Do you receive the fees you need to deliver quality care and maintain a financially healthy care home?
If you do receive the fees you need, then you know your numbers – your running costs, average hourly rates of those teams delivering care – and you accurately calculate the fee you need and confidently negotiate that fee. And you are rare.
If you don’t receive the fees you need, at least you know – which is a start – and know that this is unsustainable and needs to be addressed.
If you don’t know, then you cannot know your numbers and almost certainly accept the fees that your LA and CCG want to pay and hope that they are high enough for you to deliver good care and return enough of a profit. Heads-up these fees won’t be.
If you don’t sit in the first option, then please read this post as we’re going to address how to make sure you set the right fee and then all you can do to make sure you receive it.
There are two steps to receiving the fees you need.
- Calculate the right fee. If you don’t know how to calculate the right fee then, as it is a big subject in its own right, instead of taking you through the steps download and read my report, Will Your Care Home Survive This Crisis?
This report will take you through the 5 steps to calculating the right bed fee.
If you have read the report and know these steps but still struggle with the maths then check out the bed fee calculator I created that will help you calculate the right fee. Bed Fee Calculator.
- Negotiate and win that fee.
In this post I will focus on step 2.
Your referrer doesn’t know what fee you need
You’ve accurately calculated the fee you need. You know that this fee covers your running costs, the cost of the care the person in question requires and returns the profit the care home needs to be financially healthy.
Now you need to receive that fee.
If you are bidding on an online Dynamic Purchasing System, then you know that there may be no opportunity to negotiate unless you receive a call because none of the bids were successful.
My advice with these systems is, don’t be tempted to reduce your fee because others will bid lower. You have the clarity of knowing the fee that you have set is the fee you need.
If you bid lower because you feel the pressure of an empty bed, then set your fee at the lowest profit that is acceptable but no lower. There is no point taking a client for a fee that returns no profit. (Of course, a fee that results in a loss is unacceptable.) An empty bed is manageable and an opportunity to fill it for the right fee. An occupied bed for a fee that is too low could be a financial burden for years that will only harm your business.
If you are on the phone to someone who wants to refer a person to your care, then you have an opportunity to negotiate for the fee you need.
And what a surprise, the referrer says your fee is way too high.
But, having calculated an accurate fee in this way, again you have the clarity of knowing that this is the fee you need. Knowing this and knowing you can justify it should also give you the confidence to stand your ground and ultimately say no if they refuse to agree to your fee.
Two important things to remember when negotiating with referrers:
First, the referrer doesn’t actually know how much it costs to deliver care. I’ve been in meetings where both LA and CCG referrers said it would be nice to have some training on how much care costs, so they had a better idea.
Second, they have a budget to meet and are targeted to set fees within the range that their budget can handle. At the start of the fiscal year, local authorities and others have to forecast how many beds they are likely to need and of what ‘type’, residential, basic nursing and so on.
They then have a budget that they hope will cover the number of beds they forecast they will need. This pot of money will always be a compromise between paying you what they think is enough – based on what they have paid historically – AND satisfying their budget restraints.
It will not be based on what you need and will 99.9% of the time be too low.
On the day, they may have a fee in mind that is an average ‘quote of the day’ based on the fees of three other providers (who themselves don’t know how to set fees). This has nothing to do with the cost of running your care home and the cost of delivering the care this person needs.
And no doubt they will talk about budget restraints and the need to compromise and to “work with them”. It’s just another application of pressure to get you to accept the fee they want to pay.
Their budget constraints is not your problem.
So, you’ve told the referrer you fee, had the expected response and been asked to reduce it which you of course say you can’t because it’s the fee you need. Your referrer comes back with questions and objections – how should you respond?
Here are some ideas.
Stand your ground
Referrer: Why is your fee so high?
You: They’re not.
This fee has to cover a fair percentage of the cost of running our care home and increased costs of food and utilities and insurance, etc. Then there is of course our biggest cost which is our staff who we have to pay at a minimum the national minimum or living wage. I have to increase all my wage tiers every time the government increases the National Living Wage.
Our staff have to receive a certain level of training. The building and equipment need to be well maintained and we have to meet certain standards in order to be industry compliant and rated at least ‘Good’ by CQC.
Then there are the Coronavirus tests and checks we have to carry out and the escorting of visitors which you mandate we have to do and of course, PPE.
You are the biggest cause of my increased costs. You can’t have it both ways.
As a private business we of course need to make sure we are financially viable, which is mandated by CQC by the way, and which, as a business, we have a legal responsibility to ensure. Therefore, we need to return enough of a profit to ensue our care home is financially sustainable.
We need to make sure that we don’t go under like so many others have and leave the region with even fewer beds and with you having to find other homes for your clients that we care for.
Referrer: But we can’t afford to pay you £XXXX a week.
You: I can’t help that. This is the fee that I have calculated we need in order to give this person the care he needs.
If I accept the fee you want to pay, I will be paying for some of the care your client needs and hence make a loss on this person. You could go further here and use our bed fee calculator to state exactly how much you would lose and hence how much of the care you would be paying for.
You understand therefore that I can’t accept your fee, it will harm our care home.
Referrer: Can’t you reduce your fee?
You: I can’t reduce my fee because I’ve accurately calculated it based on our costs to run the care home and pay our staff [see above] and to provide [Fred]the care he needs.
So, if you need me to reduce this fee, which part of his care do you want me to take out?
Of course, you’ll point out that the care you’ve assessed he needs is there for a reason and the Care Act stipulates that LAs and CCGs cannot expect you to reduce that care. Neither can they knowingly place a person with a provider whose fee is so low that it is questionable that they’ll be able to provide the care the person needs.
Referrer: Why does your care cost so much to deliver?
You: The cost of our care is based on the average hourly rate of our carers and nurses. These rates increase each year because you increase the national minimum and living wage. This has a knock-on effect across all our staff as we have to maintain acceptable gaps between a new carer and a more senior and experienced carer. Then we have to increase our more expensive nursing staff to maintain that gap. [If you have nurses of course.]
And we also have employer on-cost which has to be added to cover costs such as national insurance, pension, recruitment and induction, advertising costs, legal and payroll costs and more.
You have a breakdown of the care required. That care takes a certain amount of time to deliver which is then multiplied by these average hourly rates (with on-cost).
The cost of delivering the care this person needs is very black & white. It is simply a mathematical calculation. If you want this reduced, then we have to take away some of the care he needs. What care would you like to take away?
See Care Act argument above.
Referrer: Can’t you reduce your profit?
You: No, I can’t reduce my profit (and no, what my profit is, is none of your business) because that will put my care home at financial risk. I have an obligation to my residents, their relatives, my staff and to the sector to ensure this business is financially healthy. And, as I said earlier, since 2018 it is a CQC requirement for care homes to be financially viable. New guidance for assessing your financial viability.
Coronavirus has increased our costs around 10% and double that when we’ve had to carry out 7-day LFTs for all staff because of a positive test.
Yes, we’ve had some financial help from the government, but you have told us how we can spend that money (like bikes and bike racks so people can cycle to work but not PPE for that first tranche of money) but it hasn’t been nearly enough. And its questionable that their will be any more.
Going back to that 10% profit. Local authorities don’t know business and don’t know what level of profit margin a business needs to return to be healthy. If they did one LA would not have put this question (shown in this image) out to providers in one of their surveys. The implication from the choices offered is that 10% or less is an acceptable profit margin.
Any care provider on that level of profit before the pandemic would now be making a loss.
Referrer: I have another care home willing to take this person for £XXX.
You: Well, it is your prerogative to place Fred with them, but if I accept £750, I will be paying a large proportion of the care Fred needs. Now, when you spread the cost of running a care home between residents and the cost of care then per resident our costs and those of another care home won’t be that different.
So, if another care home says they can care for Fred for £750 either they aren’t doing their numbers, in which case they will suffer financially because they will have to pay for some of that care, or they are lying in order to fill an empty bed and intend to reduce the care Fred needs.
Now that you understand better why this is our fee and how I have accurately calculated it, you need this other care provider to justify how they could deliver the care we’ve gone through that Fred needs, on such a low fee. Remember, you have an obligation to make sure you’re placing Fred with a provider who will deliver the care he needs.
I’m sure there are other questions and objections you can think of that your referrer could come out with. It’s a good idea to pre-empt what they are and have your answers, like these, ready.
You see how by knowing your numbers and setting the fee you really need, you can more confidently hold your ground knowing the financial impact on you if you reduce the fee?
And you see in this conversation how we passed on this clarity to the referrer and planted doubt in his or her mind as to whether this other care home can meet Fred’s needs.
By bringing up the Care Act and reminding them of their obligation, if they do go elsewhere, you have planted that seed of doubt in the other provider’s ability to deliver that care and the referrer’s responsibility to make sure.
So, plant seeds of doubt. Put pressure on the referrer as they are happy to put on you. Pressure them to due their due diligence and if necessary, remind them of their obligation.
Care providers don’t do this and too long have bowed to the pressure referrers have placed on them, which is why the sector is in the mess it’s in and why record numbers of care home close each year.
And don’t forget, potential residents or their relatives have a say regarding placement too. If your care home is well looked after and well-staffed, if it’s clear that quality personal care is being given and is warm and friendly and if other residents themselves or their relatives say great things regarding your care home, then that is a factor that referrers cannot ignore.
Set the fees you need – you have far more power than you think.
By setting fees that you have mathematically worked out, you take away your options to reduce that fee because you clearly know the impact on the potential client and your care home if you do.
You also make it harder for your referrer to accept a much lower fee from another provider because you have clearly laid out your reasons for the price you have set.
You have strengthened your position and weakened theirs.
You are in control.
After all I have said, of course your referrer can still place the person elsewhere, leaving your bed empty for longer.
I understand the pressure of needing to fill an empty bed. And this is where knowing your numbers will also help. As I said earlier, an empty bed is better than one that is occupied for a fee that is too low. (Read that post I linked to earlier.)
Just remember that the maths showed that you couldn’t take that person for the fee the referrer wanted to pay. And hopefully, you’ve challenged the referrers on other providers being able to deliver that care for much less.
If you’ve planted enough doubt in the referrer’s mind they may well come back because they couldn’t be certain that the person would receive the right care.
We have had referrers say no, try elsewhere and even place elsewhere and then come back a couple of weeks later because the other provider couldn’t meet the client’s needs and needed the referrer to take the person back.
Calculate the fee you need in the way I’ve shown, 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.
If all care providers set the right fees and refused to accept the paltry fees offered, then the
government would have no choice but to find the money this sector so desperately needs.
And also remember, the fee they want to pay is only based on their limited budget not on a specific person’s care needs.
It is down to you as the care provider to make sure you are receiving the fee you really need.
simply accept their fee and hope it will be enough because it won’t be.
About your numbers – this is the most important part of your business. It’s vital that you know your numbers because unless you earn 30%+ profit margins, then these (and other) cost increases will hurt you financially. And what hurts you financially ultimately impacts the care you can deliver.
If you don’t know your numbers, please make it a priority that you will. If you don’t have a tool to record your monthly running costs then check out this Running Cost Calculator – it’s what we use in our homes.
If you need help to set the right fees then check out the bed fee calculator.