One-fifth of social care providers expect to close next year

One in five social care providers expects to go out of business in the next financial year as a result of council cuts to their fees, research by Community Care has revealed.

Two-thirds of the 238 providers surveyed had their fees cut this year and 81% expect a cut next year, with over half saying they will be forced to reduce the level of support they offer service users as a result.

A third of the respondents – most of them senior managers at adult social care providers – have already cut jobs and most anticipate job losses in 2011-12.

Provider leaders said the closure of significant numbers of services would be bad news for vulnerable members of society.

“I would say that would have a very significant adverse effect on the number of people who receive care. It would be a disastrous outcome for the sector,” said Des Kelly, executive director of the National Care Forum.

Colin Angel, head of policy at the United Kingdom Homecare Association, said: “A rapid reduction in provider numbers could force some users into more expensive services, including acute hospitals.”

Frank Ursell, chief executive of the Registered Nursing Home Association, said there was already a lack of capacity in nursing homes. “Local authorities would not commission care in a double room if they could help it, so the fact that we have double rooms at all is a sign of the lack of capacity.”

Nearly a third of providers reported reductions in local authority funding of 10% or more this year, while of those whose fees had already been cut, 86% predicted further cuts next year.

“It’s wrong to think that there’s significant margins to achieve these efficiencies,” said Kevin Gallagher, deputy managing director at the Continuum Care and Education Group, a children’s care service provider.

The survey follows a Community Care poll of voluntary sector care providers last month, which found that two-thirds had experienced cuts from councils this year and almost 90% anticipated cuts next year.

Richard Jones, president of the Association of Directors of Adult Social Services, said spending on care providers formed the biggest part of adult care budgets, meaning they could not be immune from the cuts councils had to make.

“Councils will be doing all that they can do to protect the frontline,” said Jones. “But we are doing this in the context of the biggest reduction in local government funding for decades at a time of increasing demographic demand when the government, too, acknowledges that the current system is not sustainable and a new settlement is needed.”

He added that councils and providers needed to be open with each other about the financial challenges faced by the sector, if they were to solve them.

Ursell said that councils were abusing their position within the market as the biggest purchasers of care to drive prices down.

However, councils have already faced legal challenges to fee decisions. Pembrokeshire Council raised its fees for three care homes last month after a judicial review ruled that it had failed to take sufficient account of the needs of residents and providers in setting fees.

Wirral Council is also facing a legal challenge over its decision to cut fees for residential providers by 9.5% next year.

Opinion: care market analyst William Laing – ‘Torrid summer of discontent’ on the way

Survival is going to be the name of the game for many care providers when public funding cuts hit with a vengeance in 2011-12. The real concerns of the sector are amply reflected in these survey results.

More than half of the providers think the cuts mean they would have to reduce the level of support for service users and a fifth fear they will go out of business.

Even allowing for the fact that the self-selected sample of respondents probably over-represented those in trouble, it is an alarming prospect.

So, are these fears justified? And will frontline services be hit as hard as this survey suggests? Certainly, if councils are serious about some of the price reductions being proposed, then the future looks bleak for many small and medium-sized enterprises.

A 5% fee reduction combined with volume reductions would see many operators with high levels of borrowing sinking. Investor confidence would evaporate and providers would struggle to maintain quality standards.

Providers of more specialised services will be best placed to defend their businesses, as of course will those catering predominantly for a privately paying clientele. For providers of more generic, state-funded care, the options are more limited.

Many local care associations are considering legal challenges to what may be viewed as arbitrary price cuts, and Laing & Buisson is itself involved in several of these. It looks to be building up to a torrid summer of discontent in which the courts could be the arbiter deciding the viability of the sector.

William Laing is founder and director of community care market analysts Laing & Buisson

Views from the provider frontline

“These cuts will have a huge effect on the quality of service we provide and will also greatly influence the viability of our business.” Small adult residential care provider

“The government should be ashamed of itself cutting monies again and again like this. It just means reduction in standards of care being given to vulnerable frail individuals.” Medium-sized adult residential care provider

“We provide the same service for both private and public residents causing the private clients to subsidise the funded residents. We need a real-terms rise. We cost out every hour of care and the fee does not cover this and everything else.” Small provider for adults with mental health problems

“The quality of care has risen over previous years; it is a shame to see this being reversed.” Small adult domiciliary care provider

 “Where are the champions for children’s rights in local authorities? Too many local authority employees are afraid for their own jobs, and not resisting damaging cuts to services for the most vulnerable. A big saving could be had by eliminating the commissioners of services themselves.” Children’s residential care provider

 “Social workers are budget-driven instead of people-driven. Many have been brainwashed into thinking that current policies to keep people at home are better for the person and that living at home is the only and best way to lead a full, dignified and active life within the community. A residential setting is a community too, it is not a step down or a step back and should not be viewed as such.” Small residential care provider:

“Many local authorities are not interested in impact the reduction of fees will have on the quality of individual service user care. A few local authorities are trying to avoid paying for agreed increases in care hours.” Large adult care provider

Case study: Bryn Melyn Care on the cost pressures facing children’s homes

On Steve Nevitt’s desk, there are letters from local authorities demanding cuts of between 2.5% and 10% in the fees for places in Bryn Melyn Care’s 27 children’s homes. “I defy anyone to cut their fees by 10% and be profitable. It’s not do-able,” said Nevitt, Bryn Melyn’s managing director.

He said that although fees have nominally been stable over the past year they have been consistently negotiated down by councils placing children in Bryn Melyn’s homes over the past six months. He anticipated fewer children will be placed with the company next year and said they were instead being placed with cheap providers with a “less comprehensive” service.

Below-inflation increases in fees had been going on for the last few years, said Nevitt.

Bryn Melyn Care already has a savings programme in progress, but Nevitt said: “I would not want to rule out that we will make people redundant.”

Case study: Everycare on the price pressures facing domiciliary care

Everycare in central Hampshire has this year already dropped its price for half an hour of domiciliary care by 10% from £9.90 to £8.90. Mike Frizzell, its managing director, said Hampshire Council officers were already quoting £5.99 as the lowest price for care, pressuring him to match it.

“We just couldn’t go to that price full stop. We would be losing money,” said Frizzell. He said that providing care in the area at that rate would involve cutting corners on quality and time. “We would just withdraw from the market if they will only pay that price,” said Frizzell.

He said that low rates of pay already make it difficult to find good staff because the smart ones quickly worked out they could get more money in another industry.

Frizzell said he feared if prices got lower there would be two tiers of care, where the council would only pay for poor quality care, and private individuals, whom Everycare charges £11.10 per half hour, would still be able to afford good quality services.

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