UK homecare services in need of a new business model as shrinking demand, falling profitability and variable quality undermines confidence
Shrinking social care budgets, in combination with stricter eligibility criteria, have reduced the number of individuals in England receiving homecare through their local authorities since the beginning of the millennium from 415,000 in 2000 to roughly 279,000 now. At the same time, however, the number of hours of care that each client receives has almost doubled from 6.7 to 13 hours per week– showing that the intensity of needs being managed within people’s own homes has risen dramatically.
The news echoes the oft repeated message that local authorities are closing their doors to some ‘lower needs’ due to the still prevalent pressures brought about by the government’s austerity measures, according to latest research from healthcare intelligence company LaingBuisson, published in Homecare, Supported Living & Allied Services.
This reduction in users, and increase in intensity has evolved at the same time as the shift from in-house provision to use of independent sector organisations. Latest data collected together in the report shows that an estimated 97% of publicly funded contact hours in England are now outsourced to independent sector providers, mainly for-profit companies. The bulk of homecare and supported living is also outsourced in Wales, Scotland and Northern Ireland.
But despite having taken over almost the entirety of supply, independent sector providers serving the publicly funded market have suffered from a severe squeeze in prices and profitability. In the last year, the then market leader Saga along with another major provider Care UK have exited publicly funded sector while two other providers, Mears and Mitie, have reported operating losses in their homecare divisions and aggregate operating profitability (EBITDA) of the eight for-profit operators plunged to a wafer thin 2.9% of revenue for accounting years ending in 2015.
Meanwhile, the privately funded market remains buoyant, prices are typically higher that the rock bottom rates that many councils pay and companies serving the private market, such as City & County Healthcare and Helping Hands, remain profitable.
LaingBuisson estimates the addressable UK market value of homecare and supported living at £6.5 billion in 2014/15, with the independent sector accounting for £6.2 billion of this total, and just £300 million remaining with council’s own in-house homecare teams.
Taking independent sector supply alone, 31% of overall homecare and supported living services are directly consumer driven – financed either privately out of the pockets of recipients or their families, or quasi-privately from ‘Direct Payments’ which councils offer to eligible individuals to enable them to buy their own care and support. The remaining 69% is purchased by local authorities or (to a smaller extent) the NHS. The sector is therefore highly dependent on public sector commissioning decisions, far more so than the care home sector where over half of demand is financed privately or quasi-privately. Heavy reliance on cash starved public sector commissioners is a major risk for homecare providers as austerity policies.
This dependency is alarming, according to report co-author and healthcare researcher Eleni Giatsi, given that since 2010 the gross social care spending envelope for English councils has fallen by 8% in real terms.
Despite some consolidation, the homecare market remains highly fragmented on the supply side. The top four independent sector providers collectively hold a market share of 12%, making the sector the second least concentrated segment across the independent health and social care market, right after care homes for mentally ill and learning disabled people. The homecare and supported living market leader, Allied Healthcare (recently acquired by the ‘bottom fishing’ private equity house Aurelius), had estimated homecare revenue of £250 million in 2015 (after extracting revenue from its GP out-of-hours division). This gives the company a 4% share of all independent sector homecare and supported living provision across the UK. The publicly quoted Mears Group is the second largest provider with a 3% market share.
Number of service users of local authority homecare and service intensity (hours per user per week), all clients, England 2000-2015
Source: Homecare, Supported Living & Allied Services – first edition, LaingBuisson, 2016.
Report co-author Ms Giatsi commented:
“This cocktail of financial pressures, staffing shortages, a shrinking budget from local authorities, and various instances of quality concerns create a fragile ecosystem in homecare provision.
At the same time, however, local government and the NHS have started to view the provision of care and support services within peoples’ own homes as a lever for achieving integrated care goals and providing better care. What’s more, private individuals are increasingly exploring homecare as an alternative to moving into residential care settings.
This is a genuine ‘make or break’ moment for the homecare sector – either it will succumb to the pressures of a bust, price driven,’ time and task’ model and deteriorate further into a low quality product –or forward looking commissioners and providers will seize the opportunity to develop sustainable, outcome-based business models delivering integrated homecare services across the boundaries of social and health care.”
LaingBuisson’s Homecare, Supported Living & Allied Services report is a fully revamped and revised successor to the well-respected Domiciliary Care UK Market Report (last published in 2013). The research which informs the report has been considerably updated to focus on the core homecare and supported living markets, with additional coverage on home healthcare, telecare and related markets to reflect the ways in which this environment has evolved and grown both in terms of commissioning, service delivery and funding and investor behaviours.