Nursing a booming business: Private residential homes for the elderly have taken off in the past 20 years. Terence Wilkinson reports

NURSING homes are big business. Less than 20 years ago the private sector had no signficant role in the care of the elderly and other highly dependent patients. Today the private market for nursing and residential homes is worth pounds 3.3bn and there are six quoted companies specialising in care homes with a combined stock market worth of pounds 375m.

Another 10 are either subsidiaries of or buyouts from public companies. Westminster Health Care, a subsidiary of the American National Medical Enterprises, is about to float its shares on the stock market with a probable pounds 130m price tag and there are least two other companies waiting in the wings to tap investors.

According to Laing & Buisson, the consultant, the private sector has come from nowhere to provide two-thirds of all 232,000 nursing home beds in the UK. This market share was worth pounds 2.2bn a year in revenues to the private operator in 1992, up from pounds 734m as recently as 1988.

Private beds also make up more than half the 313,000-bed residential home market - where levels of dependency are much lower than in nursing homes - which was worth pounds 1.6bn to the private sector last year. By comparison, the public sector share of the long-term market was worth pounds 2.6bn and voluntary organisations made up another pounds 600m.

The private and voluntary sector has accounted for all the growth in the care bed market in the past decade. Since 1980, while the public sector has slowly declined, the number of private beds has risen at an annual compound rate of 16 per cent.

Four powerful forces have been driving growth. One was the weight of demographic changes, which has increased the number of elderly infirm. On current official projections this is set to continue as the number of people over the age of 75 is forecast to rise by 15 per cent to 3.8 million by 2005 and those over 85 by 40 per cent to 1 million. At current rates of provision this would mean another 80,000 to 90,000 long-term care beds by the turn of the century.

A second factor was the introduction in 1983 of Department of Social Security supplementary benefits for those in need of long- term care. Designed to take financial pressure off local authorities, this evolved into an open- ended commitment, worth pounds 280 a week, to provide income support for patients.

There has also been consistent pressure on the National Health Service to 'unblock' beds required for acute cases but occupied by stable, long-stay patients requiring little attention.

One company, Takare, has successfully devoted much effort to persuading health authorities that it would save money to 'contract out' such patients to its homes without harming their welfare.

Finally, the greatly improved quality of newly built homes for the elderly during the 1980s has increased the social and emotional acceptability of placing relatives in care.

On top of this, there will soon be a major change in the way in which long-term, state-funded care is administered which could have far-reaching implications for the industry.

From 1 April open-ended income support payments from the DSS for all new long-term care patients will stop. Under the Community Care Act, local authorities will reassume financial responsibility for care arrangements out of a strictly limited central government budget. This is set to rise from pounds 400m in 1993/4 to pounds 1.6bn in 1995/6.

The Act places a legal obligation on local authorities to allow new long-term care patients their choice, subject to cost, of nursing home. Patients are also entitled to choose homes where fees are higher if family or friends make up the difference.

A key change is that inhabitants of local authority-run homes will not be eligible for income support, which will clearly favour the trend towards 'contracting- out' to private operators.

Quite how the new system of assessment and payment will work in practice remains worryingly unclear with only days to go before it is due to start. The precise amount to be made available by social service departments for long-term care as opposed, for example, to care at home - another ambition nurtured by the Government - has not been spelt out.

But the view among the biggest operators, not surprisingly, is that smaller operators will lose out as local authorities will demand ever greater value for money and high standards of care. 'The market is clearly there. The big issue is about management,' says Keith Bradshaw, chairman of Takare.

It is a heavily fragmented business in which single-site operations abound. Takare, the industry leader with 4,785 beds in 36 purpose-built homes and a further 720 beds under construction, has only a 2 per cent market share. The next biggest is Westminster Health Care with 3,100 beds spread around 45 homes and another 629 beds being built.

These two are the big guns of the industry. Jonathon de Pass, a healthcare analyst at Barclays de Zoete Wedd Research, says Takare and WHC will account for 50 per cent of all new beds being built this year, although Takare believes this estimate is a little high.

Trading formulas vary. Takare aims to run its business on the basis of standard units and DSS income support fees with no top- ups from relatives. The stock market debutante WHC, with the benefit of its US parentage, favours a more flexible design approach to its new homes and 45 per cent of its patients are private or 'top-ups'.

Rigorous business methods are the key to making nursing homes work financially. Return on investment in a new home is usually more than 30 per cent and trading profit margins comfortably exceed 20 per cent.

This is achieved by minute attention to detail. WHC, for example, monitors key statistics on occupancy and costs on a daily basis through a centralised computer network and loses little time in asking errant homes for an explanation of poor numbers.

But high standards of care and home design are equally vital, particularly for the elderly who suffer from conditions such as senile dementia.

Pat Carter, chief executive of WHC, recalls one patient who was fitted with a pedometer and subsequently walked the equivalent of 46 miles in the next 18 hours. A boarding house conversion is not ideal in these circumstances.

If the small nursing home operator does indeed find the new regime for care too demanding it it is almost certain that the big companies will accelerate their rate of growth to take up the slack. Nursing homes are big business and getting bigger.

(Photograph omitted)