Business Economic Notes 21
Residential Rest & Nursing HomesTable of Contents Staff Accommodation 9. Poll Tax/Community Charge and Council Tax 11. The Community Care Act 1990 12.1 Appendix 1 - Requirements for persons in residential care homes and nursing homes 12.2 Appendix 2 - Registration Fees for England 12.3 Appendix 3 - Table for comparing Food Costs as % of Turnover and Food: Takings Ratio 12.4 Appendix 4 - Representative organisations
In recent years, privately run residential rest and nursing homes have proved to be a major growth area. The indications are that they will continue to be so for the foreseeable future, although the effects of the Community Care Act 1990 may lead to a degree of restraint in the industry's growth rate. It is estimated that approximately 4% of the elderly population require some form of institutional care, a figure which has remained fairly constant over a large number of years. The growth of the market has stemmed generally from the increased average longevity of the population, and from government policy in assessing the ability of the National Health Service and Local Authorities to cope with the increased demand on their resources. Up until the late 1970s, 75% of residential accommodation for the elderly was provided by Local Authorities, and a similar figure applied to the nursing homes sector. Since that time, the general policy has been to move the elderly or infirm out of hospitals and into the community, and for a number of years, the demand for private residential accommodation has, in some areas at least, outstripped the supply. Generally speaking, private homes tend to be smaller than the equivalent Local Authority homes with an average of 18 residents compared to 45. In terms of occupancy levels, by and large, densely populated and metropolitan areas fare better than rural areas, reflecting the fact that people are less inclined to move away to retire than was formerly the case. A further significant sector of the industry is that of the 'voluntary' homes - i.e. those operated by voluntary, charitable or religious organisations. Whilst voluntary homes represented only 13% of all residential care home places in 1988 compared with 33% in 1980, these figures reflect the relative growth of the private homes rather than a decline in voluntary homes, whose numbers have remained fairly static. Voluntary homes can benefit from charitable status, which confers concessionary treatment regarding taxation. In recent years, a noticeable feature of the industry has been the increasing impact of corporate concerns, each operating a number of purpose-built homes. Takare and Westminster Health Care are two of the current industry leaders, with both firms in the process of constructing new homes and expanding their shares of the market. Even so, the vast majority of homes are single units. Home owners are more inclined to expand by increasing the numbers their existing home caters for - so far as they are able - rather than opening a new home, due to the economies of scale that can be achieved in one larger home - especially with regard to staff - and the financial burden entailed in acquiring and servicing additional premises. The availability of DHSS/DSS assistance towards payment of residents' fees, which took effect from 1983, in particular boosted the private sector, and it is estimated that at least half of all residents in private homes are supported in this way to some extent. The entitlement to financial assistance from the DSS (and following the Community Care Act from the Local Authority) is gauged according to the individual's means. Initially there were no limits set on the weekly amounts paid by the DHSS, but with effect from 1985, specified limits were imposed according to the category of client. These limits are set out at Appendix 1. It is, of course, not only the elderly that are accommodated in residential or nursing homes. Some cater for specific client categories such as the terminally ill, drug or alcohol dependants, young people with a physical handicap of some kind, or people with a learning disability or with some form of mental handicap. Whichever the category of client, the privately run homes offer a specialist service. A distinction may be drawn between the 'rest home' or 'old peoples home' on the one hand, and 'nursing' homes on the other, each having quite separate aims. In practice. the distinction is not always so clearly defined. Some homes, indeed, take up 'dual registration', enabling them to operate as both a rest home and a nursing home, thereby avoiding the need for upheaval as and when residents become increasingly infirm. 'Croner's Care Home Management' is a 'manual' for the care home proprietor, and contains regularly updated advice and information on virtually all aspects of care home management under the general headings of setting up a home; general management; day to day running of the home; and further information. In addition, there are numerous other trade and professional publications that serve the industry. There are approximately 17,000 residential and nursing homes in the UK, and a number of organisations have been established to represent the interests of the various sectors that the industry comprises. These are summarised at Appendix 4 of this note, but it is worthy of note that less than one-third of the 17,000 homes belong to any of the national organisations that have been set up.
Anyone wishing to run a home which will accommodate more than four residents must first be registered with the Local Authority (Social Services Department for a residential home) or with the local Health Authority (for a nursing home). With effect from April 1993, as one consequence of the Community Care Act, proprietors of homes with fewer than four residents are also required to register with the Local Authority. In the past, no formal qualifications were required by people running residential homes, but now most Local Authorities require either a nursing or social work qualification before authorising registration. In the case of a nursing home, the nominated person in charge should be either a registered medical practitioner or a registered nurse. The application will only be considered after the necessary planning and building permissions have been obtained, and further criteria to be borne in mind are the location, the state of repair, the staffing, the accommodation and the equipment of the home. The demographic needs for a new home in the area may also need to be illustrated. Registration cannot automatically be transferred either on a change of proprietor or a change of premises. In these cases a new application must be made. The registering authority may well require alterations to be carried out, or insist on changes in the staffing or facilities when considering such changes. Application to the registering authority is also required when a registered person wishes to change the number or category of residents for whom care is offered. The specific criteria laid down by the registering authorities vary from one authority to another, although each authority bases its criteria on the guidelines in the Registered Homes Act 1984 and guidance from the DSS. The registration authority will be concerned with:-
As indicated earlier, prior to April 1993, residential care homes catering for fewer than four residents were not required to register, and consequently were not bound by the obligations conferred upon registered homes. Indeed, even with the new requirement to register, the demands placed upon this type of establishment tend to be minimal in comparison with the larger homes.
A prerequisite for registration as a residential home is the appropriate planning permission for the relevant building(s). The relevant category of use covers the following:- 'Use as a home or institution providing for the boarding, care and maintenance of children, old people or persons under a disability, a convalescent home, a nursing home, a sanatorium or hospital.' Planning permission is not therefore required for changes within this group. A complete inspection and report by the Fire Prevention Officer and Building Officer is also likely to be undertaken before registration can proceed. This will cover all aspects of fire prevention, including means of escape, fire fighting equipment, emergency lighting, entries and exits, and all relevant requirements of the building regulations. The maximum number of residents is specified in the registration document and is subject not only to the number of rooms, but also the size of rooms, situation and general facilities. The amenities offered to individual residents will vary from one establishment to another, and in some cases from one resident to another within the same home. Such variations are generally likely to be reflected in the respective fees charged. Depending on the category of client, special equipment or facilities may well be called for. In many cases, for example, special lifts, automatic and electrically operated beds, and miscellaneous other equipment may be required, although the use of surveillance equipment as an aid to the supervision of residents has recently been declared unlawful. For some equipment, the option of leasing may be preferred to the capital expenditure entailed in outright purchase.
The number of 'care' staff required is specified in the registration documents. A staff register must be maintained giving full names, ages and details of special qualifications. Minimum staffing ratios are set by the relevant local or health authority. For example, the authority may decree that there should be one member of staff on call at all times to deal with emergencies, and two persons if there are more than ten residents. As a very general yardstick, ratios of one care staff for five residents may be required in the daytime, and one waking care staff for up to fifteen residents at night, although, as illustrated below, such ratios are variable according to the category of care to be provided. In the case of a nursing home a qualified nurse must be on the premises at all times. The staffing requirements imposed by the registering authority are largely determined by the category of client provided for. The following extract gives general guidelines on the number of care hours required per resident:-
From these figures, the proprietor and the registering authority can calculate the number of full-time staff required to provide the care staff that are required by dividing the total number of hours required by the average number of hours that a full time employee is actually available. This latter figure can be worked out to an annual total of between 1450 and 1650 hours per annum based on a 39 hour week or 40 hours respectively, and allowing for annual, Bank holiday and sick leave. By way of example, a home for 15 elderly physically dependent residents has a minimum need for 8580 hours of care staff each year - i.e. 15 x 572 = 8580. The home will therefore need the equivalent of a minimum of 5 full-time staff each available for 1650 hours, or 6 full-time staff each available for 1450 hours per year. The hours refer only to care staff on duty during the waking day. They do not include staff on night cover or those employed as cooks, domestics, drivers and maintenance staff. The cost of staff wages, etc. is normally the single highest expense of the business. The annual percentage of wages to turnover may well vary between one third and two thirds of the turnover, depending on the extent of the duties performed by the proprietor(s) in the business. A consequence of this is the frequent deployment of part-time staff in preference to full timers. Not only does this enable cost cutting in respect of National Insurance Contributions that would otherwise be payable, but it also permits a greater degree of flexibility in terms of staff cover when required. In addition the deployment of agency staff is a feature of many establishments in the industry. In addition to the normal employment law and Inland Revenue requirements with regard to employees, nursing and residential home proprietors are bound by regulations imposed by the registering authority. Detailed records of all staff engaged are required to be maintained, and their respective staff grades and, where applicable, their qualifications, are to be recorded. Staff accommodation Due to the requirement to provide round the clock cover for certain categories of residents, many homes will have at least one member of its care or nursing staff in residence overnight. This may be a permanent arrangement for the member of staff concerned, or a duty carried out on a rota basis by a number of employees. Alternatively the cover may be provided by the proprietor(s) if they are resident in the home. Where an employee is provided with residential accommodation, a lodging charge may be made and deducted from his/her wages. The employee is taxable on the full amount of the wages before the deduction is made. Alternatively, the employee may be able to choose between living in or, by living out, receiving a higher cash wage. In that case, the employee will be taxable on the higher cash wage they could receive if they chose to live out. Alternatively, rent-free accommodation may be provided. The value of this may be exempt from tax, if, for instance, it is necessary for the employee to reside in that particular accommodation for the proper performance of their duties. This exemption will not however apply to directors.
The extent of the services provided - and the quality thereof - will have a direct bearing on the levels of the additional operational costs to be met by the home. After the cost of staffing, the largest single area of expenditure is likely to be food and provisions for the residents. As a very general yardstick, food costs in the region of 6-8% of turnover appear to be typical. Generally also, in homes with a greater number of residents, the food costs can be expected to amount to a smaller percentage of turnover. In some quarters this relationship is more commonly expressed in terms of the takings : food costs ratio. Appendix 3 provides a table enabling a comparison in the terms used. It may well be that food costs are included under a more general heading, such as 'provisions', which may also include residents' medications, laundry or items of clothing. A further factor that can distort this ratio is the extent to which staff consume meals on the premises. The proprietors' 'own consumption' of food, etc. may be included in the profit and loss figure, and where this applies, a suitable computational adjustment may be anticipated. Most importantly, the standard of food can vary greatly from one establishment to another, although in general this can be expected to be reflected in the level of fees charged. Normally menus will be fairly static and probably on a rota basis - typically 4-weekly - with little or no variation. In nursing homes there should usually be a diet sheet for each resident giving details of food and portions. An alternative perspective to the quantum of food costs is achievable by calculating the average cost of feeding each individual resident per week or per day - i.e.: Food
costs debit in A/Cs In 1990 it was reported that the Army fed its soldiers for just £1.25 per man per day, and figures for other organisations such as the NHS were similar. Whilst it is not suggested that these figures are directly comparable with an average sized care home, it is nevertheless likely that a prudent care home manager will work to a budgeted framework, and a typical equivalent figure is likely to be in the region of £1.90 - £2.00 per resident per day. It should be stressed that such a figure is variable according, in particular, to the category of client being cared for, and whilst in some cases individual food requirements may be meagre in terms of quantity, the actual food cost may well be supplemented in consequence of special diets and food substitutes. The costs of laundry and cleaning are likely to be fairly consistent on a week to week basis, and in some accounts these items may be combined under one heading. In homes where all staff wear staff uniform, the overall costs are likely to be appreciably higher. Residential and nursing homes are liable to rates like any other business, and these can be quite substantial - e.g. £10,000 p.a. for a 25 bed home. Relief can, however, be claimed under the 1978 Rating (Disabled Persons) Act in respect of those parts of a property used for disabled persons. Such relief is not automatic, and a detailed application is required giving details of residents and their disabilities. In most cases relief is granted, although it may take several months to come through. During this time, rates will have to be paid in full, though the Local Authority may agree to backdate the relief resulting in a rebate.
With effect from January 1985, in accordance with the Residential Care Homes Regulations 1984 and the Nursing Homes and Mental Nursing Homes Regulations 1984. all homes registered with Local Authorities are required to keep records of residents. The Residential Homes Regulations require that each record shall be retained for a minimum period of three years from the date of the last entry, whereas the Nursing Home Regulations require records to be retained for one year. The records are to include full personal details of the resident together with basic administrative information such as the dates of admission and discharge. It may be that separate records are maintained for residents for information that is accessible to all care staff, and that which is of a more confidential nature and for which access is restricted to those in charge of the home. On admission, a written document must be given to every resident or his accredited representative indicating details of the services and the charge. Signed copies must be retained and be available for inspection by the Local Authority representative.
Fees are normally paid monthly in advance direct by the resident or by his representative, although in cases where fees are paid by the Local Authority, it is not uncommon for fees to be paid on a two weeks in advance and two weeks in arrears basis. Payments in the majority of cases are by cheque, standing order, or direct debit, although where the resident is supported by the DSS (or latterly the Local Authority), payment in cash is quite common. Normally the basic fee is paid separately, and any extra charges are billed on a weekly, monthly or quarterly basis - i.e. in arrears. Whilst it is a general principle of many homes to operate on a fees payable in advance basis, there are numerous situations in which residents can accrue an indebtedness to the proprietor. A common situation in which arrears of fees can accrue arises when a resident is admitted whilst he or she is awaiting to sell his or her home, the proceeds from which will in due course fund payment. The variability of the housing market can lead to unexpected delays - not to mention diminished proceeds. Where several weeks or months are involved, the accrual can be substantial. Prior to the changes brought about by the Community Care Act, a similar situation occasionally arose in respect of DSS funded residents, where, for whatever reason, their entitlement to Income Support had not been finalised at the time of admission. Delays of several months may be encountered in these circumstances, finally to be resolved by a lump sum from the DSS in settlement of the arrears. In some circumstances, the DSS would issue a round-sum payment on account followed at a later date by a balancing sum. Again, substantial sums can be involved. The nature of the business confers a higher than average likelihood that arrears may remain outstanding at the date of the debtor's death. In this event, further delays may well result whilst matters pertaining to the deceased's estate are resolved. Lesser amounts may accrue in respect of 'extras' that are billed normally either on a monthly or a quarterly basis.
Extra charges may include:-
Residents of residential and nursing homes are exempt from payment of the Community Charge. The liability to council tax falls on the proprietor, rather than the actual residents in residential care homes, nursing homes, mental nursing homes and hostels.
Since 1983 a substantial number of residents of rest homes and nursing homes have been financed by the DSS and, with effect from April 1993, by Local Authorities. The Benefits Agency of the DSS continues to pay Income Support to existing residents under 'Preserved Rights' arrangements for the transitional period. The DSS payments were awarded to cover the cost of accommodation, food and services, plus a small personal allowance (i.e. 'pocket money') for extras. In addition, there could also be an entitlement to an attendance allowance. Appendix 1 sets out details of DSS benefits payable. The full allowance was payable to the resident or his accredited representative in the form of a DSS order book, which was similar to a pension book. The arrangements consequent upon the Community Care Act - notably by virtue of the transfer of this role from the DSS to the Local Authority - are discussed in the next section. In certain circumstances, the proprietor, manager or matron of a home may have been given charge of a resident's DSS order book(s). This could arise, for example, where the resident was not capable of attending to such matters, and had no family or trustee able to oversee their financial affairs. Indeed, in some homes, this situation was the norm, with the result that substantial amounts of cash were transacted on a regular basis as the vouchers were encashed at the post office. A resident may well have had more than one order book - commonly one for the pension and one for the income support. The bulk of such funds related to the fees that were due, but a significant element also related to residents' pocket money, so that there should have been in place a means of accounting this money to the benefit of the individuals concerned. Cases sometimes arise where the maximum DSS fee falls short of the rates normally charged by the home owner. The home owner may request relatives of the client to 'top up' to the appropriate fee level. Alternatively, if such 'top up' fees are not forthcoming, the proprietor will either have to take the shortfall into account in his financial planning for the business, or decline to take in the resident concerned.
The explosion in social security payments for residential care prompted the review of personal social services that in due course led to the enactment of the Community Care Act. Six key objectives for Community Care are:-
A fundamental change that has been brought about is the transfer from the DSS of the funds in respect of income support payments to local Social Services Departments. Under the new arrangements, (with effect from April 1993) the Social Services Department of the local Council is responsible for providing the fees due from an individual to a nursing or residential home, although the Benefits Agency of the DSS will continue to pay Income Support to existing residents under 'Preserved Rights' arrangements for the transitional period. The provision of care is 'purchased' by the Social Services Department from the independent sector proprietors that are registered with the appropriate body. The proprietors may be referred to as 'Recognised Providers', or, in some contexts as 'Contractors'. The term 'user(s)' is commonly applied to the resident(s). In the first instance, the Social Services Department assesses whether an individual wishing to go into a nursing or residential home is in need of that kind of care, or whether his or her needs would be better served by remaining in their own home, supported by 'domiciliary carers'. Where admission is agreed, the financial position of the individual is assessed to decide if he or she has to make a contribution to the fees. Until the Social Services Department approves the contract, the person is not permitted to enter the home. Individuals can accept a place in a home where the weekly accommodation charge is more than the Council will pay, but the individual - or his/her representative - is required to pay the excess for the duration of their stay, and to sign an agreement to cover this. Generally, the amount the Council is prepared to pay corresponds to the DSS Income Support limits for the respective category of client, although the precise levels of assistance are subject to local variations according to the policy of the respective Council. Depending on the respective Council's policy, the actual payment of the fees in respect of Council supported residents as from April 1993 may well be effected by the Council direct to the 'Recognised Provider' - i.e. the proprietor of the home to which the resident is admitted. In such a case, the proprietor is required to submit a claim form, normally on a monthly basis, giving details of all Council supported residents in the care of the home as at a specified date; the agreed charge per week for each of the residents listed; and the total claim for the specified period. In addition, the proprietor is likely to be required to submit a weekly return giving details of any admissions, discharges or deaths of Council supported residents. From these details, the Social Services Department can calculate any adjustments by means of credits or debits that are due in respect of the 'Provider's' account. A wide variation of arrangements exists, however, among the various Councils throughout the country, and in some instances, payment of the relevant funds continues to be made direct to the resident(s).
The demand for the provision of care in private residential and nursing homes is likely to continue to grow in the foreseeable future. However, current trends appear to paint a rosier picture for some sectors of the trade than for others. In particular, homes in relatively affluent areas accommodating either predominantly or exclusively privately funded residents are generally faring better than those whose residents are heavily dependent on DSS or Local Authority funds. Reference is often made to the 'care gap' which is the term used as a measure of the difference between the maximum amount of funds made available by the DSS or Local Authority and the actual costs entailed in providing care for the particular category of resident. Generally this is held to have diminished to the point where, unless 'top up' fees are received from or on behalf of the resident, the margin that remains renders little encouragement to would be home proprietors. The multiplier of the margin that remains is the number of residents for which a home is registered. Consequently proprietors may seek to expand the capacity of their home by increasing the numbers for which it caters. Where this is not feasible, expansion into the spheres of Day Care and Domiciliary Care is a logical and compatible new direction that - where available space permits - is increasingly being pursued, especially in the wake of the Community Care Act, which resolves to encourage alternatives to full-time institutional care. A further form of diversity undertaken by some proprietors is that of 'respite care'. This provides short term care for suitable clients, where the principle aim is to provide respite for their otherwise full-time carers. Such opportunities will, of course, be restricted in homes specialising in long-term placements and where the occupancy level is high, and it may well be that Local Authority homes are generally better placed to fulfil this need. The fastest growing sector of the industry is currently that of the corporate concerns that continue to make inroads into the market by means of the provision of new purpose built homes operated to their own proven formula. 12.1. Appendix 1 - Requirements for persons in residential care homes and nursing homes The DSS fee includes any other benefit that the resident may be receiving - for example the old age pension. Any additional income received by the resident is deducted from the amount awarded. With effect from April 1993, state funding of residents in private care transferred from the DSS to Local Authorities. 12.2. Appendix 2 - Registration Fees for England and Wales. Residential Homes
Additionally, since April 1993, residential homes catering for fewer than four people have been required to register, and the fees are as follows:-
Nursing Homes
12.3. Appendix 3 - Table for comparing Food Costs as % of Turnover and Food : Takings Ratio
12.4 Appendix 4 - Representative Organisations Joint Care Council
Other representative organisations:- UCA
Uncommitted Care Association (All figures used are approximations) |
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