As community care reforms continue to depress the market in private residential care and small homes are lost, how will services meet all elderly people's needs?

The days when private sector residential and nursing care home proprietors could sit back and rake in the cash are long gone.

According to a survey of the care home market by Laing and Buisson, a typical nursing home with an average bed occupancy rate of 85 per cent makes about 50p profit a day on each available bed.

Even the providers of high-quality new-build homes, such as those run by some of the major chains, fare little better. With a slightly higher occupancy rate of 88 per cent, they only make about 2 a day for each bed.

Unless rents and other property-related costs start to fall, warns the report, the private sector will not be capable of absorbing any further squeeze on margins.

Occupancy levels could fall further, Laing and Buisson predicts. From a peak of 512,000 people in residential care in 1995, there were 487,000 by 1998.

Three decades of uninterrupted growth in the sector were brought to an end by the community care reforms, which placed state funding of long- term care in the hands of cash-limited local authorities.

William Laing, one of the report's authors, warns that as the number of care home residents with preserved rights from the pre-1993 era gradually declines, there will be fewer local authority-funded newcomers.

But NHS Confederation community care spokesman Chris Vellenoweth warns that the independent care home sector cannot be allowed to fail 'because the health service simply will not be able to cope with... a return to continuing care within the NHS'.

Sheila Scott, chief executive of the National Care Homes Association, says there is a clear correlation between the falling numbers of placements and the fact that local authorities are not spending as much as the Department of Social Security did before 1993 on residential and nursing homes.

'Smaller homes are already getting into real difficulties and we will shortly see some high profile businesses in trouble,' says Ms Scott. 'We are pinning a lot of hope on the outcome of the royal commission on long- term care. We hope it will come up with some short-term proposals which may identify alternative funding methods.'

The Laing and Buisson report says the fees local authorities pay to care homes have not risen in line with care home costs.

More than 200 of the 208 local authorities that responded to the survey did not increase their 1998-99 fees in line with the retail price index, let alone wage inflation, it notes.

Forty-four local authorities implemented increases of less than 2 per cent, 26 froze rates at 1997-98 levels and seven reduced all or some of their fee rates for residential and nursing care.

'For a care home outside London, 213 is an average weekly fee.

'We need to see how this compares with the cost of a pension, housing benefit, attendance allowance, district nursing, meals on wheels and a carer two or three times a day to keep a person at home,' says Ms Scott.

The Laing and Buisson report says home care services 'continue to grow steadily'. But Mr Vellenoweth believes some people are missing out completely.

Lorna Easterbrook, community care spokeswoman for Age Concern, agrees. 'In the past couple of years there has been a reduction in the number of people receiving the traditional two-hours-or-fewer home help services,' she says.

Eddy Proctor is director of Anchor Homes, a part of Anchor Trust, a not- for-profit provider of housing and care services for elderly people.

He says that if the declining number of people in residential care meant that strategies for maintaining people at home were working, 'we would applaud that success'.

But because the decline is due to local authorities being unable to fund places and because prices are being held at levels which make it difficult to provide a high quality, 'these figures are really an indicator of significant unmet need', he says.Care of Elderly People Market Survey 1998. Laing and Buisson, 29 Angel Gate, City Road, London EC1V 2PT. 360.