The collapse of Southern Cross may be repeated by other care home operators as local authorities have frozen the rates they will pay for their funded care home residents.
Market analysts Laing & Buisson warned the action by councils could see more operators of residential care homes for the elderly forced into administration thanks to ever-tightening margins.
Its research revealed the majority of local authorities across England have frozen or reduced the amount they pay for care home placements for 2011/12.
Although some authorities in Wales and Scotland have increased the amount they pay, this has only resulted in an average 0.3% rise nationwide, far short of the 2.8% estimated that was needed by providers simply to keep pace with care home cost inflation.
Taking current levels of inflation into account, care home operators across the UK will now face an average 2.5% reduction in their margins on local authority funded residents during financial year 2011/2012, Laing & Buisson's Community Care Market News' Annual Survey of UK Local Authority Baseline Fee Rates said.
This is a dramatic step up from the 1.4% real terms cut calculated for the previous year and, if councils continue as expected, could pave the wave to similar or even greater cuts in the April 2012 fee settlements.
Below ‘standstill' rate increases were given by 158 councils, including 140 which froze or reduced fees.
Eleven gave fee revisions in the ‘standstill' band (2-2.9%) while just seven increased baseline fees by 3% or more, all of them in Wales.
The remaining 21 councils either had not yet set their baseline fee levels at the time or did not respond to the survey.
William Laing, chief executive of Laing & Buisson, explained there maybe little operators can do but called for government to consider playing a stronger role.
"As the news of Southern Cross's demise sinks in, the care home sector will have to think hard about its response to real terms cuts in local authority fees," he said.
"Operators can ramp up legal challenges, but these are expensive and risk being reversed in the next fee setting round. They can lobby councils more intensively, but are likely to be given short shrift in the light of other valued local programmes being sacrificed. Or they could put renewed energy into lobbying central government.
"Though we have always believed the Department of Health would be strongly resistant to taking on a fee fixing role, maybe the fallout from the Southern Cross failure will encourage ministers to take a more interventionist line," he added.
