The UK care home market is grappling with an unsustainable £1 billion a year funding gap that could spark a string of closures across the nation, the competition watchdog has warned.
The Competition & Markets Authority (CMA) said resident fees paid by councils failed to meet care home costs, causing a significant shortfall and ramping up prices for those paying for private care.
It said fees of private care home residents were 40% higher on average than the amount paid by councils – the equivalent of £12,000 a year.
As part of the investigation, the CMA said it may take a number of care homes to court in a clampdown on those charging families for “extended periods” after a resident has died, or demanding unfair upfront fees.
CMA chief executive Andrea Coscelli said: “Care homes provide a vital service to some of the most vulnerable people in society.
“However, the simple truth is that the system cannot continue to provide the essential care people need with the current level of funding.
“Without substantial reform to the way that councils pay and commission care, and greater confidence that the costs of providing care will be covered, the UK also won’t be able to meet the growing needs of its ageing population.”
The care home sector covers 430,000 residents and stretches across 11,300 homes in the UK.
The watchdog said while the sector was just about covering its day-to-day costs, it did not have the money to invest for the future.
Around 12,000 extra care home beds are needed each year to keep pace with the demands of an ageing population, the CMA said.
As part of its recommendations, it called for an independent body to take charge of care home planning for councils in England and Northern Ireland.
Mr Coscelli added: “It is essential that residents and their families can make informed choices, understand how these services will be paid for, and be confident they will be fairly treated and able to complain effectively if they have concerns.
“We are now calling on care homes, councils and government bodies to help people navigate what can be a confusing system.”
The CMA said care homes must provide better support for families, and pressed for an effective complaints process and more robust consumer protection for residents.
Caroline Abrahams, charity director at Age UK, said: “This devastating report from the nation’s market experts means we now have it on the highest authority that the care home market, a sector that many hundreds of thousands of older people depend on, is broken and living on borrowed time.
“The report also substantiates what Age UK has been hearing from concerned members of the public: namely that the business practices of some, but not all, care home operators are unfair and exploitative of older people and their families at an incredibly vulnerable time of their lives.”
A spokesman for the Department of Health said: “We know the social care sector is under pressure due to our growing ageing population – that’s why we’ve given £2 billion additional funding over the next three years and next summer we will publish plans to reform social care to ensure it is sustainable for the future.
“The Secretary of State has asked the CQC to report regularly on their assessment of the financial stability of the largest and most difficult to replace providers of adult social care.”