Financial leakage in the care home sector

November 8, 2019

The Centre for Health and the Public Interest has published a report, looking at financial 'leakage' in the care home sector and how money is spent within the social care system.

Plugging the leaks in the UK care home industry: Strategies for resolving the financial crisis in the residential and nursing home sector identifies where each pound that goes into the care home industry ends up. It uses a forensic study of the accounts of over 830 adult care home companies, including the 26 largest providers. The companies examined have a combined income of £10.4bn, representing 68% of the total estimated market value for independent providers in 2017.

The report has found that:

  • Significant financial 'leakage' in the care home sector is evident. For 784 small and medium-sized care home companies, £7 of every £100 received goes to profit before tax, rent payments, directors’ remuneration, and net interest paid out. For the 18 largest for-profit providers, the level of leakage is £15 of every £100 received.
  • The 26 largest care home providers are seeing significant differences in the amount of money leaked; for the 13 largest for-profit providers, the level of leakage is £19.49 out of every £100 received, and amounts to £401m a year. They are also paying rents to related companies often based outside of the UK's tax jurisdiction.
  • Some organisations are using complex company structures to maximise leakage, including splitting operating and property companies and using sale and leaseback.
  • Debt repayments are a significant area of leakage. This problem is especially serious in relation to homes operated by the 5 largest for-profit care home providers which are owned or backed by Private Equity. Collectively their debts amount to £35,000 for each care bed they own, and they pay interest costs of £102 per bed per week; this means that 16% of the weekly fees paid to these providers by local authorities or individuals for residential care goes towards paying off debt.

Based on these and other findings, the think tank is making the following recommendations:

  • A Care Home Transparency Act should be put in place, forcing providers to detail where their income goes.
  • A new form of regulation is needed, to prevent care home companies with 'unsatisfactory' financial models from operating in the UK.
  • Capital should be made available by Government for the provision of new care homes.

The full report looking at financial 'leakage' in the care home sector is available on the Centre for Health and the Public Interest website.

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