12% of care homes (1,584 out of a total of 13,261) have at least a 30% chance of going insolvent within the next three years, according to research by Moore Stephens, the top ten accountancy firm.
Moore Stephens says that care homes in the UK have been under considerable financial strain in recent years due to rising costs and a lack of funding from local authorities despite growing demand for places at care homes.
Moore Stephens explains that the introduction of the living wage has increased the financial pressure for care homes, particularly for smaller homes.
Moore Stephens adds that government cuts to local authorities’ budgets have also had a significant impact on the sector. It’s estimated that fees paid by local authorities in England to care homes have dropped by close to a fifth since 2010, and councils now face a £1bn shortfall for social care.
Moore Stephens says that in a report in October 2016 by the Care Quality Commission (CQC), the regulator for health and social care services in England, voiced concerns over the sector citing difficulties retaining staff, financial pressure and increase in demand as particular drivers for care homes to close.
In their report the CQC highlighted that 2,444 residential care homes have closed from October 2010 to December 2015 - with the majority of those homes closing being smaller care homes (1,433).
Mike Finch, restructuring partner at Moore Stephens, said:
“It’s become increasingly difficult for care homes, particularly smaller providers, to keep up a consistently high level of care whilst breaking even or worse, remaining solvent.
“The introduction of the living wage has increased the financial pressure on care homes to even higher levels, and this is only likely to continue as the living wage keeps increasing to reach the target of £9 by 2020.
“This is creating an unsustainable situation in a lot of care homes, where more staff is needed to cater for the increase in demand but the money simply isn’t there to cover rising staff costs.
“Cuts to local authority fees have meant that care homes have had to cope with an increasing proportion of the financial burden.
“When a care home does go insolvent it’s important that administrators move quickly in order to avoid any disruption to residents.
“The administrator’s work will typically involve restructuring the care home owner’s debt and examining the selling off of assets such as surplus property.
“It’s vital that care homes receive the funding they need to employ the right levels of staff and offer sustainable high quality care to their residents.”
Moore Stephens says that although steps are being taken to improve funding to adult social care through the government’s Better Care Fund, and the option for local authorities to raise council tax by 2%, many care home providers are concerned that this will not go far enough.