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Is the financial viability of adult social care services becoming unsustainable?

The financial pressures faced by adult social care as a result of the COVID-19 pandemic continue to exacerbate. The Local government Association Note to the Minister of State for Care in May, provides a stark analysis of the financial pressures faced by care homes and community care providers.

LaingBuisson were commissioned by local government (LGA and ADASS) and worked with the Care Provider Alliance (CPA), to estimate the additional financial pressures on independent adult social care providers due to COVID-19. This analysis covered all independent providers supporting both younger adults and older people whether in care homes, following policies and procedures for supported living or receiving home care.

The analysis highlights the following financial pressures facing adult social care providers from 1 April up to the end of September 2020.

The costs of providing personal protective equipment (PPE)

To ensure that both those receiving personal care and those providing that care with CQC registration are safe is £4.179 billion up to the end of September 2020: £3.091 billion care homes; £802 million home care; £286 million supported living. These numbers reflect the prevailing costs to providers of purchasing PPE and the updated advice issued on 3 May on the recommended use of PPE in social care. These costs and the interpretation of the advice continue to be subject to further discussion and may reduce.

Infection Control

In addition to normal infection control regimes care homes will also require regular deep cleans of at a cost up to the end of September of £616 million. The analysis assumes that each care home will require a fortnightly deep clean at a cost of £5,000 for each clean per care home.

Staffing costs

Additional staffing costs of £1.018 billion up to the end of September for increased staffing costs across care homes, supported living and home care. This reflects the costs of recruiting workers to cover for staff who are off sick or self-isolating. Additional other costs in care homes such as additional staff time on site £79 million.

Lost revenue

It is estimated that there will be £525 million average net lost revenue for care homes, supported living and home care. This lost revenue is split: £472 million care homes; £39 million home care: £14 million supported living. f) £189 million average lost revenue for non-local authority managed day centres.

Total cost of financial pressures

These financial pressures total £6.606 billion. Over half the cost pressures relate to care arrangements made by councils (£3.3 billion compared to £2.6 billion relating to private or NHS commissioned care arrangements) but most of the income loss would reflect a fall in the numbers of people funding their own care or funded by the NHS.

Viability of the care sector

The additional costs faced by care providers following on from the impact of the pandemic on a sector that has already been stretched to the limit may well mean we see an exodos of care home providers. Gil Plimmer of the Financial Times suggests there are growing questions over the public accountability of some of the larger private equity-owned care homeowners, with their short-term investment focus and complex structures, involving scores of subsidiary companies, many of which are listed offshore.

“What has happened is that care homes have become financialised,” says Nick Hood, analyst at Opus Restructuring & Insolvency, which has advised several care home chains. “Their owners are playing with the debt and expecting returns of 12 or 14 per cent and that is simply unsuitable for businesses with huge social responsibilities.”

Global private equity, sovereign wealth and hedge funds have piled into the sector in the past three decades, lured by the promise of a steady government income and the long-term demographics of Britain’s ageing population.

Three of the biggest chains — HC-One, Four Seasons and Care UK — are in the hands of buyout groups.

Now the sector is in crisis. All three have been up for sale in the past two years and not found buyers. Hurt by a state mandated rise in the minimum wage, and a decline in funding for local governments, which pay for 60 per cent of their residents, their owners are clamouring for more support.

Those care homes that take in state-funded residents under Britain’s means tested social care system are subsidising them by charging higher fees for residents who pay for their own accommodation. Hundreds have closed in recent years, putting pressure on hospitals, or leaving the elderly stranded in their houses.

Summary

The note from the Local Government Association to the Minister for Care spells out clearly the financial impact on adult social care service during the pandemic. To date there does not appear to be any reply.

Covid-19 has brought with it additional financial pressures on top of a sector struggling to make ends meet. This has become a less attractive option to the biggest chains who are now in the hands of buyout groups. Given the complex nature of private investment, what is to replace it if they continue to leave, it may well be that we return to a mixed economy of care provision with the local authority building there own care homes, alongside privately run homes.

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

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