Wednesday 17 October 2018
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Care home operators face yet another tough year thanks to local authorities again failing to match the
increasing costs of providing a placement for an elderly resident in the fees which they will pay to place
elderly people in beds in residential and nursing homes.

The bleak discovery, revealed in the latest edition of Community Care Market News’ Annual Survey of
UK Local Authority Baseline Fee Rates* – an annual publication from healthcare intelligence provider
Laing & Buisson – has led to 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 decisions at play continue belowinflation
increases over the past five years with this year’s fee rate settlement further fuelled by the
budgetary cut backs called for by the Coalition government.

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 fees.

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.

While some savvy care home operators should be able to mitigate some of this margin squeeze through
efficiency savings, including reviews of staffing plans, the provision of non-care related services etc,
the scope for such savings is becoming ever more limited. While the headline-hitting situation at
Southern Cross was exacerbated by its backers’ expansion model (massive growth funded through a sale
and leaseback model), that provider has also claimed that the practice of local authorities to freeze the
amounts they will pay for residential and nursing care places has also played a major role in hitting
operating margins.

The 2011/12 survey records the worst average uplift seen since the survey began, and marks a distant
cry from a decade ago when Laing & Buisson reported unprecedented fee increases in 2002/03 as
council sought to maintain capacity and control the rates of care home closures.

However, there will at least be no ‘double whammy’ from cuts in placement volumes as this year’s
survey suggests that the rate of decline in the volume of local authority care home placements will
level out further during the course of 2011/12. This is despite continued pressure on local authority
budgets and the preference toward independent care provided at home being maintained by the
coalition government.

Along similar lines to last year, less than a third of councils (29%) said they expected that the number of
older people supported by councils in care homes would be lower by the end of the financial year than
at the start (compared with 30% when asked in 2010/11). Yet, a further 45% indicated that there would
be no change in the placing practice, up from just 39% last year, while the remaining 26% (compared
with 31% in the previous year) projected an increase in care home placements.

On average across the UK as a whole, the number of older people supported by local authorities in care
homes is projected to decrease by 0.6% between the start and the end of financial year 2010/11. The
hope is that some, if not all, of this fall will be made up by increases in NHS continuing care

Commenting on the survey results, Laing & Buisson chief executive William Laing said: ‘As the news of
Southern Cross's demise sinks in, the care home sector will have to think hard about its response to real
terms cuts in local authority fees. Operators can ramp up legal challenges, but these are expensive and
risk being reversed in the next fee setting round. They 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.’

He concluded: ‘Though Laing & Buisson has always believed that the Department of Health would be
strongly resistant to taking on a fee fixing role, maybe the fallout from the Southern Cross failure will
encourage ministers to take a more interventionst line.’

Source Laing & Buission