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Are care home owners cashing in on closures?
By: Chris Wheal
The Guardian, May 2, 2001
Lives are being put at risk by the closure of homes for elderly people. But for some owners, shutting down can mean cashing in.
There's an old joke that goes: "What comes out of Cowes backwards? The Isle of Wight ferry." In a new twist, if the Isle of Wight County Press is to be believed, the ferry could soon be taking frail elderly people on a last trip to the mainland because of an acute shortage of care home beds on the island itself.
The story is not just journalistic licence. Charles Waddicor, the island council's social services director, confirms the bed shortage problem and accepts that using mainland care homes has been mooted. But he says shipping vulnerable old folk to the mainland could kill them - which is why he is against doing it. He says: "If you move frail, elderly people in this way, something like two-thirds will die within three months."
The severity of the care home problem on the Isle of Wight serves as a microcosm of wider problems across much of southern England - and beyond. There have long been gripes from home owners about the levels of payment for state-funded residents, but there is no doubt that homes are now closing. According to the latest survey by market analyst Laing & Buisson, 760 private and voluntary homes closed last year, with the loss of 16,200 places. A further 2,500 places were lost in local authority-run homes. Overall, the residential and nursing home sector suffered a net loss of 9,700 places.
But who is really to blame? Local authorities, which administer the state funding, are often painted as the bad guys. Community care money is provided through the revenue support grant, but the allocation comes from the Department of Health. It has announced inflation-busting rises for the past five years, fuelling expectations among home owners. But they have received below-inflation fee increases from councils.
The health department figures do stand up to scrutiny. Rises of 5.2%, 7.2%, 4.5%, 5.0% and 5.9% over the past five years of low inflation give credence to the claims of a 12% real terms increase in funding. But the Local Government Association (LGA), representing councils, has some figures of its own. Its recent survey of almost all the 150 social services authorities in England found they were due to overspend on social services by £205m. A staggering 85% of councils anticipated overspending. The figures suggested that while the money allocated by central government for personal social services under the standard spending assessment (SSA) had grown 11.2% since 1998, expenditure by councils had risen 14.2%.
The elderly do not take top priority. The LGA survey found that 64% of the expected overspend was on children's services - hardly surprising as children are a much higher profile area of spending and much more expensive if things go wrong. The harsh reality is that the penalties for injuring or mistreating an elderly person are cheap compared to the penalties for similar neglect of a child.
But the LGA did find that 21% of likely overspending was on the elderly. Mike O'Donnell, a member of the social services panel of the Chartered Institute of Public Finance and Accountancy, says pressure on councils is growing in two ways. More elderly people need services and those already receiving them need more intensive support. The funding also covers those helped at home - the government's preferred option. A person receiving 10 hours' help at home might need just five extra hours - but that represents a 50% increase in the budget. "You might get a 6.5% increase in SSA, but most councils will need to implement a significant cuts package just to balance the budget," O'Donnell says. If they are lucky, they can afford a 2% rise for care home operators.
And councils fear things are about to get worse. The government gave them the gatekeeper role of deciding who needed community care in 1993. Before that, anyone who asked for it got it. Those people are still funded by the Department of Social Security (DSS), but at fees it fixes. In the south, these are significantly lower than council fees. From April next year, those people will transfer to council responsibility. The government has said it will give councils all the additional cash they need, but many are sceptical.
On the Isle of Wight, the difference between the fees is stark. For residential homes, the council's average contract price is £221.28 a week, compared to the DSS average of £161.02. For the council, that will mean finding the £60.26 difference for each of up to 186 residents each week - a potential annual cost of £582,835.
For nursing homes, the difference is even greater. The council's average contract price is £368.65, compared to the DSS average of £227.98, making a difference of £140.67. The 26 existing elderly patients currently on DSS books could cost an extra £190,186. On top of that, the island has 187 other residents under age 65 on preserved DSS rates. Even taking into consideration any additional funding for all these patients from their own resources, the Isle of Wight could easily be facing additional costs of more than £1m a year.
Local authorities claim they simply cannot afford to spend any more on care home fees without further government funding. However, the Registered Nursing Homes Association (RNHA) maintains some councils pay more to their own homes, or to their preferred voluntary sector operators, than they do to private sector homes in the same area.
Association chairman Frank Ursell says councils go out of their way to defend council or voluntary sector homes against competition from the private sector. Walsall council, he claims, recently put its homes out to tender but specifically excluded private sector bidders. The council chose not to comment on this to the Guardian. "When I was at school, they used to call this hypocrisy," Ursell says. Councils cannot pass all the blame on to central government, he argues. "It's poor husbandry of the money by local authorities, on top of poor allocation by the government."
But homes are not only facing this spending squeeze. New standards being phased in from next April will ramp up the costs of running care businesses.
The RNHA's chairman on the Isle of Wight is Kevin Dannett, owner of Springfield nursing home in Shanklin. One of the examples he gives is the new standard that doors used by wheelchair users must be 800mm wide. All his doors are 780mm wide. "Am I going to have to spend my limited resources to make my doors an inch wider?" he asks. If the 244 new standards are policed rigorously, many homes will face huge bills just to stay in business.
Ursell is frank about the situation. Between them, he and his wife have paid just £5,500 in income tax on profit from their home over the past four years - demonstrating how low the margins are. "It has not only taken away my profit," he says, "it has taken away my investment money."
Almost all homes will have to turn to banks for investment cash. But banks, understandably, are not keen to lend money when they cannot see in creased revenue resulting. For homes that have to convert to meet new single occupancy and room size standards, conversion may mean reducing the number of residents - hardly good grounds for lending money.
With high property prices in the south, banks point out that the value of the asset is often greater than the value of the business. "If you get an accountant in, or a banker, and you do the sums, then you should probably just sell up and realise the value of your asset," admits O'Donnell. And for those home owners approaching retirement age, selling for cash is undoubtedly a much more attractive proposition than soldiering on.
In the end, this appears to be the main reason homes are closing. The outcome will be fewer, larger home owners, but they will at least be in a better position to stand up to councils and demand more money - a fact not lost on Bupa, which, with 232 homes and 16,000 beds, is the private sector's largest player.
Only a quarter of Bupa patients are self-funding; the rest receive state support. "Local authorities are effectively a monopoly purchaser as against a fairly fragmented nursing home market," says Peter Ludford, Bupa's care home director. "As more homes close, it will start to put us on a more equal footing. Our elderly deserve a reasonable standard of care and support - but someone's got to pay."
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