US and UK care homes: Understanding similarities and differences

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By Paul Fegan, Senior Engagement Manager

Mansfield Advisors

September 2022

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In common with many countries, the populations of the USA and UK are ageing. The OECD projects the number of people aged 65 and over will grow by 1.9% per year in the UK, and 2.7% in the USA, between 2020 and 2030. Not all of this process of ageing is unhealthy, but inevitably it means more people living with long term conditions, including dementia and frailty, which require some form of residential or institutional care where support is available round-the-clock.

This article takes a look at the basic structure and terminology of the US residential and nursing care for older people, where many differences to the UK are simply down to language. As George Bernard Shaw wrote, “the United States and Great Britain are two countries separated by a common language” so perhaps understanding the similarities and differences could stimulate transatlantic investment in the older people care home sector.

“The United States and Great Britain are two countries separated by a common language”

George Bernard Shaw

Recent transactions

It’s less than a decade since US investors like Anchorage Capital and real estate investment trusts (REIT) such as Welltower (fka Health Care REIT), Healthpeak Properies (fka HCP), Omega Healthcare Investors and Digital Bridge (fka Colony Capital, fka American Healthcare REIT, fka Griffin-American Healthcare) were actively buying UK care home assets, but for at least the past 3 years, there has been little transatlantic investment traffic in either direction, other than Welltower refinancing HC-One and entering into a JV with the Reubens to acquire Avery Healthcare. One needs to go back to 2007 for a UK to US investment when Lydian (the Irish investors behind Barchester) acquired Trilogy for $300m.

Yet while there is no rationale for an integrated transatlantic provider (synergies and scale economies are national in scope and the only provider that tried it, Sunrise Senior Living, has now unbundled the UK and Germany business from the US core), there are still growth and consolidation opportunities on both sides of the pond which could tempt UK investors to consider the US, and vice versa. The first step is understanding what the terminology means and how the systems work.

Definitions

People in the USA would understand terms like ‘residential care’ and ‘nursing care’, and in both countries, the key point of difference is provision of nurse-led care. In the US, though, nursing care is seen as ‘institutional’, while residential care is considered a ‘community-based’ service. In the UK, all residential services tend to be seen as ‘institutional’ and there is a far greater emphasis on home care.

• Residential care: this is the usual UK term for a setting which provides accommodation and 24-hour personal care, but terminology in the USA is more varied. Assisted Living Facilities (ALF) is commonly used, along with Independent Living Communities (ILC), but residential care may also be known as personal care homes, community based residential facilities, or senior living residences, to name a few. Some ALFs have nursing staff, but the focus is on help with daily living.

ILC includes retirement communities, with little or no assistance with daily living, and Continuing Care Retirement Communities (CCRC), which typically offer a full continuum of care on one site: independent living, assisted living and nursing care. Hence CCRCs don’t fit neatly into one category.

The National Center for Health Statistics estimated there were 28,900 residential care community providers in 2015/16, with 996,100 beds. (For context, LaingBuisson estimate the UK has 260,000 residential care beds for older people.) Around 80% of providers were for-profit. While the data lacks categorisation of residential care by client group, only 7% of residents were aged under 65.

• Nursing care: while this means essentially the same thing in both the USA and UK, there are subtle differences in nursing homes in the USA. While nursing homes and Skilled Nursing Facilities (SNF) provide round-the-clock medical care on site, SNFs tend to focus on shorter rehabilitative or convalescent stays (which may be reimbursed by Medicare), while nursing homes provide long term or permanent stays. Some sites may offer both.

In June 2022, the Centers for Medicare and Medicaid Services (CMS) listed 15,190 nursing homes with 1,615,230 beds, 73% of which are in for-profit homes. 38,445 beds are in nursing homes which are part of a hospital, and 135,492 beds are part of a CCRC. (For comparison, LaingBuisson estimate there are 194,700 nursing care beds in the UK. 92% are for-profit.)

• Long term care in a hospital setting: general acute hospitals in the USA and UK treat older people on the same basis as everyone else, but there are longer stay hospital settings in both countries, including Long-Term Acute Care Hospitals (LTACH) in the US. These provide extended care (defined as a length of stay over 25 days) and cover a range of specialties. In March 2022, the CMS listed 345 certified LTACHs with 14,700 beds. While open to all ages, the majority of admissions are Medicare beneficiaries, so typically aged 65 plus. LTACHs can be stand-alone, or integrated into a hospital system. The UK doesn’t have an equivalent, although LaingBuisson estimated there were still around 8,800 NHS long stay beds for older people in 2020.

Table 1: Summary of key terms in UK and US care homes

UK	USA
Integrated Retirement Communities (IRC), Sheltered Housing, Extra Care	Independent Living Communities (ILC)	Continuing Care Retirement Communities (CCRC)
Residential Care	Assisted Living Facilities (ALF)
Nursing Care	Nursing Homes/Skilled Nursing Facilities (SNF)

Market size

LaingBuisson estimated the UK market for residential and nursing care to be worth £17.7bn in 2021.

Precise estimates of the US market are more difficult to find, not least because of the variation in definitions. CMS National Health Expenditure Accounts (NHEA) for 2020 showed spending on stand-alone and CCRC nursing facilities was $196.8bn. Alternatively, taking 1,615,230 nursing beds, 73% occupancy (implied in CMS data) and the Genworth median annual cost of a private room of $108k, gives a market size of $131.3bn.

Commercially available market reports offer varying estimates of the ALF market, from $32.6bn (Ibis) to $91.8bn (researchandmarkets.com). Using the National Center for Assisted Living (NCAL) estimate of 918,700 assisted living residents and the Genworth median annual cost of $54k, gives a market size of $49.6bn.

Payor mix

Our analysis shows that public funding accounted for 51% of the UK older people residential and nursing care market, with the remainder paid out of pocket. The picture is more complicated in the US, where long term care insurance (LTCI) is more prevalent, covering 5% of total US nursing care costs. Around 7.5 million Americans have LTCI, although annual sales have dropped steadily from over 700,000 new policies in 2000 to 49,000 in 2020.

NHEA shows public funding through Medicare, Medicaid, the Department of Veterans’ Affairs and other federal, state and local programmes accounted for 71% of spending on nursing care facilities. There are no estimates for ALF, but a Kaiser Family Foundation report indicates Medicaid covers 57% of the cost of Home and Community-Based Service (HCBS). (This isn’t broken down by client or age group, and includes a wide range of services.)

Eligibility for public funding

Both the US and UK systems are characterised by needs and means tests, and in terms of basic principles, the systems are similar, although the US is significantly more complex to navigate.

In the UK, the NHS determines eligibility for Continuing Health Care (CHC) or Funded Nursing Care (FNC) based on need. There is no means test and if an individual’s condition improves, their entitlement may be withdrawn. Local authority social care teams assess need for support with daily living, and means test entitlement to publicly funded care.

In the US, Medicare will cover short term nursing home costs (up to 100 days, with a co-payment for the last 80 days), subject to various criteria on prior hospitalisation. Beyond Medicare, Medicaid is the single biggest payor for long term nursing care, with eligibility subject to a needs and means test, and criteria which vary by state. Medicaid also provides support for assisted living, but only in 44 states and Washington DC, subject to a means test and with highly variable eligibility criteria and benefits (e.g. may not pay for room and board). Reimbursement is not generous, and therefore not all ALFs accept Medicaid. Other non-Medicaid schemes exist which are not intended for assisted living, but can be used that way. States may also pay supplementary income on top of social insurance benefits which can be used for assisted living. Once again, it varies by state, and some states offer no assistance. Unsurprisingly, Medicaid planning is a profession in its own right!

Table 2: Summary of sources of public funding for care homes

	UK	USA
Contribution to nursing costs	NHS Continuing Health Care (CHC) NHS-funded Nursing Care (FNC) ‘Needs test’	Medicare (short term, post-acute only) Medicaid (long term support) ‘Needs and means test’
Support for personal care and accommodation	Local authority social care ‘Needs and means test’	Medicaid (various programmes) Non-Medicaid programmes Optional State Supplements/State Supplementary Payments ‘Needs and means test’
Self-funding (out of pocket) if ineligible for public funding

Conclusion

Understanding differences in terminology shows how remarkably similar the UK and US markets are, and that should make the idea of transatlantic investment a little less intimidating. Both markets differentiate between residential services to support daily living and those which provide nursing care. Both depend to a significant degree on public funding, and people in both countries have to navigate needs and means tests to access that public funding. Critically, independent sector provision is important in both markets and will continue to provide opportunities for growth.