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  • Facing up to the second wave
    of COVID-19
Article:

Facing up to the second wave
of COVID-19

28 October 2020

As the UK experiences its second wave of COVID-19, operators of residential care face substantial challenges affecting profitability and cash flow due to rising costs and lower numbers of residents. Careful planning and forecasting has never been more vital.

As might be expected given the national COVID-19 statistics, infection rates in the care sector are rising¹. Given the need for affected staff to self-isolate for 10 days, maintaining adequate resource capacity will become an increasing challenge – particularly given the impact of testing availability on the ability to shorten isolation periods. The Government is taking steps to improve the availability of testing, but care homes have to wait up to three weeks for test results, an investigation by The Telegraph reveals. Thus increases in agency and other staff costs are to be expected. 

As reported widely in the media, the spread of COVID-19 to residents, which evidence suggests has already occurred, is another concern. The risk of infection arises not only from staff, but also from visitors. There are no easy answers to the balancing act of keeping residents safe from COVID-19 while also protecting their mental health. Visiting policies need to be shaped with careful consideration, based on individual risk assessments. The threat of legal action if blanket visiting restrictions are enforced is a real concern. 

Operators are also challenged by the dramatic increase in insurance premiums seen across the care sector. In a survey by the National Care Association, 68% of respondents reported an increase in their insurance premium. In one widely reported case, the insurance premium renewal quote for a care group increased by 880%. Increased costs in other areas, particularly from purchasing additional personal protective equipment (PPE), have also weakened the financial position of many care providers.      

At the same time, future occupancy rates are uncertain. Increased mortality rates and a reluctance to place family members in homes may act to reduce occupancy levels. However, this may be offset by the traditional seasonal increase in occupancy over the winter.   

The Government has acknowledged the challenges faced by the care sector, and its Adult Social Care Winter Plan offers some support. The initial £600m of funding for the Infection Control Fund has been boosted by an additional £564m, with its support for care homes extended until March 2021². The Government’s plan also includes the provision of free PPE to care homes for their COVID-19 needs. Care home providers can benefit too from the Government’s offer of technology and digital support³, including discounted broadband deals to improve access to video consultations and communication between residents and loved ones.

Despite such support, it is likely that the residential care sector will continue to experience difficult operating conditions and financial pressure. Careful planning will be essential throughout the coming winter. As the Government’s Winter Plan itself highlights, all care providers need to review and update their business continuity plans to ensure the provision of sustainable care services.

Careful planning includes the preparation of robust financial forecasts that reflect the continuing high levels of costs associated with agency staff, insurance premiums and PPE (if not obtained from the Government for free). Forecasts must also take account of reduced occupancy levels, when compared to seasonally adjusted pre-COVID-19 levels. 

Such analysis may identify potential cash flow issues, operational improvements, working capital optimisation and new funding requirements. If so, it is then important to engage early with stakeholders to identify potential solutions. Useful conversations can be held with many parties, including owners, lenders, other funders, landlords, the NHS and local authorities. Working together, using sound financial forecasts and analysis, offers the best prospect for navigating through the coming months safely and securely, from both a health and operational perspective.     
 
If you would like to discuss anything you have read or would like to chat about any other aspect of the care sector, please contact Kerry Bailey, Partner.

References:

1. COVID-19 infection rises: letter to care providers from Director of Adult Social Care Delivery
2. Adult social care: our COVID-19 winter plan 2020 to 2021
3. NHS works with tech firms to help care home residents and patients connect with loved ones