Leading adult care sector media company, Care Management Matters reports on the research study published by Opus, which examines the parlous financial state of the UK residential care sector. The research is based on the database and methodology of the financial health monitoring specialists, Company Watch. Opus warns that 28% of care home operators are so financial fragile that they are at risk of failure or having to be rescued. This leaves up to 6,000 care homes vulnerable to closure unless they are taken over by new owners.
Profitability is poor, with the whole sector only earning £209m in the past year. This is before the impact of the national living wage, which was introduced last April, which is expected to add some £400m costs. The average annual pre-tax profit of a care home in the UK is only some £10,000. This is well below the level required to justify the financial risk involved or to fund the investment needed to deliver the higher care standards demanded by the Care Quality Commission.
Nick Hood, Business Risk Adviser at Opus Restructuring, said:
‘Every part of the UK adult care system is in crisis. Private sector operators are withdrawing from contracts for domiciliary care services. The NHS is facing an unprecedented issues with delayed transfers of care because there is insufficient domiciliary and residential care capacity to deal with patients leaving hospital.
‘Care home operators are refusing to accept local authority funded residents because the fees are well below the cost of providing care. Sooner or later, privately-funded residents and their relatives will revolt against having to pay sky high fees to cross-subsidise publicly-funded residents.
‘The residential care sector, which looks after the most vulnerable in society, was barely profitable, even before the impact of the National Living Wage. Our research shows that far too many operators face a serious risk of failure and a deeply worrying number are in negative financial equity. Debt levels for those who borrow are far too high.
‘In the Autumn Statement, the Government missed its chance to tackle the residential care crisis and restore the £2bn funding it took away to help plug its deficit. Right now, the UK is sleep walking into a full blown residential care crisis.’