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Counting the cost: what coronavirus means for care homes

Words by:
Account Manager
June 9, 2020

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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