Funding structures for independent nursing homes require a systemic overhaul, as market forces threaten their survival.

Forces such as rising inflation, staffing pressures, reduced funding opportunities and a restrictive regulatory environment are having a significant impact on the viability of small nursing home operators and group-led private nursing homes in Ireland. 

This is a startling prospect when we consider the crucial role such organisations play within our health system and within our society.

Last year, 16 independent nursing homes (with fewer than 40 beds) closed, with further closures to be announced imminently. This follows closures of a further 29 between 2018 and 2021.

Such homes with 40 beds or fewer account for almost 30pc of the entire private and voluntary nursing home bed stock in Ireland, the vast majority of which could be forced to close in the short term.

Group operators are also struggling, with smaller nursing homes in their portfolios currently in loss-making positions and market forces only becoming more constrained. It is only a matter of time before more group operators will be forced to make the commercial decision to close these smaller, loss-making nursing homes.

Supply constraints, coupled with the wave of demand for nursing home beds, has led to a projected shortfall of 13,000 beds by 2031, according to accountants JPA Brenson Lawlor.

With more than a million people aged 60 or older in Ireland last year, we have to find a way to ensure the right structures and supports are in place so that such organisations can thrive and continue to provide high-quality care for older people.

In the last number of years there was a significant increase in investment in Irish healthcare real estate due to strong yield potential.

However, this has abruptly halted in 2022, as the cost of capital has increased with interest rate hikes, and investors now able to generate yields through more traditional investment routes.

This comes at a time where healthcare operators, particularly those in the private nursing home space, are struggling to break even in the face of soaring operating costs.

The private nursing home industry is a highly regulated sector where weekly bed rates are set by the National Treatment Purchase Fund (NTPF) and are generally locked in for periods ranging from nine to 24 months. As such, private nursing home operators have no ability to offset increased operating costs.

This threatens the viability of the sector as a whole, with many nursing homes in Ireland currently unable to cover their operating costs.

In many cases today, nursing homes are operating at margins of significantly less than 20pc, and are even loss-making. These nursing homes have essentially no ability to attract investment or find bank financing. If a nursing home operator wanted to fund the construction or acquisition of new nursing home beds using bank financing instead of partnering with a real estate investor, their ability to do so is impacted by the lower operating margins as well as increased borrowing costs.

For private nursing homes, payroll costs typically account for between 55pc and 60pc of the cost base and this has been the subject of extraordinary inflation in 2022 and into this year.

For many employers in the sector, the HSE is the greatest competitor for talent. The new public sector pay deal, which has provided for an increase of 6.5pc between 2022 and 2023, has created a widening competitive burden operators are suffering from as they try to retain employees from moving to the public sector.

Moreover, public nursing homes have all their capital costs covered and are not required to pay commercial rates on their nursing homes. This has led to significant inequality in the provision of funding provided by the State.

A 2021 report by the Department of Health showed the average cost of care in 2019 for a resident in a public nursing home was €1,616, compared to €992 in private nursing homes –  a 62pc differential.

There comes a tipping point at which homes can no longer sustain the business case for remaining open. One only has to look at the number of smaller, single-owned nursing homes that have shut recently.

This will only continue to be the case, as there is a crisis in the sector. Make no mistake, smaller homes within all the major groups are not immune from the same fate under the current funding and regulatory structure. Care homes need to be supported and saved. This has to begin by addressing Fair Deal rates.

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Tom Finn is chief executive officer of nursing home provider, Silver Stream Healthcare