Families choosing a care home need better information on finances in order to make an informed choice
Care homes with high levels of debt experienced a death rate more than twice as high as other care homes at the peak of the COVID-19 pandemic, according to a study from Oxford Saïd Business School at the University of Oxford, and the University of Glasgow Adam Smith Business School.
The research put together health data from the Care Quality Commission (CQC), the English independent regulator of health and adult social care, and financial data from Companies House. It shows that some firms operating care homes carry high levels of debt; such firms include but are not limited to those owned by private equity firms. In times of crisis, such as a pandemic, highly indebted care home operators have a higher incentive to engage in cost-cutting activities that can affect staffing and personal protective equipment. By doing so, operators can indirectly increase death rates among their residents.
The research sets out important recommendations to the CQC to make the financial and ownership status of care homes more transparent. This will help families make a better informed choice when deciding on a care home for a relative.
Professor Phalippou said:
‘We have shown there is a clear relationship between financial strength and the quality of care in care homes. Care homes operating with high levels of debt, including those controlled by private equity firms, had significantly higher death rates in the first wave of the pandemic.
‘Data on firms that operate care homes, and on their financial condition, is available, but not easily accessible to most people. For consumers to make informed decisions for their elderly relatives in this complex market, we believe the Care Quality Commission should look at making this information more easily available and more transparent.’
‘This already complex landscape is made harder by the sector's widespread use of operating leases. The growth of the private sector’s role in care increases the need for clarity. In order to make the best choices for their loved ones, families need financial information that is easy both to find and to understand.’
Dr Betty Wu added:
‘Pressure to cut costs can have devastating effects, but what’s concerning is that this pressure comes at the worst time. High leverage only has an impact in times of crisis, meaning it’s when people need quality care the most, they risk receiving it the least. Nobody knows when crises will strike, leaving those in care to question whether they’re in the best place to receive it.’
- At the peak of the COVID-19 pandemic, care homes that carried a high level of debt (leverage) had a death rate twice as high as care homes that did not.
- In times of crisis, leveraged operators are incentivised to engage in cost-cutting activities that can affect staffing and personal protective equipment. By doing so, operators may indirectly increase death rates among their residents.
- Leverage has a material impact only when the company is hit by an extreme shock, such as during the COVID-19 pandemic
- Care homes controlled by private equity firms had significantly higher death rates in the first wave. The average death rate in care homes during the first wave is 3.5%. Care homes controlled by private equity firms have a death rate of 5.5%, over 50% higher. But the analysis shows this phenomenon was not unique to private equity-operated care homes: the issue was high levels of debt, regardless of ownership.
- The role of the private sector in care continues to grow. Consumers can only make informed choices about care homes if the right information is easy both to find and to understand.
- The widespread use of operating leases in the care homes sector adds another layer of complexity which has not previously been addressed in research of this kind