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Increased insolvencies in the care home sector

Life seems to be going far too quickly at the moment, weeks seem to fly past and it only seemed like it was New Years Day yesterday, we are now in May!

I am conscious of the later years in life - I make sure that I contribute into a pension each payday and I married a teacher to ensure that I could enjoy a teachers pension when I am older…..although I guess that a teachers pension in 30 years time will be a shadow of the pension that teachers used to receive.

Since the turn of the year I have seen the last of my two surviving grandparents move into the same care home. The home itself is terrific, great facilities, great staff but it is a council run facility so this means shared bathrooms and probably not as many staff on call as you would ideally like.

Public perception is that you could make good money from care homes, Duncan Bannatyne made his fortune in the sector, but times are different now, the sector seems to be under significant pressure. We advised a care home last year, not an insolvency appointment, but we held its hand whilst it was going through a difficult time with the Care Quality Commission. I’m pleased to say that they are now fully recovered.

Figures recently released report that the number of care home insolvencies has jumped by 18%, as local authority spending on care homes continues to fall. Last year 47 care home operators in England and Wales became insolvent, up from 40 the previous year. The figures also revealed that over the last three years the number of care home businesses becoming insolvent has risen by 34%.

Squeezed from both sides

Care homes have come under increasing financial strain and, with a sharp increase in their wage bill, many more risk being pushed to breaking point. Staff costs account for 60% of expenditure and the sector has complained it will struggle to fund the new National Living Wage of £7.20 an hour recently introduced..

A substantial amount of the revenue for care homes comes from local authorities and so there is understandable concern of the impact that any further spending cuts would have on the sector. It is estimated that there could be a £2.9bn annual funding gap in social care by the end of the decade as a result of the UK's aging population, which is predicted to rise by 12% - or 1.1m - between 2015 and 2020.

It makes for a difficult future in the industry with many blaming the national living wage, pension auto-enrolment, property rents, council tax and the significant increases in regulatory fees, all of which have been levied onto the sector without commensurate increases in fees.

Martin Green, chief executive of provider representative body, Care England, said years of underfunding and rising costs were pushing care homes into liquidation.He said: “These increases are making care services in both residential and domiciliary care unsustainable and I am particularly worried about the impact on small providers, who may well be forced into liquidation because the funding is inadequate.”
He added: “We are also seen an increasing number of councils telling care providers that fee increases will be 0%, despite having levied to the 2% council tax precept to local citizens. I don’t think people realise that local authority funding for residential care can be as low as £2.60 an hour, which is totally unsustainable.”

Care Quality Commission

The Care Quality Commission has a duty to assess the financial sustainability of the largest care providers which councils would find difficult to replace should they fail. The regulator is required to alert councils where business failure is likely to see a provider unable to provide services.

Although the CQC had not identified any recent concerns through their work, they have admitted to recognise the financial pressures facing the sector and the responsibility of these providers to prioritise the delivery of safe, high quality and compassionate care for the people they are paid to look after.

It is a sad story that we can all relate to in one way or another. It appears that the knock on effects to the industry could continue to adversely affect the performance of our NHS.

If you or one of your clients are in this sector and are experiencing the pressures being placed upon their business please do not hesitate in seeking professional advice early. Here at Portland we have previous experience in the Care Home sector and in the past we have used trusted consultants within the industry to help better shape some of these businesses and deal with any concerns being raised by the Care Quality Commission.

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