The pressures facing the adult social care sector over the last six or seven months have put care homes across the UK under immense strain.
The human cost of the pandemic has been tragic and unprecedented, but as the outbreak lingers on, it’s not just the health implications that care homes are having to battle against. The financial strain is continuing to mount, with many businesses already at breaking point.
In this guide, we will explore the financial issues the UK’s care homes are facing, detail the government support that’s available and take a look at the rescue measures that could help you come through this difficult time.
What Financial Issues do the UK’s Care Homes Face during COVID-19?
Experts are predicting that up to 1,000 care homes could go bust in wake of the Covid crisis. These are just a few of the issues that are putting the UK’s care homes in such a precarious position.
Falling new admissions and resident numbers
Reports suggest that new admissions into care homes have halved in the wake of coronavirus.
According to official figures from the Office for National Statistics (ONS), there were also more than 30,000 excess deaths in care homes up to 12 June. Add to that the large number of residents who have been removed by their families from an environment they believe is risky and it’s easy to see why occupancy rates have fallen.
With occupancy rates down, the income of many care homes has taken a significant hit, creating a shortfall in cash flow. Unfortunately, there are few ways for care homes to raise revenues to plug this gap.
Although some financial support is given to care homes by local authorities, care homes receive the majority of their funding from residents’ fees. That means, when occupancy rates fall, there’s no financial safety net to fall back on as there would be in the public sector.
Increased costs associated with PPE
While revenues for many care homes have been falling, costs have been rising. Disposable PPE such as gloves, masks and gowns, as well as hand sanitiser and additional cleaning products, have all become essential items for care homes, adding to their overheads at a time when cash flow is already tight.
Sourcing PPE in the first instance is a time-consuming job given the shortages across the country. Even if a reputable supplier can be found, the increased demand has sent prices soaring. Care Home England estimates that the average cost of adequate PPE per patient, per week, has risen from just £4 before the outbreak to as much as £253 at present. That’s due both to the increase in the amount of PPE required to keep workers and residents safe and the inevitable price hikes.
Staff shortages and rising costs
The sector has been woefully understaffed for a long time. However, with workers now having to self-isolate if they, a member of their household or someone they have been in contact with displays Covid symptoms, staff shortages are becoming critical. That has made care homes even more reliant on agency staff.
Agencies in the sector charge a highly inflated rate to provide workers to cover these absences. On average, the cost of an agency care home worker is 40% more than a permanent member of staff, which is an additional cost many care homes could do without.
The use of agency staff is also associated with higher Covid infection rates, with research from the ONS showing residents and staff were 1.58 and 1.88 times more likely to be infected in homes that used agency staff than those that did not use them at all.
Insurance premium hikes
The excess deaths in UK care homes have led to a dramatic increase in the number of legal cases that are being commenced by family members of deceased residents. Unlike the NHS, care homes have not been given indemnity during the crisis, which means if they are successfully sued, they are liable to pay compensation and the claimants’ legal costs.
In response, the insurance providers that cover these costs have increased the price of their premiums by as much as 800%. With insurance premiums skyrocketing, some care homes could decide to turn higher risk patents away rather than face a barrage of legal claims.
What Government Support is Available to Care Homes during COVID-19?
Given these additional financial pressures in a sector that was already struggling, it’s not surprising that care homes are running out of money. For many, external funding from the private sector is unavoidable, but it’s also well worth checking that you have received all the support you can access from the government.
The government support available includes:
- Infection control measures
Care homes in England will receive an additional £546m in funding to try to reduce the transmission of coronavirus during the winter, bringing the total amount of support for infection control measures in care homes in England to more than £1.1bn.
The purpose of this fund is to support adult social care providers, including those who do not have a contract with the local authority, to reduce the rate of Covid-19 transmission. The funding must be used for Covid-19 infection control measures that include:
- Ensuring that staff who are self-isolating in line with government guidance receive their normal wages when doing so.
- Ensuring that staff members only work in one care home so far as is possible, including staff who work across several homes for one provider.
- Limiting staff to individual groups of residents or floors/wings.
- Segregating Covid-19 positive residents.
- Stocking up on personal protective equipment.
- Taking steps to limit the use of public transport by members of staff. That could be by providing changing facilities and secure bike storage for staff who can cycle or using local taxi firms.
- Providing accommodation for staff who choose to stay separately from their families to limit social interaction outside of work. That could be through the provision of accommodation on-site or in partnership with local hotels.
Every local authority has been allocated a proportion of this funding and providers must account for all payments from the Infection Control Fund and keep appropriate records.
- Provision of PPE
Some local authorities are assisting adult social care providers by sourcing additional stocks of PPE which are being made available to care homes free of charge where an emergency supply is needed.
- Additional capacity for hospital discharge
Working with care homes, some local authorities are purchasing beds on a block basis to provide additional capacity to meet the demand to accept patients who have been discharged from hospital. This will provide guaranteed income for care homes to boost cash flow and increase service capacity.
- Coronavirus Business Loan Interruption Scheme
The Coronavirus Business Loan Interruption Scheme (CBILS) has been extended until 30 November 2020, so care homes that require a boost to working capital can still apply for funding. Loans of as much as £5 million are available over a term of up to six years. The government pays the interest and fees on the loan for the first 12 months and gives the lender a guarantee for 80% of the total loan value.
The big four banks, namely HSBC, Barclays, The RBS Group and Lloyds, have agreed not to ask for personal guarantees for the remainder of the loan on loan amounts of less than £250,000. That makes them the choice banks to apply to.
The Coronavirus Business Loan Scheme can also give you access to:
- Invoice finance facilities
- Asset finance facilities
Find out how to apply and read the eligibility criteria here.
- VAT Payment Deferral
VAT registered businesses were able to defer their VAT payments for the period between 20 March to 20 June 2020. Care homes that chose to defer their VAT payments would ordinarily have to pay the sum they owed for this period by 31 March 2020. However, they now have the option to split this cost into monthly, interest-free payments that will be made over 2021-2022. That means businesses will not have to pay their VAT liability from that period in full until the end of March 2022, which may help to boost their cash flow position.
You have to opt-in if you wish to make monthly, interest-free VAT payments over 2021-2022. You can find out more here.
- Job Support Scheme
If falling new admissions and a reduction in patient numbers have left you with more staff than you need, the furlough scheme continues until 1 November in its current form. At that point, it will be replaced by the Job Support Scheme, which tops up the wages of employees who work at least one-third of their normal hours. The government and the care home will foot the bill for one-third of the remaining wages, so employees will receive at least 77% of their usual pay. Find out more here.
What else can Struggling Care Homes do to Survive during COVID-19?
If your care home is running out of money fast, does not have a steady stream of prospective residents waiting to be admitted and has received all the government support you are eligible for, there are other options available to you.
Like any other private sector business, you should explore the external sources of funding that are available to you. There are also informal and formal procedures you can access that could potentially save your business.
- Explore alternative funding options
Covid-specific government funding is unlikely to be the only source of finance available to you. These days, there are several alternative funding methods that could help to alleviate your cash flow concerns. For example, many care homes are asset rich but cash poor. In that case, you could use assets such as vehicles, equipment and property as security for a loan.
Asset refinancing is another option you could consider. If you have hire purchase agreements on company-owned assets, asset refinancing could free up the short-term capital you need. In this form of funding, a refinance company will pay off the balance of the hire-purchase agreement so you can access the equity. This could be an effective way of addressing a cash flow shortfall.
Alternatively, care homes that invoice businesses as well as private patients could use invoice finance to release the value tied up in those payments. Rather than waiting for 30, 60 or even 90 days for an invoice to be paid, an invoice finance provider will pay you up to 90% of the cash tied up in the invoice within 24 hours of it being issued to the business customer. The finance provider will then collect the money from the customer when the payment is due and pay you the balance, minus their fee.
- Negotiate with your creditors
If you have bills that you are struggling to repay, the best approach is always to contact your creditors at your earliest opportunity to let them know what is going on and explain the position you are in. Creditors such as suppliers and landlords understand that the current situation is very difficult for businesses of every kind, particularly care homes, and they may be willing to give you more time to repay your debts.
If you intend to negotiate the repayment of your debts with your creditors, make sure you are prepared. Know exactly how much you can afford to repay per month, over what term and come up with a repayment amount that is affordable and realistic. An amount that’s too low may not be accepted, while an amount that’s too high may cause you to default on the agreement and damage the positive relationships you have developed with your creditors.
- Ask HMRC for more Time to Pay
If you are struggling to pay a tax bill that is not covered by the government’s Covid-support package, you should contact HMRC on 0300 200 3835 to discuss your situation with an adviser. You may be able to make a Time to Pay arrangement, which will give your business additional time, usually 12 months, to pay your outstanding tax liabilities.
During this time, interest and penalty charges will be frozen to make the payments more manageable. However, you will have to pay all other tax liabilities not covered by the agreement when they become due or the Time to Pay arrangement will be in default. That will harm your chances of reaching a similar agreement in the future.
- Enter into a Company Voluntary Arrangement (CVA)
If your care home is unable to pay its bills when they become and is therefore insolvent, one option that will allow you to continue trading while repaying your creditors over time is a CVA.
A Company Voluntary Arrangement is a formal insolvency procedure that allows for the full or part payment of your debts over a period of up to five years. A licensed insolvency practitioner will be appointed to draw up proposals on your behalf that must be accepted by 75% of your creditors by the value of debt. If the proposals are accepted, all creditor pressure and ongoing legal action will cease and no more interest charges can be applied to the debt.
As long as you continue to meet the terms of the CVA by making the agreed repayments every month, you will be free to trade your way out of trouble.
What Other Organisations can Provide COVID Support for Carehomes?
Phone: 0800 197 6026, Mon-Fri 9am-8pm, or webchat with an advisor
Phone: 0800 138 1111, Mon-Fri 8am-8pm, or webchat with an advisor
Phone: 0345 120 3779, Mon–Fri 10am–12midday
Phone: 0300 200 3835, Mon-Fri 8am-8pm & Sat-Sun 8am-4pm
Expert Business Advice for Your Care Home
If your care home is struggling for cash flow or you fear it may be insolvent, seeking swift insolvency advice is essential.
Our licensed insolvency practitioners provide a free initial consultation to explain your options so you can make an informed decision about the best way forward. Get in touch for confidential, no-obligation assistance from our team.