Care homes cash crisis could see collapse of residential care within five years, says study

Some 37,000 beds will be lost due to care homes closing because of a growing shortfall in funding

Forecasts suggest there will be two million over-85s in 20 years’ time (Getty Images)

A cash crisis facing care homes across the country could see a collapse of residential care within five years, costing the NHS an extra £3 billion annually as a result, warns a new report.

Some 37,000 beds will be lost due to care homes closing because of a growing shortfall in funding set to exceed £1 billion by 2020, claims the report by the ResPublica think tank. The problem is exacerbated by rising demand, with the number of people aged over 85 set to rise by around two million in the next 20 years.

Residential care “faces a potentially fatal crisis,” warns the report. Local authority spending on social care for older people has fallen by 17 per cent since 2009. “If nothing in the funding regime changes within five years, there will be a projected loss of 37,000 care beds as funding fails to meet demand. This is greater in scale than the Southern Cross care homes collapse in 2011, which affected 31,000 older people,” it states. “With the sector under immense financial strain, the likelihood is this time there will be no private provider of last resort.”

The introduction of the National Living Wage will increase the burden on care homes, and at £382 million will be around a third of the £1.1bn funding gap in 2020. “The National Living Wage is a great step forward. It is estimated it could help more than 6 million low paid workers. But for the care sector, which is heavily reliant on its labour force, it could be catastrophic,” commented Emily Crawford, co-author of the report.

This comes after the Independent revealed on 7 November that Britain’s biggest care home provider, Four Seasons Health Care, is to sell off a string of homes amid financial pressures to save millions. And earlier this week, Andrea Sutcliffe, chief inspector for adult social care, the Care Quality Commission, warned: “Stresses and strains in social care are impacting on quality...There are concerns about safety and leadership and many nursing homes are struggling.”

ResPublica’s new analysis of residential care in England, which draws on Government data, warns: “Given the perilous state of the industry, we believe the most likely outcome is the vast majority of care home residents flowing through to hospitals.” It adds: “This would require the NHS to find £3 billion per year by 2020/21 to support frail and aged people who no longer have a home in the residential care sector, and who do not belong – nor wish to be – in a hospital.”

Fundamental reform of the system, designed at a time when life expectancy and duration of illness were much shorter than today, is needed, it says. More detailed recommendations will be made in a full version of the analysis being published next January, but Philip Blond, director of ResPublica, told The Independent: “Care homes would need to be broader and become health hubs that help people manage chronic illnesses and reduce the burden on hospitals, which would need to pay them to keep people out of hospital.”

While the report focuses on England, it reflects a wider problem across Britain. In Scotland, the Task Force for the Future of Residential Care warned last year of “significant and growing financial pressures” and cited a “heightened risk of care home providers going into administration,” as being one of the implications of failing to provide adequate funding. And in a report last November, the Older People's Commissioner for Wales said: “The residential and nursing care market in Wales is volatile and fragile,” and added: “A current lack of forward planning means that the needs of older people in care homes will not be met in the future.”

Professor Martin Green, chief executive of Care England, which represents independent care providers, said: “The Respublica report is further evidence that the care sector is in crisis unless the government establishes proper funding that will sustain the sector into the future, the impact on the NHS will be enormous and could lead to its collapse or billions extra needed to sustain the NHS.”

Justin Bowden, National Officer for the GMB union, warned: “It is one minute to midnight for the care sector. Just as GMB warnings that Southern Cross would collapse were ignored again and again by government, history looks set to repeat itself unless George Osborne acts now.” He added: “This time however we are not just talking about the largest care home provider collapsing, but the entire publicly funded care home and domiciliary care sectors.”

Dr Chai Patel, executive chairman at HC One, one of Britain’s biggest care providers, commented: “Southern Cross was a failing company, what we are facing now is a failing system... unless the Chancellor takes urgent action to address this looming crisis, tens of thousands of older people will lose their homes and be forced into the NHS.”

And Caroline Abrahams, charity director at Age UK, said: “All the evidence at present is that the care home sector is extremely fragile and, without significant new investment in the Spending Review, that many care homes will close their doors to all but the most affluent older people who can afford to pay premium fees.”

In a statement, a Department of Health spokesperson said: “Following the failure of Southern Cross, we empowered the Care Quality Commission to monitor the finances of key care providers and the sustainability of the market – this provides early warning of likely failures so we can better protect the vulnerable people who use their services.” They added: “We're making sure older and vulnerable people have a strong health and care service, having invested an extra £3.2 billion in social care over the last four years, and during this Parliament by putting £10 billion extra into the NHS.”

But Izzi Seccombe, the Local Government Association’s community wellbeing spokesperson, said: “We are heading towards a devastating care home collapse.” She added: “Health and social care leaders widely recognise that a properly funded social care system is essential to alleviate the pressures on the NHS...it is imperative that the Government fully addresses this in the Spending Review before we see a care disaster unfold.”

Britain’s biggest care home providers include:

Barchester Healthcare – cares for more than 10,000 residents in around 200 homes. Although revenues rose to £523.4m in the 12 months to the end of December 2014, the group’s operating profits fell from £23.2m to £12.9m.

Bupa Care Services – looks after 40,000 people in 280 homes. “In aged care, public funding pressures in the UK mean that local authority fees for care services are often below the true cost of delivering care and this is compounded by the impact of inflation on operating costs,” warns its latest half year financial statement.

Care UK – runs 112 homes and 12 day centres. Its latest financial report states: “Financial pressures on the NHS and local authorities are substantial and fee rates continue to be lower than could reasonably be expected.”

Four Seasons Health Care – Britain’s biggest operator, with 470 homes. Has debts of £500m, and last week credit rating agency Standard & Poor’s warned the company could run out of money within six months.

HC-One – one of the firms which stepped in after the collapse of the Southern Cross group, buying up more than 200 homes. Dr Chai Patel, chairman, said last month: “If we don’t get a fee increase at all next April, literally all our surplus cash before capital expenditure, interest and rent will be wiped out.”