Last Updated on May 4, 2016
A new report today is highlighting the financial health of care homes. Produced by Opus Business Services for BBC Radio 4’s You and Yours programme, it includes research into the financial health of nearly 6,000 care home operators.
Of the 5,871 operators included in the research, it found that 1,635 operators or 28% are at risk of failure. This equates to 5,600 care homes, an increase of 17% (4,800 care homes) in 2014. It also points out that 761 care home operators are classed as ‘zombies’ – these are companies that pay out more to cover their debt and interest, than they make in profits.
Nick Hood, Business Risk Advisor at Opus Business Services told CMM, ‘The UK care home sector has been caught in a pernicious profit pincer, squeezed between government austerity cuts, limiting its income and relentless upward cost pressures from rising labour costs and care quality improvement demands. Most homes are barely profitable and many are borrowing far too much. With an urgent need for more capacity as baby boomers age, it is difficult to see this ending well without significant additional funding being made available by the Government.’
As the research has been commissioned by the BBC’s You and Yours programme, fuller details are not available until the programme has aired on BBC Radio 4 at 12:15 today. However, Nick Hood gave CMM some market comment.
The UK care home sector is fundamentally two-tiered and in several different ways – funding, pricing, residential care versus nursing and specialist care providers, and geography. Considering funding – at the top end, many big operators are funded with private equity. High levels of debt are secured against the whole of the business with high interest costs. This is high risk if things go wrong financially. Whereas, smaller operators borrow against the care home property and, sometimes, their personal assets. This is still risky, but not as much. Although, it means that they have a far higher incentive to leave the industry if the going gets too tough, the homes may be in less attractive locations, may need further investment to keep up with industry standards and, as a result, be more difficult to sell.
Care types – basic residential care is less profitable as it has become a commodity service, with lower pricing and lower cost. This produces negligible or negative profit margins. Nursing and other specialist care has a far higher cost base in terms of facilities and staffing, but commands high prices and a return for operators.
You can listen to BBC Radio 4's You and Yours Programme here.