€40 million injection to Fair Deal Budget required to absorb rising nursing home costs: Jim Power



29th September 2017: An additional €40 million is required for the Fair Deal 2018 Budget to absorb escalating costs within the private and voluntary nursing home sector, economist Jim Power has warned.  

Mr Power has analysed the rising costs faced by the 400+ private and voluntary nursing home providers, advancing rises in costs must be recognised by Government to enable these key urban and rural-based healthcare providers be placed on a sustainable footing.

Coupled with the HSE’s call for an additional €40 million to be allocated to Fair Deal to enable it meet demographic pressures, Mr Power has projected State investment in the scheme must be increased by an additional €80 million in 2018.

Cost Pressures in the Private and Voluntary Nursing Home Sector is an analysis report Mr Power has undertaken, commissioned by Nursing Homes Ireland. It has been presented to Government, as the sector’s Budget 2018 submission.

Mr Power undertook a detailed analysis of costs incurred by private and voluntary nursing home providers to inform his report. His analysis highlights increasing payroll and labour costs, with nursing homes being labour intensive. Furthermore, Mr Power’s analysis highlighted nursing homes are being asked to shoulder a considerably larger proportion of the commercial rates burden, with average increases in revaluations being 50%+ above those being applied to other businesses. The hike in insurance costs is also cited within the analysis.

The Economist warned the unique standing of the private and voluntary nursing home sector within the business community threatens its very viability.

He stated: “State funding of the private and voluntary nursing home sector is intrinsic to the viability and very survival of these 24 / 7 dedicated healthcare settings. The value of the employment they provide across the country, operating within isolated rural communities as well as big urban centres, should not be underestimated.  The HSE is projecting €40 million requirement to meet demographic pressures alone. This fails to account for the dramatic cost increases within the sector, namely huge increases in labour costs, commercial rates, insurance hikes. Taking these critical costs on board, this means that a figure of close to €80 million in additional funding for the Fair Deal scheme must be found by the Government on Budget Day.  

“While all sectors of the economy are currently experiencing rising costs, most have the opportunity to pass on cost increases in the form of price increases to their customers. This option is not open to nursing home operators, due to the State’s position as a monopolistic purchaser of nursing home care and the current pricing model. The State must be cognisant business costs, particularly within a 24-7 labour-intensive, high-skilled setting such as a nursing home, are considerably escalating. It is counterproductive and will prove economically, socially and politically imprudent if it fails to recognise the reality of what it costs to fund nursing home care.”

A 2017 survey of NHI members to inform the analysis showed that on average, staff costs accounted for 62% of total costs, up from 55% in 2010. With labour costs projected to increase substantially, in part due to a tightening labour market and constant pressure to retain staff and remain viable, there will be a requirement for income growth to offset rising wage pressures. The fees paid under the Fair Deal scheme will need to reflect the reality of higher labour costs, Power says.

The analysis states: “Looking ahead to 2018, if we assume that staff costs increase by 3%; food costs increase by 1%; rents increase by 5%; the costs of construction, repairs and maintenance increase by 5%; commercial rates increase by 116% on average due to the ongoing revaluation process; insurance costs increase by 5%; and other costs increase by 2%, then total costs for the private and voluntary nursing home sector would increase by €40 million.” 

Mr Power concluded: “The Fair Deal budget must recognise the cost trends in the sector, otherwise a serious crisis in care for the older person and the healthcare system in general will become inevitable. Increases in operating costs of the magnitude suggested in this report will undermine the capacity of nursing home operators to meet capital costs or to fund any bank debt or borrowing as associated with the business. Unless the State increases the total payment to match costs and demographic pressures, this will act as a barrier to investment in the sector."

“The total requirement of €80 million presents a moment in time. Long-term, this Government and those proceeding must ensure private and voluntary nursing homes, which have assumed responsibility for meeting 80% of our long-term residential care needs, must be placed on a sustainable footing. If sufficient nursing home places are not available, a further significant burden will be placed on an already very stretched public health service.”

Tadhg Daly, NHI CEO commented: “Private and voluntary nursing homes are small or medium sized enterprises that are under sustained cost pressures. This is due to persistent failure by the State within its fees payable to countenance the escalating costs within a 24/ 7 specialised healthcare setting. The €40 million to meet demographic pressures and €40 million to absorb cost increases must be implemented in Budget 2017. 

“Fair Deal is approaching its tenth year in operation. The Government committed to review the scheme after three years. Eight years post its introduction, we are still awaiting the review of the scheme’s fundamentals; how its sets prices.”

Read the submission in full here

Mr Power is available for interview. Media interviews will be facilitated by Michael McGlynn, NHI Communications & Research Executive, who can be contacted at 01 4699806 or 087 9082970. 



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