The image to this post is a pretty strong clue as to why you should never accept the low care fees your referrers want to pay, or align with their reference prices.
If you want more specific and compelling reasons, here are five.
In this post, referrers are your local authorities and CCGs. I’m not talking about private clients.
1. They are Your Customers and Don’t Know the True Cost of Care.
Your local authority and CCGs pressure you to reduce your quote by making you bid against one another online; by publishing ‘reference prices’ that tell you where their price ranges or by getting you to sign up to contracts and their prices or risk not receiving referrals.
And yet, they have no idea how much it costs you to deliver care. Last year I attended a council strategy meeting, which included care providers and both LA ad CCG referrers.
Two of the referrers sat at my table during a breakout discussion and when I asked them they were very open in admitting to me that they didn’t know the cost of care and how good it would be to learn so they understood better what fees you really need.
In an association meeting my wife, a care home owner, asked three CCG referrers if they knew how much care costs to deliver and they admitted they didn’t. Not knowing how much your costs are is fine if they simply accept the fee you need, but they don’t.
When you buy a coffee or a vacuum cleaner, you don’t know how much of the provider’s cost is in that product and how much is profit. You don’t need to know; you simply decide if you are willing to buy it or not.
Not in this sector – here your customers are telling you what price they are willing to pay whilst having no idea what that price should be in order for you as a business to survive.
They are blind to your costs and yet tell you what you should be charging. It makes no sense and yet you let them.
Why do you let your customers tell you – the provider of the service – how much you should charge? Why aren’t you telling them how much your fee is for your service? After all it is your business.
To be absolutely sure whether your fees cover your costs and returns enough of a profit you must do the maths or it really is the blind leading the blind.
Only by doing the maths, like I have here with real costs versus English councils’ average fees according to LaingBuisson, will you know for sure whether your fees are enough.
In these examples, you see only the basic residential resident’s cost is below the average fee for residential care homes.
Your referrers don’t know your costs but you do so you need to set the fees you need.
2. They Don’t Understand Business.
Your referrers are public bodies who don’t understand the private sector and the need of private organisations to make enough of a profit to ensure their business improves and grows.
Your care home is a business. You employ people, you deliver a service and you, together with all other care providers, contribute a huge amount in taxes.
You have a responsibility to that business. To those who receive your service and to those you employ to keep it financially healthy to get through the bad times – like now with the Coronavirus pandemic – and not just the good.
Not only do your referrers not know how much care costs to deliver, they also don’t understand how much profit a business needs to make to be financially sustainable.
In February, when draft contracts began appearing my wife was sent a survey by one of her local authorities. Question 11 was about how much profit margin (percentage) you as a provider expect to return. They gave 4 ranges to choose from and, as you see, only the last option was greater than 10%.
The lowest option is below 3%. They think it is reasonable for a business to make less than 3% profit.
There are no further choices above 10% and I interpret these options as either indicating they have no idea how much profit a business needs to make or they do and are trying to nudge you into thinking 10% and below is an acceptable profit, which is even more disturbing.
10% is not a healthy profit margin – you need to be making around 30% or more for long-term financial sustainability.
Only you know your costs. Only you know how much revenue and profit your business needs to generate and therefore only you can set the fee you need to ensure your care home delivers the care your residents need and remains financially viable.
You cannot take the fee a referrer pressures you into accepting if it does not return the level of profit your care home business needs.
The bottom line is you must know how to calculate the right fees for each of your individual residents. How else will you know you are receiving the right fee to deliver a quality service and keep your business alive?
3. Their Number 1 Priority is to Their Budgets.
For years, your local councils have told you their budgets have been cut, that they don’t have enough money and how “we need to work together” to find a solution that works. And then they go away and continue to pressure you to accept their low fees.
Why is their lack of money your problem?
The government will always find the money if they have to – they do for the NHS, for the police, for schools and other sectors (recently the arts) who shout loudly.
But they have an obligation to care for its citizens and they therefore have an obligation to find the money you need so you can provide that care without standing on a financial cliff edge. You just need to make them.
Your referrers’ top priority is to do their best to stay within their budgets, so they need you to accept a fee that is within their price range and will try and negotiate you down if they can. And remember, they don’t know your costs and will negotiate you down regardless, to ensure they keep within their budgets.
They are trying to stay within their budgets, you are trying to deliver quality of care and keep your care home business alive.
Which is more important?
Of course, because of the Care Act, they have a duty of care to ensure the people they refer receive the care they need. But if you accept their fee you are taking that duty of care off them and onto you. You are saying you can deliver that care and they feel rest assured that they have met their responsibility.
Their top priority is diametrically opposite to yours. Achieving their priority harms your business. This is why you must set your fees – not let your referrers set them for you.
4. They are Under Very Little Pressure to Change.
The government and local councils should find themselves between a rock and a hard place – the rock being a lack of public money and the hard place being you, the provider, setting the fees you need.
But they are not. They are between a rock and a place that is pretty soft and easily yields to pressure. Rock on one side and soft stuff on the other – which is going to win?
And because, for years you have yielded to pressure, there is little incentive for the government and local authorities to change. Until you become ‘the hard place’ nothing will change.
The nursing homes that my wife Juliet owns are hard places. She sets the right fees and receives them. Her homes care for people with complex mental health needs and there aren’t many places that care for people to that level in her region. They have no choice but to pay her fees and so they do.
I know Boris Johnson has said that he will address the social care problem – but needs his 5-year term to do it. Can you wait another 5 years for the government to turn around this crisis the care sector is in? And who’s to say in 5 years’ time that their solution is actually going to be the right one.
You need to become the ‘hard place’ or nothing will change.
5. The Care Sector Will Never be Out of Crisis.
To receive the ‘right’ level of funding, local councils must present a strategy to central government detailing how many beds they forecast they’ll need and how they intend to ensure their region has the required bed capacity.
Their actions, however, ensure that each year they have fewer beds. The care sector is in crisis. Fees are too low. Record insolvencies is the proof.
Too many care homes are closing and beds being lost each year when our society, with its increasing ageing population, needs more of them.
According to CSI Market Intelligence (which covers England only), we lost
- 260 care homes and 7,704 care home beds in 2019;
- 299 care homes and 9,874 in 2018 and
- 240 care homes and 7,500 beds in 2017.
The vast majority of care homes have closed because they have become insolvent and the situation is getting worse.
Only you and all other care providers can get this sector out of the crisis it is in. The only way to do that is to calculate the cost of caring for a particular person, decide what profit level your business needs and set that fee.
If everyone stopped accepting low fees and instead set the fees they really need, then LAs would have to pay them and we could turn this sector around.
But, whilst you continue to accept the fees your referrers want to pay; this will never change.
Receive the Fees You Really Need
Because your referrers don’t know the true cost of care, whilst you accept the fees they want to pay, you will always struggle financially.
You will struggle to have enough staff and keep them well trained. You will struggle to pay for extra well-being events and activities. You will struggle to expand if you need a loan because banks won’t loan to financially weak businesses. You will struggle to cover unexpected costs, especially at the moment, with the extra burden of PPE. Talking to providers, PPE is going to cost them around £1000 a year per bed.
And, when you want to exit, you will struggle to find a buyer who will pay the price you want to sell your business for.
Accurately calculate the fees you really need and, with the support of the maths, you will have the clarity of knowing that this is the right fee and the harm a lower fee will do to your business.
Calculate the fee you need, eliminate the guesswork and present your fee from a strong, confident position.
And be willing to say no if your referrer will not agree to this carefully calculated fee.
Remember, this is the fee you NEED, not the fee you WANT. You are not being greedy; you are being a responsible business owner who has an obligation to make sure your care home is financially viable.
Of course, your referrers can go elsewhere and there will be others who will accept their low fees. But these will be the same care homes that are on the verge of going insolvent.
Of course, you may be left with an empty bed but if you do the maths you’ll see that having some empty beds is not as bad as having residents on fees that are too low for possibly years to come.
Take back control and set the right fees not the fees they want to pay. Do the maths and you’ll see you actually have no choice because their fees will almost certainly have you on the road to insolvency.
If you want some help with setting the right fees the following will help.
I lay out these arguments and the maths in more detail in my report Secret to a Successful Care Home Business and I take you through exactly how to calculate the fee you really need.
If you are not sure how to accurately calculate the right fees that cover your care home costs, cover the individual care a person needs and returns a healthy profit then check out The Quality Care Calculator.