in Wales. The remaining 21 councils either had not yet set their baseline fee levels at the time or did not respond to the survey.

According to Laing & Buisson, while some “savvy” care home operators should be able to mitigate some of this margin squeeze through efficiency savings, including reviews of staffing plans and the provision of non care-related services, the scope for such savings is becoming ever more limited.

Laing & Buisson chief executive William Laing said that while operators can ramp up legal challenges to local authorities' funding decisions, these are costly and, in any case, risk being reversed in the next fee setting round.

He said: "They [operators] can lobby councils more intensively, but are likely to be given short shrift in the light of other valued local programmes being sacrificed. Or they could put renewed energy into lobbying central government."

Laing added that while his organisation has always believed that the Department of Health would be strongly resistant to taking on a fee fixing role, the fallout from the Southern Cross failure might lead to ministers taking a “more interventionist” line.


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