The Competition and Markets Authority launched a review of the care home sector in December last year to see how well they’re complying under the law as well as to look at reports of potentially unfair practices and contract terms being used by some care homes.

The CMA has now said urgent action is needed across the UK care home market which caters for 430,000 elderly people, with the market estimated at £15.9bn. However, its financial analysis reveals there’s a funding shortfall of £1bn a year.

This is because councils are paying fee rates for the residents they fund which are below the costs care homes incur. As a result, this has led to care homes ‘propping up their finances’ by charging higher prices to those who pay for their own care (self-funders). On average, self-funders’ fees (£44,000 per year) are around 40% higher than those paid by councils.

Often those looking for a care home are doing so at a distressing time, meaning decisions are being made in challenging circumstances. But the CMA found that basic information and support isn’t available to help them make informed decisions.

Further, the system for redress and feedback needs to be improved. The CMA said there is also “too great a risk of residents being treated unfairly, and in breach of their rights under consumer law”. It highlighted where homes are not being clear on prices or terms and conditions, residents’ deposits aren’t being protected effectively against the risk of insolvency. It also said in some cases, care homes aren’t being fair when asking a resident to leave or when they ban visitors.

Earlier this year, the CMA found that some care homes were charging families after residents had died and it’s now written to these providers requiring them to change their contract terms. It will also consult on new guidance on fees charged after death, stating: “It will expect all care homes to start reviewing their practices now in the light of our findings, and where necessary make changes. If we continue to find non-compliance, homes risk enforcement action”.

Given the UK’s ageing population, the sector “must grow substantially” but the CMA said there’s currently not enough investment in new accommodation for council-funded residents.

CMA chief executive, Andrea Coscelli, said: “Care homes provide a vital service to some of the most vulnerable people in our society. However, the simple truth is that the system cannot continue to provide the essential care people need with the current levels of funding.

“Without substantial reform to the way that councils plan 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.”

See YourMoney.com’s How to pay care home fees for more information.