The image to this article is a pretty strong clue as to why you should never accept the low care fees your commissioners from local authorities and ICBs want to pay. If you do accept their fees you will almost certainly go the same way as too many other care providers – you will have to close your business or go insolvent.
Here are 6 specific reasons why you should not accept the fee a commissioner wants to pay but instead set the fee you actually need.
1. They Care More About Their Budgets Than Your Financial Viability
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 because staying within their budget is more important than your care business being financially sustainable.
In case you are tempted to sympathise, check out the Town Hall Rich List 2023 and see just how much top council directors and managers were paid in the financial year ending 2022. Our nursing homes are in Staffordshire so I was curious about this council.
The Staffordshire County Council CEO earned a salary of £211,743 and the Director of Health and Care earned a salary of £195,694 plus a bonus of £11,262. Apparently, more than £4.39 million was spent on ‘exit packages’ – cash paid to staff to leave their job – as part of a ‘restructure’.
Their low budgets aren’t your problem. You have a care business to run. You have to deliver a quality service and return a healthy profit so that your business remains sustainable.
If the fee they want to pay won’t do that for you then you cannot accept it.
Your referrers’ top priority is to their budgets. They set tiers based on estimated numbers of people with differing levels of care needs and the budget they have been allocated. The actual care needs of the client and your financial needs are not as important as their budget.
And never think or hope that there is enough budget to pay the right fees. If there was then the sector wouldn’t suffer year-on-year record insolvencies and have been in crisis for over a decade.
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.
2. They Don’t Know the True Cost of Care.
You commissioners set fee levels and yet, they have no idea how much it costs you to deliver care.
A couple of years ago I attended a council strategy meeting, which included care providers and commissioners. Two of the commissioners sat at my table and openly admitted that they didn’t know the cost of care and how good it would be to learn, so they understood better what fees care providers really needed. I managed to disguise my shock.
Actually, since the Fair Costs of Care (FCOC) initiative last year, the situation has become worse.
They don’t know your costs but since they received the results from the FCOC exercise, they think they know your costs.
Councils across the country are using the results of the FCOC initiative to try and show that they know your numbers better than you do and that you should therefore accept the “fair” fees that they are willing to pay. And, because they are making these huge savings, they are clearly succeeding.
Unfortunately, their challenges are proving strong enough to persuade care providers that the fee they wish to pay is ‘fair’ and councils across the country are making big savings.
Here is a quote from Essex Council showing a cost saving of £510,000 on residential services for adults with disabilities alone.
But local council challenges aren’t winning because they know what your costs should be. They are winning because care providers don’t know their numbers well enough and hence don’t have the clarity needed to counter these challenges and defend the fees they set.
3. They Don’t Understand Business.
LAs and ICBs don’t know how much it costs you to run your care business. They are public sector organisations who haven’t got a clue about running efficient, cost-effective businesses that need to return a healthy profit.
Neither do they know what level of profit a business needs to return to be healthy.
If they did, one LA would not have put this question out to providers in one of their surveys. Look at how many options are at 10% or below and only one above 10%. Clearly they think 10% or less is an acceptable profit margin.
The lowest option is below 3%. They think it is reasonable for a business to make less than 3% profit.
Profit is not a dirty word – it is the lifeblood of a business. 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?
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 spongy place that easily yields to pressure. Rock on one side and soft stuff on the other – which is going to win?
And because, for years care providers 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. And she’s happy to walk away if a commissioner won’t pay the fee her managers set. In fact, after years of this, her commissioners know not to haggle and to either pay or go elsewhere and more often than not they pay.
You need to become the ‘hard place’ or nothing will change.
5. You Will Most Likely Have to Close Your Business
Probably the top reason for not accepting their fees. Accept the fees they want to pay and you will struggle to be financially healthy and will eventually have to close or go under as so many providers before you.
There is little more I can say here because if you’ve worked in this sector for any length of time you’ll know from experience that this is the case.
So if you do normally accept their fees, even reluctantly after much pressure, then please take a step back and decide that this is no longer going to be the case.
Having made that decision, if the whole prospect of setting detailed fees and defending those fees against the challenges and objections you’ll receive makes you a little nervous then read my new report, 5 Steps to Make Your Care Business Financially Secure in 2023 and Beyond.
In this report I’ll show you exactly what steps to take to set, defend and receive the fees you need. It covers how to set accurately calculated fees, how to use that information to defend your costs and how to counter the challenges you’re likely to face.
Click this link to download the report.
6. 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.
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.
Receive the Fees You Really Need
Accept the fees commissioners want to pay and you will always struggle financially.
You will struggle to have enough staff and keep them well trained. You will struggle to pay for extra wellbeing 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, like the extraordinary rises in the cost of things like energy, food and insurance.
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 know 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.
Remember, this is the fee you NEED, not the fee you WANT. You are not being greedy; you are being a responsible business owner or manager who has an obligation to make sure your care business is financially viable.
And be willing to say no if your referrer will not agree to this carefully calculated fee.
If you are not convinced by what I have said here, I lay out these arguments and the maths in more detail in my report 5 Steps to Make Your Care Business Financially Secure in 2023 and Beyond and I take you through exactly how to calculate the fee you really need and defend that fee.
If you are convinced by my arguments and want help to calculate accurate fees then check out the Care Fee Calculator. It’s the only tool out there that will help you calculate and present accurate bed fees. And you get to try it for 30 days for free. Perfect opportunity to use the tool to review the fees you are currently receiving.
