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Profit gap widens between public and private pay

January 17, 2019

In its Autumn-Winter Overview of the UK healthcare market in 2018, commercial property consultants Knight Frank highlights the continuing haemorrhage of publicly-funded social care beds.

“The UK healthcare market has continued to experience some headwinds in 2018,” said Knight Frank’s head of healthcare Julian Evans.

“The social care funding crisis continues to impact many local authority funded homes with almost 7,000 beds deregistered in 2017/18, while increases in the National Living Wage and a shortfall of nurses is presenting many operators across the healthcare sector with both increased staffing costs and a shortage of skilled labour.

“In response, new development remains focused on the private pay personal care home market where the effects of such challenges are less prominent.”

The Knight Frank report points to the UK’s ageing population as a continuing source of demand for the care home sector with occupancy rates hitting a of 89.4%, surpassing the 89.3% recorded in 2006 when records began. At the same time, average fees outstripped inflation for the fifth consecutive year as operators looked to limit the impact of rising staff costs and generate the additional income required to invest in and improve the quality of care they provide.

Elderly care home profitability (measured as EBITDARM as percent of income) fell marginally during the 2017/18 financial year as the market endured increased costs. However, Mr Evans said it was worth noting the differing financial performance of local authority funded homes verses the independent private pay segment.

“While margins for public funded homes are down to 15.9%, the private pay market is reporting profitability as high as 39.4% ? a notable jump and a source of encouragement for operators and investors alike,” he said.

“The adult specialist care home sector has faced a similar set of operating issues, but with around 90% of fees being paid from the public purse, this sub-sector remains heavily influenced by the restricted budgets of local authorities.

“One byproduct of this has been the continued preference of commissioners to transfer users into non-residential supported living as opposed to full-time residential care.”

Mr Evans said care providers would welcome the recent Autumn Budget which announced a further £650m of funding specifically for social care over the next two years, but whether these funds will filter through to long-term residential care was unclear.

Knight Frank head of healthcare Julian Evans

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