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Archive for the ‘Social Care’ Category

Counting the cost: what coronavirus means for care homes

As the UK continues to struggle with the effects of the coronavirus pandemic, the frailty of our social care system has been confirmed, weakened by decades of underfunding and delayed reform.

The social care sector is often seen as the poor relation of the NHS in the UK, fragmented and without the long-term funding solution pledged by successive governments.  The social care green paper promised by then Prime Minister Theresa May in 2017 never materialised, and her successor Boris Johnson has yet to set out his vision for dealing with the system, beyond saying that he would be seeking a ‘cross party consensus’ on the way forward.  Details of what this looks like have been promised before the end of 2020, though this is unsurprisingly facing more delay due to the coronavirus pandemic.

Before the coronavirus pandemic, the government was (again) revisiting the recommendations of the 2011 Commission on Funding of Care and Support and held talks with the Commission Chair Sir Andrew Dilnot. The main principles of the Commission’s recommendations were a more generous means test for government funding, combined with a lifetime cap on care costs. Versions of Dilnot’s model were proposed and subsequently dropped by both David Cameron and Theresa May, who both saw the electoral pitfalls of tackling the social care crisis head-on.

While successive Prime Ministers appear to consistently return to the same reform proposals, the question of how it will be paid for remains a pressing one for government to answer, as does how the new system will be sold to the electorate, who, in one form or another, will be required to pay for it.  The government is hemmed in by its manifesto pledge to avoid significant tax raises, a pledge that the party will cling to more tightly in the wake of the coronavirus pandemic.

With the issues the sector has grappled with for more than a decade becoming more pressing with every passing day, the government will struggle to put off reform for much longer.

Legacy issues have been compounded by the covid crisis

Even before the coronavirus pandemic, the UK’s social care sector was under serious strain. A June 2019 survey published by the Association of Directors of Adult Social Services (ADASS) found that in the previous six months, 80 councils had experienced a home care provider failing and 38 experienced providers handing back contracts.

Despite rising long term demand for elderly care across the UK, investors drawn to the sector are struggling to find ways to translate demand into a strong business model. Now, the coronavirus pandemic has compounded these issues, with rising PPE and staff costs, and a drop-off in resident numbers causing even greater financial strain.

The government has allocated £3.2 billion to councils in the past two months to help them respond to coronavirus outbreaks, but to date, the additional funding – in the form of an increase in the fees they pay care homes – has failed to reach some providers.  In Sheffield, for example, care homes wrote to the council in mid-May to ask for additional support, arguing the forms they were required to fill in to access the funding were overly complex and made the system too slow.

The government is continuing to seek solutions to the additional pressures coronavirus has put on the social care system. On 8 June Health Secretary Matt Hancock announced the formation of a new coronavirus social care support taskforce led by former ADASS President David Pearson. However, the taskforce is largely expected to provide expertise and practical support to care homes. There’s no suggestion that the taskforce is a signal that any new pots of money will be forthcoming for the sector to draw down on, meaning many care homes will continue to struggle to keep pace with care needs.

Many privately owned care businesses are also holding high levels of debt.  Accounts for HC-One, Four Seasons Health Care, Barchester Healthcare, and Care UK, which combined run about 900 care homes and look after 55,000 residents, show they are paying an overall average rate of almost 12% interest on total debts of £2.2 billion, according to Opus Restructuring. To pay debts as well as meet staffing and care costs, as well as the increasing cost of PPE, an estimated occupancy of at least 80% is required – a figure increasingly difficult to maintain as the pandemic continues. The Knight Frank care home index found an average occupancy rate of 88.9% in 2019, but the sector has reported a decline in occupancy of between 4%-8% in April 2020, potentially putting remaining residents at risk of their care provider becoming insolvent.

A significant issue for the sector, and one that has been repeatedly highlighted by politicians and the media during the coronavirus pandemic, is the comparatively low pay of care workers. All supermarkets now offer higher minimum hourly pay than the average social care worker hourly rate. Unlike other sectors, opportunities for promotion and pay increases are often hard to find, leading to an average annual staff turnover of over 30%. Although care workers will benefit from increases to the National Living Wage pledged by the government, if other sectors continue to go above and beyond the minimum standard, the sector will continue to struggle to find enough staff. Care England, the representative body for independent care providers, has warned that without an increase in the fees local authorities pay care providers, increases to the Living Wage will be unsustainable for the sector. Without an increase in funding levels, the government risks further destabilising the sector through the NLW increase, but without higher pay, the sector is unlikely to find the long term staffing solution it needs. Finding a solution that works for the sector, its employees and the government will be key to any long term settlement.

Scrutiny of quality of care will increase but may drive policy change             

Many care homes are finding that providing the range of services and quality of care they want is financially out of reach under the current system, despite their best efforts. Analysis by Care UK has found evidence of local authorities providing preferential funding to their own care homes, at the expense of for-profit providers. One council, for example, was found to be paying £650 per person per week for its own care home versus less than £500 to an independent provider. LaingBuisson estimates costs for a well-run home will be between £623 to £726 a week per person, meaning some for-profit providers will be struggling to make fees cover the cost of care. This funding gap inevitably leads to disparity in quality as providers struggle to make ends meet. 84% of care homes run by local authorities were rated good or outstanding in 2018-19, compared with 77% of for-profit homes, according to LaingBuisson analysis in August 2019. This gap in quality appears consistent with the funding gap for-profit providers experience, indicating many issues with the sector could be alleviated with additional, fairer funding.

The whole sector should expect more scrutiny of the services it is providing, from the media and parliament, particularly as the coronavirus inquiries begin. Care homes, particularly larger chains with complex management structures, will see enhanced, sustained scrutiny as a result of the coronavirus crisis, with politicians and the media alike keen to assess how businesses have managed the crisis, and where mistakes were made. Care homes, with their tragic death toll and specific vulnerability to the disease, will be an area of focus as the government looks to learn lessons from the pandemic.

Large care providers, particularly those owned by private equity investors, will face more pressure than ever to demonstrate their value to the sector and the quality of their services. This will require a concerted communications effort with government, regulators and, in some cases, the media. If the sector is to ask the government for additional support, it will need to demonstrate why additional funding is necessary and to assure the government that businesses receiving additional funds are responsible employers and care providers. The affairs of care providers, like the wages they pay to staff, the amount of tax they pay, and the fee structure they use for residents, will soon be under much closer scrutiny.

This will be a particular challenge for private equity-owned businesses, where perceptions of highly paid executives using profits to fund bonuses, rather than improvements in care, continue to persist. Without addressing the perceptions of policymakers head-on, for-profit care homes will struggle to make an impact on government policy and will find offers of financial support thin on the ground.

The government’s response to Covid-19 has demonstrated that private equity as an industry will itself face this challenge. Government reticence to provide financial support to sponsor-backed businesses during the crisis has laid bare how reputational challenges translate into real world business problems. The private equity industry will have to tackle negative perceptions of the sector head on to ensure the government understands its needs, and the needs of its portfolio companies.

Looking ahead: What is the future of the sector?

Social care will certainly face some difficult days ahead, and business failures are likely. However, the coronavirus crisis could be the wakeup call the government needs to enact real change in the sector and to give it the stability it needs. Media scrutiny has never been higher, and the oncoming onslaught of parliamentary and independent inquiries into the response to coronavirus will inevitably lead to focus on how the government should address the ongoing problems in the sector. A continuation of the status quo is likely to become impossible as pressure grows.

Investors willing to look at the longer-term picture for social care could be rewarded with a new, more stable financial settlement, if the government is prepared to make hard choices on how it will be paid for.

Polls show there is public consensus on how to pay for social care – a system that is free at the point of use, funded by general taxation in a way that is similar to the NHS. However, the additional funding required for social care is substantial, and very many people will have less disposable income as a result of the lockdown and likely economic downturn. How government chooses to balance this trade-off will say a lot about its longer-term priorities.

The road ahead for social care is certainly difficult and there are no easy choices. Yet the sector needs change, and pressure will continue to grow for meaningful sector reform. Johnson has promised this reform, but with everything else the government has to deal with at the moment, we may be waiting a while longer for the difficult decisions to be made.

 

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It takes a (retirement) village: The new social care solutions shaking up the sector

It’s no secret that the UK’s population is aging, with one in seven people predicated to be over 75 by 2040. Retirees are now thinking about the care they will need in old age earlier and are becoming more discerning in their choices. Some providers are taking inspiration from America, where the variety and scale of retirement care options are far greater, and establishing community style retirement villages in the UK. However, plans for increased regulation of the sector will require investors to consider the practices of individual operators, and whether their business models will be compatible with additional scrutiny of the fees charged to residents and their families.

Often less reliant on local authority funding than standard retirement homes, investors are already swooping in to provide retirement communities with much needed capital to expand and keep pace with rising standards (and demand for beds). AXA Investment Managers, L&G Capital and Goldman Sachs have all entered the retirement living market in the UK in recent years, taking advantage of the scale of the potential opportunities presented by the sector. Retirement villages have captured the ‘luxury’ end of retirement care, offering older people an alternative to conventional care homes or sheltered accommodation. This model is certainly attracting attention, with estate agent Knight Frank predicting that the value of the retirement living private market will increase by over 50 per cent by 2022 to £44 billion.

The model is proving so popular that some of the larger retirement village operators, such as Audley, are now expanding their business to include a ‘mid-range’ offering – the same model of care but with a lower price tag. Their first community of this type is due to open in late 2020. Despite demand, the UK still lags behind other countries. According to Michael Ball, Professor of Urban and Property Economics at Henley Business School, owner-occupied retirement housing represents just two per cent of Britain’s total housing stock, compared to 17 per cent in the US, and 13 per cent in Australia and New Zealand.

Though the risks are lower than conventional retirement homes, this newly emerging style of retirement living is likely to attract regulatory scrutiny in the coming years due to a series of media stories relating to poor practice. Often, residents will buy their own home as a leasehold, then pay an annual service charge to the operators to cover the cost of additional care they require. This model has run into difficulties when occupants or their relatives look to sell the property, with the “exit fee” payable each time the property is sold often being at least 12.5 per cent of the sale price, with some companies charging up to 30 per cent.

The Law Society published the results of a consultation on these exit fees in 2017, finding that there are “major problems” with the fees and recommended that retirement villages be regulated to protect residents from agreeing to pay fees they are not fully aware of. The government has provided an interim response to the consultation, pledging to “align these recommendations and help ensure that they can be fully implemented.” Some in the industry, including estate agent Savills, have said that the delays to introducing regulation are hampering the growth of the sector, as investors and businesses face ongoing regulatory uncertainty.

The details of how the sector will be regulated have not yet been announced and are likely to face delays in the face of pressure caused by Brexit. However, it is likely that a code of practice, potentially accompanied by additional inspection powers, will be introduced to assess the financial responsibility of retirement village operators. While this will affect the way some operators do business, particularly in terms of the contracts offered to potential residents, a clear statement of intent from the government is likely to be positive for the industry as a whole, and in particular for those businesses that operate with residents’ interests at heart. Investors looking to take advantage of this lucrative sector will have to consider whether potential investments will be compliant with likely regulatory requirements, or if they are willing to take on the additional costs of transforming businesses that are set to be subject to regulatory scrutiny.

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Are investors ready for primary care networks?

The NHS Long Term Plan, published in January 2019, identifies newly established primary care networks (PCNs) as important drivers of NHS reform. By June 2019, PCNs will bring local GP practices together into geographical networks, covering populations of between 30,000-50,0000 patients. GP practices have worked collaboratively for years, but the new GP contract, taking effect in April 2019, and the NHS Long Term Plan, have created the more formal PCN structure. According to The King’s Fund, the thinking behind PCNs is that they will allow general practices to benefit from economies of scale through increased collaboration: staff can be shared between practices, estates can be managed more efficiently, and practices will find it easier to work with the wider health system.

PCNs will be expected to provide a wide range of primary care services to deliver the NHS national service specification, and this will be a level of service beyond what individual practices can provide. These services will include access to: a pharmacist, physiotherapy, extended GP services and social prescribing link workers (non-clinical services, e.g. healthy eating advice). From April 2020, PCNs will be required to deliver services including structured medication reviews, personalised care and supporting early cancer diagnosis. By 2021 PCNs will be charged with discovering cardiovascular disease in patients and addressing health inequalities in the local population.

The funding for PCNs is in the form of a directed enhanced services (DES) payment. This payment will be worth £1.8 billion by 2023/24 and includes money to support the working of the network, and up to £891 million to support the hiring of additional staff. As part of the new GP contract, the funding from NHS England for primary care and community care will put the total increased investment into general practice at £4.5 billion by 2023. GP practices will not have to join a PCN; but if they choose not to, they will miss out on the extra funding provided by NHS England.

The creation of PCNs, while providing the foundation for a more efficient and better-integrated system of primary care, brings with it both challenges and opportunities. One particular challenge concerns how PCNs can take advantage of the efficiencies that could be realised through reform of NHS estates. Greater collaboration between GP practices raises the possibility of consolidating existing property assets to achieve efficiency savings. By grouping key services in one location, PCNs will be able to cuts costs by reducing the replication of facilities and enjoy economies of scale related to administrative savings. However, in many instances, to achieve these savings PCNs will need new purpose-built centres that can provide a host of primary and community care services. This represents an opportunity for private firms that specialise in the provision and management of healthcare facilities. As PCNs become more established, there is likely to be increased demand for facilities that can improve outcomes for patients and help the NHS work more efficiently.

PCNs require GP practices to work more closely with each other, as well as with other primary and community care providers. To ensure this communication occurs effectively, there will need to be significant investment in digital technology to facilitate record sharing and appointment booking. Also, it is a key element of the NHS Long Term Plan that, over the next five years, PCNs will have to offer patients telephone or online consultations. NHS England is also planning to use digital technologies to expand the GP workforce by offering more flexible working conditions to part-time GPs. It was announced in the Long Term Plan that NHS England would “create a new framework for digital suppliers to offer their platforms to primary care networks.” There is a clear need for increased use of enhanced digital technology to help administer the new network of PCNs, and it is a need that many firms will be looking to fulfil.

However, there are some risks to the private-sector from the reforms in the new GP contract. Under the new contract, GPs will not be allowed to advertise private healthcare services in their surgeries, nor will they be allowed to permit private GPs to offer services in their practice. These rule changes mean that practices will not be able to charge patients to see a doctor more quickly and patients will not be able to be charged for services that are offered for free on the NHS. The aim is to create a stricter divide between NHS GP care and the private sector. There is the suggestion that this is the first step by NHS Chief Executive Simon Stevens towards reducing the privatisation of NHS services, as NHS bosses are concerned that privatisation undermines the ability of the NHS to provide ‘joined-up’ care.

The NHS is undergoing significant reform, and with this reform the NHS is taking on a Janus-faced approach to the private sector. In many areas, the NHS will not be able to move forward without working closely with the private sector, yet stricter rules could be on the horizon that will limit the involvement of private firms in the supply of NHS services. There is certainly room for the private sector to thrive working with, and alongside, the NHS, but there could be some twists in the road ahead.

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