Download Business of Care Homes

You and Yours
The Business of Care Homes
10-11-29
Presenters:
Reporter:
Pauline McCole
Contributors:
Richard Humphries, Senior Fellow in Social Care, The King’s Fund
David Jones, Deloit
Presenter
Britain’s privately owned care home industry, the part of the sector that aims to make a
profit, is worth £10billion a year. To put this into context, nursing and residential care
homes in the public and voluntary sectors combined, are worth about £4billion. With
the UK’s population of over 85s set to double over the next 20 years, this is a sector
that’s grown rapidly, as investors rushed into what was thought of as a long term route
to easy profit. But as Pauline McCole reports, this is no longer the case, and it’s now an
industry at a crossroads.
Marcella
I’m very lucky, I mean I’ve worked all my life. I’ve got a very good pension. I had a
husband who has a very good pension. I’ve got two sons who are very wealthy, so I
don’t see I’m very worried.
Pauline
92 year old Marcella Houston from Wimbledon is going through the process of
choosing a residential care home. She can afford to be choosy. And entrepreneurs
looking at getting into this industry today, would be well advised to target her and the
growing number of people who are also equipped to pay their own way. According to
Richard Humphries, Senior Fellow in Social Care and the charity The King’s Fund,
that’s where the future growth and profit is coming from in this industry.
Richard
We do have a burgeoning army of people who are responsible for funding their own
care. Those numbers are growing. In many parts of the country more people are
paying for their own care than local authorities are. The next sort of cohort of people
who will need long term care, they will want more choice, they will want higher
standards, they will want greater engagement in their care. And they will want quality.
And I think there is an opportunity for providers to respond to that.
Pauline
From the point of view of a manager in an existing care home, how fees are raised is
secondary to the total amount of money, per head, that streams through the business
every day. That’s the bottom line, and it’s a hard fact that the private care home
industry is driven by the same forces as any other part of the economy. David Jones is a
partner in the advisory firm Deloitte, who specialises in the care sector.
David
From the fees, the operator will have to pay wages, typically 55% of revenue. Then
other costs, food, insurance, which account for approximately 14% of revenue, and the
balance then about 30%, is the contribution to cover the costs of that care home, so pay
for the costs of interest on bank funding and also funding back to shareholders.
Pauline
Some of the largest operators in this sector, those with thousands of beds in hundreds of
homes, promised quick returns to their investors. These corporations borrowed heavily
to expand rapidly. Some are now struggling to survive the growing squeeze on
spending, and at the other end of the spectrum, the latest figures show that every week,
five older smaller homes are closing.
David
The sector hss overpromised. Some people have been able to get in, make very quick
returns, and exit the market. But effectively health care is a long term business, and you
could effectively say health care is a utility. I mean we can’t switch it off. A number of
investors come in, make short term gains, and exit the market, and do very very well.
But that’s not the model we need to provide long term care in the UK.
Pauline
This is the 2010 Care Show at the NEC in Birmingham. It’s a trade show for owners and
managers in the residential and nursing care homes industry. People here are just
starting to come to terms with the implications of the comprehensive spending review.
The organiser of the care show is Chris Edwards.
Chris
I think whenever we speak to our visitors that attend the show, yes, funding is always,
and has been for a number of years, one of the key issues that comes up again and
again, over the last few years, even before the recession. Care homes were already
feeling a squeeze with their cost base. These guys are running businesses obviously,
and they have a cost base, the have employees to pay, and a level of care to provide for
people that does cost them money.
Pauline
Sheila Scott is the Chief Executive of the National Care Association, which typically
represents owner operators of single care home. She delivered the keynote speech to
delegates here, on the future of the industry. After her presentation, she told me of her
concerns about how many of her members will survive as going concerns.
Sheila
We are likely to see the number of smaller care homes decreasing over the next five
years. Because economy of scale clearly works for the larger homes. For a certain
group of people, the quality of care that you receive in a small family type care home is
really, is really important and what works for them. The disappointing thing is that
that type of care may not be available in the future.
Pauline
If you were dropped in randomly at this event, you could be forgiven for thinking it’s
an entirely different sort of show. Stands here are offering flooring and furniture. Staff
uniforms, laundry services, crockery and cutlery. This could be a hotel industry trade
fair. But then you notice that the crockery is plastic, and turn into another aisle…. And
the stands along here are offering the latest in nursing beds, lifting equipment,
emergency call systems. Specialist services for dementia sufferers. But for the delegates
here, the problem is to find the money to invest in anything new at all.
Mike
My name is Mike Graham I’m from Manchester. We run two 16 bed care homes. From
the financial side of it, all aspects of the financial markets are going up, and people have
quite wide, varied perceptions out there of what the care industry is. I think the biggest
concern for myself as an independent is we quite heavily rely on the councils where we
access skills for care. All the training, the funding, even the funding from the residents
we take in.
Gary
Gary Harland. And I own a company called Guardian Care. We have a thousand beds,
top twenty provider in terms of size, care grew from a cottage industry. Everybody
thought it was easy about 1985 to buy a large house, turn it into 20 bedrooms. And that
was a care home. That’s certainly changed over the last 25 years. And it’s like any
other industry, it’s very highly regulated. There’s a high barrier to entry. It’s very
competitive and the standards are generally going up.
Pauline
This industry is in a chronic state of uncertainty about the future. New private
investment is going to target the billions of pounds in savings and property equity
that’s at the disposal of better off individuals. Richard Humphries of The King’s Fund
is concerned about the emergence of a two tier system with plenty of choice for the rich,
but with few options for the rest.
Richard
I think that’s a big worry, that’s certainly where the current system is taking us. But I
think we need to think much more creatively about what care and support people need
in later life. And the idea that there is care homes and then there is big support to live
at home I think is probably too simplified. And I think what we, what we need to see is
a range of much more flexible options.
Pauline
Everyone I’ve talked to seems to agree that a new sustainable model for the care
industry is needed, but concrete ideas are thin on the ground. It may be the voluntary
sector that has the answer. At the disability charity Scope, Tom Hall, Head of
Philanthropy and Social Investment, came up with a unique funding mechanism to pay
for the construction of a brand new facility. It meant inviting people to donate a little
and to lend a lot more. Tom and Scope’s Director of Services Katherine Smith, told me
how their innovative approach worked in practice.
Tom
So the problem was we needed to raise £1.8million. We could only afford to borrow
£750,000. So we decided to ask a hundred different individual investors to give us
about ten grand each. Seven thousand of that would be repaid when we sold our old
care home, and three and a half thousand as a donation. So ultimately the donor gives
us £1 effectively for every £1 they give us we get £9.
Pauline
And Katherine, this funding model what’s it allowed you to do?
Katherine
OK, well we’ve currently got lots of services for disabled people in out dated care
homes. So this has given us the opportunity to be able to replace our old out dated care
homes to new modern facilities, but also for the future generations that are coming
through schools and colleges, so that they can have a home for life.
Pauline
And if this funding method along to allow you to do this, what would the alternative
have been?
Katherine
Well for us the alternative wouldn’t have looked very good, ‘cos we didn’t have another
option of raising that amount of money. So we might have found ourselves in a
situation where we had no choice but to either continue to run out dated care homes, or
to close the care homes and move people on.
Pauline
If Tom hadn’t come up with it and made it work. What’s been the response that you’ve
experienced now?
Tom
I think people are certainly starting to accept that loan funding has got to play a part in
the way that charities need to think about how they’re way of going forward,
particularly charities that have you know, fixed assets that they can sell, they can repay
short term loan financing. I’m really excited about the possibilities for this for the sector
and also testing this pilot, we’re hoping to roll that out through some of our other
services next year.
Presenter
That was Pauline McCole and a reminder that our care season concludes on Friday
when the Health Secretary Andrew Lansley will be on the programme.