Care homes for older people ‘underfunded by over £1 billion a year’

The study concludes that the fees councils are currently prepared to pay are between £75 and £85 a week below the reasonable costs of running an efficient and good-quality care home. Nearly 250,000 older people live in nursing or residential care and receive state support, pointing to an annual funding shortfall of £1,044 million a year.

The report - which includes a new ‘toolkit’ that local authorities can use to calculate a fair price for publicly-funded places in privately-run homes - is set against the background of increasing closures in the past five years and a lack of investment in new homes catering for state-funded clients. Local funding crises and shortages have led to ‘bed blocking’, where elderly patients cannot be discharged from NHS hospitals because no residential place is available. Older people and their relatives have also come under increased pressure to pay ‘top-up’ fees to care home providers.

William Laing of health and community care analysts Laing & Buisson, the study’s author, argues that local authority fees, backed by central government funding, should be based on the local costs of running a typical, efficient care home that meets national minimum standards. His proposed method for calculating the appropriate ‘spot’ price for places is based on three main elements:

• Staffing: these include the costs of care staff, catering, cleaning, laundry, management and administration and typically absorb 45 to 50 per cent of care home fees.
• Non-staffing current costs: which include utilities, provisions, registration fees, maintenance and maintenance capital expenditure, and account for between 12 and 16 per cent of fees.
• Capital costs: including the investors’ and operators’ returns, which take the remaining balance of fees. The report argues that a target rate of 16 per cent a year return on capital would be reasonable for providers, reflecting market perceptions of care homes as ‘moderately risky’ investment.

Calculating local authority fees on the basis of the proposed ‘toolkit’, the average ‘fair price’ for nursing home places would rise from £385 to £459 per week and the average fee for a residential place would increase from £268 to £353 per week.

The report acknowledges that councils could not afford an immediate increase in baseline fees of this magnitude. It proposes a phased approach where central government would make the necessary additional funds available through a ‘Care Homes Modernisation Grant’. The amount of grant paid could be linked to local progress in raising care home standards above the national minimum required.

William Laing said: “This study demonstrates that the fees paid to independent care homes by councils throughout Britain typically fall well below a level that offers an adequate return to owners and operators. Some councils have used recent funding increases from the Department of Health and the Scottish Executive to raise baseline fees significantly, but such areas remain a minority. For better or worse, the delivery of nursing and residential care was largely privatised during the 1980s and 1990s and our ability to offer quality and choice to older people now depends on providing a stable and competitive care homes sector. Failure to do so will place greater pressure on the NHS hospitals and create further emotional and financial distress for older people who need residential care, and their families. ”

He added: “The proposals in this report offer a transparent and robust method of calculating reasonable operating costs by which providers who offered an efficient, high quality service would receive fees from the state that covered their costs and provided a return on their investment that was appropriate to the level of risk.”