This Caring Business - THE STORY OF THE SECTOR - April 2003

April 1, 2003

This Caring Business - April 2003

THE STORY OF THE SECTOR: 2 + 2 = 3

April 1993 and enactment of the Community Care Act may seem a long time ago for all those in the long term care sector, but was this not the important date when fortunes changed in this battered industry? Before that date homeowners enjoyed a one-way bet. The game plan was simple. Rush out and buy a nice plot of land. An acre or so in size would do.

Pay the grateful vendor £150 - 200,000 and get on quickly with the task of instructing a hard up builder to deliver you a 55-60 bed home. Nine months later the work on this new pristine home was complete and the all-in price was little more than £1.15 - 1.2 million.

It was thumbs up all round because all the numbers were favourable. Nurses' wages everywhere were circa £6-6.50 an hour and hard-working care assistants in many towns were rewarded, if they worked weekends, with £3 per hour and two/three weeks vacation!

Even local authority officers were helpful and friendly. Under their regime, fee rates in the North averaged £290-£300 per week and those homes who were well-in with Essex were paid up to £440 per week. What is more, contracting rules sometimes worked out so well that many homes managed to achieve average annual occupancy rates of 100%.

No surprise therefore that bank managers were happy and owners' profit margins were so good that they actually expected to get their money back in 18-24 months¹¹.

And that was not all the good news. There was general recognition that these new homes not only delivered better quality care but also worked out cheaper for the Government purse than the old traditional Nightingale wards in long stay geriatric hospitals and the double rooms in run-down Local Authority Part III residential homes.

Unfortunately, homes new in 1993 are no longer new homes in 2001. There has been a big shift in the market. It is no longer a simple choice between new home and old.

Many more people are now offered a domiciliary care option. Inevitably therefore care home demand has fallen. Moreover, the rising number of new beds has undermined the whole market to the extent that annual revenues for many homes last year were less than 4 or 5 years ago.

The cost scenario is also full of gloom. In April 2001, not many operators will easily be able to retain their RGN's with wage levels below £9.25-9.50 per hour. 8 to 10% increases for nurses previously earning £8.50-8.60 per hour is the reality that many operators now face.

The picture for care assistants has also turned around. In southern England there are several areas where £4.75-5.00 per hour is no longer exceptional and the 40p rise in the minimum wage in October 2001 will in the North of England add over £11 per week to a patient's cost. The need to achieve 50% NVQ2 levels for all care assistants next year will not only further directly inflate wage bills for many homes but will also mean that money will have to be found to meet the costs of training.

Very few homeowners would sensibly argue against new rules that insist there are proper covers on all radiators, and rooms and corridors must at least be of sufficient size to cope with a wheelchair. What is however such a tragedy for the sector and all those residents who presume their home has the resources to provide them with decent quality care is that those responsible for setting fee levels do not seem to wholly understand the economics. In recent weeks, local authorities across the country have set their fee levels for 2001/02.

A few like Kent and Oxford and Fife and West Lothian in Scotland, have listened to rational arguments. The rest ignoring the increasing number of closures, have posted increases that on an average weighted basis are hardly 3% or £10-11 per week.

Who is to blame? Personal Social Services' Standard Spending Assessment (PSS SSA's) per capita for persons 65 years or over set by central government have totally ignored changing wage levels. But Local Authorities' PSS budgets for persons 65 years and over as a proportion of PSS SSA's, have fallen away and in many cases are hardly 90%.

In plain English, Local Authorities are shortchanging their own frail elderly. Their budgets are not sufficient to meet every person's needs. Their officers intend to continue in 2001/02 to try to stretch out what little money they have by cutting back on prices paid to operators.

No doubt what happens next will be bad news all round. Many more homes will shut. Bed blocking in hospitals will increase. Self-pay patients will face fee rises of 7-10% and too many vulnerable old people will be inadequately cared for. In the longer term, Government agencies will pay a heavy price for eliminating provision in many areas.

In addition, the run down in capital stock will gather pace, as there will be no let up in rationing of annual maintenance capital expenditure. With rightly no prizes on offer for operators who compromise on the quality of care, bankers and sale and leaseback funds will have to come to some form of accommodation with their clients.

Will the City return and seek to recapitalise the industry? Tales about Cresta Care, NHP, Takare and Tamaris in the recent past will not help matters. More importantly the new regulations contained in the Care Standards Bill and what may well be the longer term intentions of the government, surely ratchets up uncertainty to unacceptable levels, at least for the time being.

Should all operators now throw in the towel? Those who have maintained standards and have the financial strength to come through the next year will turn the corner. Demographics do not simply go away. Back in 1991 Labour back benchers woke up to the issues and told a Health Minister there was no choic in 1991 Labour back binister there was no choice in 1991 Labour back benchers woke up to the issues and told a Health Minister there was no choice but to sort things out.

Everyone is no less caring 8-10 years on. The economy is no less able to afford it. Our older generation is no less deserving.