LaingBuisson sees investment rushing towards self-funded sector

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LaingBuisson, a market intelligence specialist for the healthcare sector, says that the provision of long term care of older people is splitting into two distinct markets, with businesses focusing on self-funded residents thriving while those reliant on authority-funded residents suffering.

In the latest edition of its annual report, Care of Older People, LaingBuisson describes a perfect storm for the authority-funded end of the market as real terms fee reductions, rising wages and nursing shortages squeeze profits.

“With 90% of residential and nursing care services now delivered by independent providers, more than ever before there is strong evidence of a marketplace where healthy profits (25-30% of revenue) can only be made by those operators focusing on self-pay residents in affluent areas of the country.  Meanwhile, those homes catering mainly for publicly paid residents in non-affluent areas have sunk to a worryingly low profit levels hovering around the 15% mark – compared with over 20% five years ago,” LaingBuisson says in an executive summary.

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Investment is flooding into the private-funded elderly care market from outside the UK market, but capital from within the UK care sector is also being refocused on the opportunities at the more affluent end of the sector.

The introduction of the National Living Wage (NLW) will polarise the market even more, warns LaingBuisson, as privately-funded care prices can be raised in richer parts of the country to maintain operating margins. “It is provisionally estimated that the additional costs expected from roll out of the NLW will mean a fall of about four percentage points in care home operating profits as a percentage of revenue, unless mitigated by higher fees.  Where private payers may have the capacity to pay higher fees to prop up this new cost, unless there is an injection of more government funding most local authorities do not.

“ As such ‘public pay’ care home companies face the prospect of operating profits falling to a dangerously low level of around 10%, where even those with modest levels of gearing could face financial failure,” the report concludes.

Tags : Care HomesInvestmentLaingBuissonNational Living Wage

The author Rob Corder

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