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Small individually-owned rest homes fear that they are heading for extinction - and blame Government policy changes which have increased their costs without lifting their funding.
Some are converting their buildings to serviced apartments or selling them to other businesses.
"What we are looking at in the standalones is the whole failure of the sector. They are predicting that in five years there won't be any more rest homes," said Victoria Brown of Devonport's Komatua Care Centre, who chairs the Association of Residential Care Homes.
The homes say they need compensation for:
* The effects of a 20 per cent pay rise for public hospital nurses two years ago, which cost an extra $63 million.
* An increase in the minimum wage from $9.50 to $10.25 an hour a year ago ($12 million).
* A further minimum wage rise to $11.25 on April 1 this year ($15 million to $20 million).
* The increase in minimum annual holidays from three weeks to four weeks, also from April 1 ($10 million).
The chief executive of Presbyterian Support Otago, Gillian Bremner, said the Government had been "irresponsible" in taking all four steps without lifting its subsidies for care of the aged, which is largely state-funded.
She has asked Health Minister Pete Hodgson for compensation for the higher minimum wages, particularly for home care workers.
She said he told her to expect more money in this year's Budget, but she felt she should not have had to ask.
"We should not have to go cap in hand and ask for money to pay for something that the Government has imposed as a policy decision."
Home care and rest home operators are particularly vulnerable to this year's $1 an hour jump in the minimum wage.
Unlike other low-wage industries, such as retailing and hospitality, they cannot pass on the cost in higher prices because their fees and subsidy rates are Government-controlled.
Only 91 out of 372 rest homes pay staff less than $11.25 an hour, but most pay only slightly above the minimum and want to maintain relativities.
At Presbyterian Support Otago, Mrs Bremner pays rest home caregivers $11.25 an hour and home care workers $10.75.
"So we are going to have to move all those people on to $11.25 on April 1 and I'd like to move the others up to keep the 50c margin," she said.
At the Christian Healthcare Trust, which runs six homes and hospitals in Auckland, unqualified caregivers get $10.98 an hour and go up to $11.42 when they complete their training. After April 1 the rates will be $11.42 for unqualified and $11.88 for qualified.
Rest homes are also being affected by another Government policy called "ageing in place", which aims to keep the elderly in their own homes.
Waitemata District Health Board spokeswoman Bryony Hilless said this policy was the main factor in a 6 per cent drop in the use of rest home beds in the district in the year to October.
Waikato board aged residential care manager Fiona Murdoch said some rest home owners were converting beds to hospital beds, as elderly people chose to stay at home until they needed hospital care.
Savita Mistry of Birkenhead Lodge on the North Shore said she was planning to convert half of her 69 beds to serviced apartments because the district health board had stopped referring people to her.
"They would rather refer to private hospitals, which are twice the cost of a rest home, or dementia units which are also more expensive, and not to the frail-care rest home," she said.
"They would rather have them die in their own homes eating rotten food and falling over for days on end."
The district health boards' lead manager for residential care, Sam Cliffe, said she hoped to negotiate a new contract for rest homes by the end of April, to take effect in July.
