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The unfair practice of self-funding residents subsidising residents supported by local authorities

Home News The unfair practice of self-funding residents subsidising residents supported by local authorities

The published report of the Competition and Markets Authority’s market study into residential and nursing care homes for older people makes interesting reading for those working in this sector.

The study found that public expenditure on adult social care of all types (including non-elderly care and care outside care homes) has been under pressure. For example, aggregate expenditure has declined in real terms by 8% between 2009/10 and 2015/16 in England.

The sector has reported facing challenges to its sustainability, due primarily to the low fee rates being paid for state-funded residents – those challenges being exacerbated by increased cost pressures due largely to wage costs. In its annual assessment of the quality of health and adult social care in England (October 2016), the Care Quality Commission (CQC) said that the sustainability of the adult social care market is approaching a tipping point.

The Competition and Markets Authority have undertaken an extensive profitability analysis of the sector using information provided directly by care homes and taken from company accounts. It is understood to be the most complete study of profitability in the sector in recent years.

In their assessment, they found that the average fees paid by Las are below the full costs involved in serving these residents. Our financial analysis of the sector shows that, looked at as a whole, the sector is just able to cover its operating costs and cover its cost of capital. However, this is not the case for those providers that are primarily serving state-funded residents.

Many care homes, particularly those that are most reliant on LA-funded residents, are not currently in a sustainable position. Our analysis shows that while many can cover their day-to-day operating costs, they are not able to cover any additional investment costs. This means that while they might be able to stay in business in the near term, they will not be able to maintain and modernise facilities, and eventually will find themselves having to close, or move away from the LA-funded segment of the market.

This shows that the fees currently being paid by Las are not sufficient to sustain the current levels of care under the current funding model. The implication is that public funding needs to increase if the current model of funding is to continue, or alternatively, if current levels of funding do not increase, the funding model for care will need to be changed.

Our analysis suggests that about a quarter of care homes have more than 75% of their residents LA-funded, and that these are the ones most at risk of failure or exit because of a funding shortfall. We estimate that LA-fees are currently, on average, as much as 10% below total cost for these homes, equivalent to around a £200 to £300 million shortfall in funding across the UK. This finding is based on an average result – there will already be a proportion of operators that are struggling and at risk of closure.

The large majority of care homes offer places to self-funded as well as LA-funded residents. Many care homes are relying on higher prices charged to self-funders to remain viable, even when providing the same services. Self-funded residents in mixed homes are meeting a much greater proportion of homes’ fixed costs. Without this, the public funding shortfall would have a substantially larger impact than it currently has.

Our assessment based on larger providers is that self-pay fees are now, on average, 41% higher than those paid by Las in the same homes. This represents an average differential of £236 a week (over £12,000 a year). We understand that fee differentials for smaller providers are slightly lower but still significant.

This difference between self-funded and LA prices for the same service is understandably perceived by many as unfair. The large majority of self-funders are not wealthy; the current thresholds for support are currently drawn so that practically anyone who owns their property will be ineligible for state funding, regardless of income. Moreover, there is very poor visibility of the size of these fee differences so the public is generally unaware and Las do not have to justify their approach to the fees they pay to care homes.

In addition to this, however, the situation may not be sustainable. Where LA rates are below total cost, those care homes that can attract self-funders are likely to move away from serving a mix of residents. We already observe that nearly all new care homes being built are in areas where they can focus on self-funders. While we would expect that many mixed homes with differential pricing could continue to operate for some time, there will be a need for additional funding to support further care homes that would not be sustainable without the benefits of this price differential.

Our assessment is that if Las were to pay the full cost of care for all residents they fund, the additional cost to them of these higher fees would be £0.9 to £1.1 billion a year (UK wide, and assuming this money is directed specifically to those homes where LAs pay fee rates below total costs).

Summary

The Competition and Markets Authority’s market study into residential and nursing care homes for older people, confirms what we have known for some time a seriously underfunded social care sector. However, what is interesting from their analysis is how the care home sector is propping up their services. To remain viable it is asking self-funded residents to pay the real cost of care and thereby subsidising local authority sponsored residents who are paying much less for the same care. This is grossly unfair. It is time for Local authorities to pay the real cost of care. Equaity should mean equality.

Albert Cook BA, MA & Fellow Charted Quality Institute
Managing Director
Bettal Quality Consultancy