Study reveals £80 million gap between fees and state funding for elderly people in care homes

Research published by the Joseph Rowntree Foundation estimates that £80 million a year is being spent on bridging the gap between care home fees and the amount that state agencies are willing to pay. Elderly and disabled people who moved into residential care before 1993 - whose fees are paid directly by the Department of Social Security (DSS) - are especially likely to be in need of top-up payments.

The analysis, based on 1997-1998 figures, suggests that the DSS rate of £311 a week is some £40 below a charging level that would bring a reasonable financial return to the owners of nursing homes for providing good quality care and facilities in an efficient manner. However, the rates paid by many local authorities - responsible for residents who have moved into homes since March 1993 - also fall below this level.

William Laing of health and community care analysts Laing & Buisson examined the public funding which supports more than 300,000 of the 400,000 elderly and disabled people who live in registered care homes. He found that:

• Only half the 95,000 residents receiving 'preserved rights' payments from the DSS were having their fees covered in full. For one in four, the disparity was more than their £14 a week personal expenses allowance. One in 12 were receiving 'top-ups' of more than £65 a week - usually met by their families.
• Visible disparities between care home fees and what local authorities were prepared to pay were relatively infrequent. One in seven of the 200,000 residents who had entered a home since March 1993 were being supplemented by top-ups paid by a third party.
• The National Health Service accepts financial responsibility for some 15,000 residents. Fees paid were typically more generous than those met by local authorities, so that the issue of disparities rarely arose.

In addition to the visible gap between fees and what state agencies were prepared to pay, the study identified hidden disparities where the 'full' fees met by local authorities or the DSS were being cross-subsidised from other sources. This not only included voluntary sector homes with access to their own, charitable funds, but also commercial homes where residents paying for themselves were being charged more than publicly-supported residents for identical accommodation and care.

The value of these hidden disparities was not easy to quantify. However, it was calculated that for every £5 a week that local authorities were able to save per head on payments for elderly care home residents, there would be saving for the state of £75 million a year - a bill that would pass to individuals, their families and other agencies.

The research, meanwhile, found that local authorities were using monopoly purchasing power to secure higher-grade rooms for their clients. A sample survey of more than 600 care homes found that 31 per cent of local authority funded residents were occupying single rooms with en-suite bathrooms, compared with only 11 per cent of preserved rights clients.

Policy implications The report calls on the Government to end the disadvantages experienced by the care home residents with 'preserved rights', by transferring responsibility for their funding away from the DSS to local authorities. It also recommends that local authorities be encouraged to set differential baseline fees, designed to drive low quality providers out of the market, while paying a premium to efficient homes delivering high quality care.

Commenting on the estimate that efficient homes would need to charge £350 a week to obtain a reasonable financial return on good quality accommodation and care, William Laing said: "These figures help to explain why the profits record of larger, publicly-quoted care home companies supplying the state-funded market has been disappointing in recent years, and why share values have performed poorly. It also explains why new-build nursing home development among corporate, for-profit providers has markedly slowed down.

"There are now few locations in the country where expected returns are sufficient to justify commercial investment in good quality, new nursing home stock for a clientele dependent entirely on state funding."