Engage: We need to talk about social care providers

This is a complex and sprawling sector – more than 12,000 independent organisations, ranging from big corporate chains to small family-run businesses, charities and social enterprises, which makes the NHS provider landscape look like a sea of organisational tranquillity. Less than 10 per cent of social care is actually provided by councils or the NHS – their retreat from long term care provision is virtually complete. But unlike the NHS, when a social care provider hits the financial rocks, bankruptcy not bail-out is the more likely scenario.

Our health and social care system is highly dependent on residential care and nursing homes – there are three times more care home places than hospital beds. And nearly half a million people rely on home care services to be able to live at home. The consequences of failure are potentially calamitous for individuals, families, staff – and indeed the NHS and social care system as a whole.

So we should take the mounting evidence about the fragility of the social care market very seriously. The underlying malaise stems from the widening gap between the actual cost of care and the amount local authorities can afford to pay, which has fallen by almost 5 per cent in real terms over the past five years. Local authorities have frozen provider fees for several years but analysts LaingBuisson reckon an average annual increase of 2.5 per cent is needed simply to keep up with inflation.

Another pressure on costs, especially for nursing home providers, will be familiar to NHS colleagues – higher spending on agency staff because of a shortage of qualified nurses – up by 55 per cent according to one survey. These pressures are making it tougher for providers to deliver good care that meets regulatory standards within the rates paid by councils. Last year, the Care Quality Commission (CQC) found that one in five nursing homes did not have enough staff on duty to ensure residents received good, safe care.

It is not surprising that many see the Chancellor’s announcement of a so-called national living wage as a potential tipping point – it will add at least £1 billion to providers’ pay bill by 2020 with no indication of how or whether it will be funded from the public purse. If big providers are struggling, spare a thought for smaller operators, grappling with the same cost pressures but without economies of scale.

The warning signs are clear; 56 per cent of directors of adult social care report that providers are facing financial difficulties now. Three of the country’s top five home care providers are planning to pull out of publicly funded home care or have already done so; many more have handed uneconomic contracts back to local authorities. Many care homes are charging higher rates for people who pay for their own care – as much as 40 per cent higher in one study – in order to compensate for or ‘cross-subsidise’ the lower fees paid by local authorities. Inadequate local authority rates are prompting new investment to be targeted at self-funders in better-off areas. Fears grow that there will be another major care provider failure on a similar scale to the collapse of Southern Cross plc in 2011 which put at risk the care of 31,000 older people.

The risk of failure is greatest among very large providers who are heavily dependent on local authority funding. The new market oversight regime introduced by the Care Act should ensure these are spotted, but options to rescue them remain limited. Along with the withdrawal of some providers from the publicly funded market, the cumulative effect of these responses will be to make it much harder for people reliant on public funding to get the care they need at a rate local authorities can afford.

There are two fundamental issues, the more obvious being the failure of successive governments to address the now chronic underfunding of the public social care system. But a deeper problem is the failure to think through the consequences of shifting the bulk of our care provision to a private business model. This worked financially when the economic sun was shining but austerity is exposing its fragility when the requirements of commerce and the values of care point in different directions.

As prospects for people with care needs worsen, the need for better evidence about the impact of these trends has never been greater. The King’s Fund has begun a major new research project, in partnership with the Nuffield Trust, to understand the effects of public spending reductions on social care services over the past five years.

• Find out more about our project: The sustainability of social care services
• Catch up with our work on social care

About the Author

Richard Humphries is Assistant Director, Policy at The King’s Fund which he joined in 2009 to lead on social care and work across the NHS and local government. Over the past 35 years he has worked in a variety of roles, including as a director of social services and health authority chief executive (the first combined post in England) and in senior roles in the Department of Health.

Richard is a non-executive director of Wye Valley NHS Trust and Housing & Care 21, a large national provider of housing and care services. He is also a columnist for the Local Government Chronicle and a fellow of the RSA.

Richard was writing in the Kings Fund blog which you can follow here: http://www.kingsfund.org.uk/blog