The care home sector in the UK is under increasing pressure but developments in the United States could steer us in the right direction to avoid reaching crisis point, say Tim Bolot and Scott Phillips
Expanding privately assisted living (residential social care) and continuing care retirement communities
Those who work in the UK care home sector will be well aware of the structural challenges the industry is currently facing. Since the break up of the largest UK care home operator, Southern Cross, more than 18 months ago, many of the pressures that led to that have continued to hamper operators within the sector. Specifically, these are:
- continued downward pressure on state funded fees and a tightening of admission criteria for new placements as local authorities seek to control spending in the face of increasing underlying demand;
- a relatively fixed cost base, which is heavily dependent on staff costs, with many staff already on minimum wage; and
- financial legacy issues for many care home operators, hampering their ability to adequately reinvest in their businesses and reposition in a rapidly changing market.
At the same time, from our experience of managing acute hospital facilities in the UK, there are significant capacity issues at many secondary care sites, driven by the fact that a large number of hospital beds at any particular time are occupied by patients who do not need to be there.
In this context, and given that these pressures are unlikely to disappear soon, it is clear the UK care sector needs some innovative solutions that come at a lower overall cost to the public. In many ways this situation is comparable to that faced by the US market in the late 1990s when many large publicly traded nursing homes were forced to resort to bankruptcy due to spending cuts or voluntary restructuring.
How can the US inform the UK?
There are two key lessons US regulators have learnt since then that have informed policy. The first is that, in the long run, it is much less expensive and more effective to provide health and social services in the home than in a hospital or care home setting.
‘The private sector can play a role in anticipating the structure of the future market and invest accordingly’
Second, the government cannot afford to pay the cost of long term residential social or health care services for the entire population; rather individuals must be expected to assume some responsibility for their housing needs in old age (with the government providing a safety net for the poor, as well as a regulatory structure to appropriately govern the private market).
While we would not suggest the US has resolved all the issues it faced, it has made significant progress in delivering higher quality care more efficiently. In doing so, the following developments have been key:
- Expanding privately assisted living (residential social care) and continuing care retirement communities: these are age restricted communities that combine independent living units (apartments or homes) with residential social and nursing care beds on a campus. There are now more residents living in such facilities than in government supported nursing homes. The UK has limited communities in operation that are similar to the US model, but across the Atlantic these are highly successful when combined with effective and available home care. These facilities are highly effective as they contain costs while also making a wider range of services available.
- Focusing on delivering true economies of scale: care providers will have to increase productivity year on year. Single care homes in an increasingly diverse market will have significant difficulties containing their costs. One of the most effective strategies to meet this challenge, without negatively affecting residents’ lives, is either to group a number of care homes together or to provide services within a defined local area to residents with different needs. Such “care clusters” mean providers can secure economies of scale.
- Moving activity to the lowest cost setting that is appropriate: as demand for services for older people and those with disabilities grows, discussion by policy makers and care providers is shifting away from focusing only on price towards an emphasis on what will be needed, as well as where services should be located and whether a private house, care home, hospital or other facility is most suitable.
We believe the lessons above and the developments in the US are relevant to the challenges currently faced in the UK. Without such changes, local authority budgets will be overwhelmed. The private sector can play a role in anticipating the structure of the future market and invest accordingly. The experiences in the US over the past 20 years can help inform this process.
Tim Bolot and Scott Phillips are managing directors of Bolt-HMP, a joint venture of Bolt Partners LLP and Healthcare Management Partners LLC