Early last year I wrote a post about the new contracts that were looming. I hopefully got the message across that you really need to know your numbers and not simply sign up to these contracts.

In this post, I used a draft tiered-based contract, presented by a group of CCGs, to show how the numbers just didn’t stack up. Essentially, they were shoe horning people’s care needs into these tiers.

Well, that same contract is back. The contract wasn’t implemented they say because of the pandemic but it will now commence from 1st April 2021.

Below is the link to the post – please read through it and the maths and see for yourself just how damaging it is. This previous post goes into more maths than this one does, because I would just be repeating myself if I had added the numbers here. It’s important that you see these numbers and the conclusions I draw from the maths.

New Contracts Are Coming – You Need to Read This.

In this post I’m going to give you an update of the contract and the changes to it and highlight (with the help of a little maths) just how damaging it will be to any provider who signs up to it.

Even though the example I use is from a particular group of CCGs, the principle is the same; whether CCGs or LAs and whether ‘tiered pricing’ or not…

Know your numbers and you decide the fee you need.

In the post a year ago the weekly tiered pricing was:

  • Tier 0 (Defined as ‘Basic/Standard Dependency’) = £900
  • Tier 1 (Defined as ‘Medium/Enhanced Dependency’) = £1,193
  • Tier 2 (Defined as ‘High/ Complex Dependency’) = £1,517
  • Tier 3 = Extremely Complex Dependency = £1,798

Now they have introduced a price range and say that they have taken into account feedback such as rises in cost by, for example increasing Tier 0 from £900 to £1000 a week.

£1000 is their ‘Maximum Offer Limit’ the lower figure being their ‘Minimum Offer Limit’. (Notice that by having a range they have also introduced lower prices than last year.)

  • Tier 0 (Now defined as ‘Standard Dependency’) = £700 – £1000
  • Tier 1 (Now defined as ‘Enhanced Dependency’) = £1000 – £1,500
  • Tier 2 (Now defined as ‘Complex Dependency’) = £1,500 – £2,000
  • Tier 3 (Now defined as ‘Extremely Complex Dependency – Exceptionality) = ?

There is no fee range for their Tier 3, ‘extremely complex dependency – exceptionality’ tier, as they are now calling it. The Clinical Support Unit’s clinical team will determine whether an individual’s needs exceed Tier 2.

If a person does fall under Tier 3 then that person will be added to the region’s online bidding system for providers to bid against. (And hopefully feel pressured to go in lower in order to win the client of course.)

In this case, they are only willing to pay up to £1000 for a Tier 0 person. This is someone who has ‘Basic/Standard Dependency’.

Is £1000 enough to cover residents who fall into this tier? Let’s look at the numbers.

Will Your Care Home Survive This CrisisI’m going to compare this tiered price against a realistic weekly cost and bed fee for a 30-bed nursing home delivering ‘basic’ care.

I have taken this example nursing home from my report, Will Your care Home Survive This Crisis? which includes details of how I calculated this example care home’s weekly running cost.

The report also covers the fundamental issue in the care sector of your customers dictating how much they will pay for your services. I also then take you through real examples of the financial impact of accepting LA and CCG fees versus setting the fees you really need and how to set the fees you do need.

Click here to download this important report.

The cost per bed for this example nursing home is £835.76, which is basically the care home’s running cost spread across the 30 beds. This is their minimum breakeven point with no extra care added.

What is your running cost?

Your running cost comprises you fixed costs, hotel services, utilities, insurance etc., and your staff costs.

Your running cost is your minimum breakeven cost – a penny below this is a loss to your care home. This is a crucial number to know because each bed fee needs to cover this cost of running your care home.

To establish your minimum breakeven cost per resident, divide your monthly running cost into weeks, then divide that by your average occupancy level or number of beds and you have this base minimum cost that each fee (resident) must cover.

Knowing your monthly running costs is crucial if you want to control your costs and if you want to set the right fees. If you aren’t recording and establishing your monthly fixed and staff costs, then please start now and if you need help then check out our Running Costs Calculator.

Having established your costs, like any business, you need to make a healthy profit margin of at least 25% to survive and preferably 30%+ to be deemed a financially healthy business. 30% profit on £835.76 is £1,193.94.

This is £193.94 more than the MAXIMUM fee that this CCG group will pay in this tier.

By the way, if you think that figure is more than 30% then you’re not calculating profit correctly – see Calculate Your Profit the Wrong Way and You Could Lose Many Thousands of Pounds a Year.

Going back to this 30-bed nursing home; a fee of £1000 (Tier 0 maximum offer limit) would give it a profit of only £164.25 a week, around 17% profit margin, per resident. Not a healthy profit margin and which doesn’t take into account any extra care a person may need.

This profit is especially not healthy as this running cost at the time I calculated it for the report, didn’t include the cost of Coronavirus.

Keeping your residents safe over the last 12 months has cost you at least 10% of your revenue or the equivalent of 3 or more weekly bed fees.

On a fee of £1000 (revenue) per resident that would increase this care home’s cost by £100 to £935.76 and reduce its profit margin to around 6.5% or £64.25 a week.

The Cost of Keeping Coronavirus out of your care home report coverIf you haven’t calculated how much Coronavirus is costing your care home, then please do. It is not trivial and could be the equivalent of 3 or more weekly bed fees. This is not a cost you can ignore.

I wrote a report, The Cost of Keeping Coronavirus Out of Your Care Home, covering all these costs. I also developed a calculator, Care Home Coronavirus Cost Calculator, to help accurately calculate how much this pandemic is costing you.

 

 

Your running cost is your base cost for all of your residents and so it’s vital that you get this right.

Get it wrong and all of your fees could well be lower than you need to maintain a financially viable care home.

Once you know your running cost you can calculate how much care you can deliver each resident as part of that cost. Any care provision needed that is over this ‘base’ care provision is extra care that you need to add onto the base minimum running cost for that person.

This is another crucial step in setting the right fee because in ‘tiered CCG contracts’ like this one they list the care that you need to be able to provide within each tier – care that you need to provide within the maximum price they intend to pay.

How much care can you provide as part of your running cost?

You pay your carers and nurses (if you have them) a monthly wage to provide care.  Divide your monthly care and nurse wages costs into days and by your average occupancy level and by your average hourly rates to find out how much daily care each of your residents can receive as part of your costs.

Daily care provision time = monthly care staff cost / 30 (to get a daily cost) / average occupancy level (to reach a cost per resident) / average hourly rate for your carers (to establish how many hours and minutes a day of care each resident can receive.)

Repeat for your nurse costs if you have them.

These rates are your average hourly rates. Your teams will have a range of hourly rates based on experience and responsibility. If you aren’t sure how to calculate your average hourly rate, then this free tool will help.

Care Home Average Hourly Rate Calculator

This care provision as part of your running cost covers all the work your carers and nurses do, including paperwork, care plans and so on, as well actual care delivery.

Make sure you do this calculation and know how much care you can deliver each resident for this cost. If you don’t you will be paying for any additional care that you haven’t worked out the cost for.

You also need to know these average hourly rates if you want to accurately calculate the cost of extra care provision, so it is key that you do this.

For this 30-bed nursing home example, I worked out that within their running cost, each resident would be able to receive nearly 4 (3hr 54min) hours of care and a little over an hour’s nursing (1hr 11min) each day.

For care staff, I set the average hourly rate to the national living wage of £8.72 plus 30% employer on-cost of to reach average hourly cost of £11.34. Nurse time was calculated based on an hourly rate of £19 to get £24.70 with on-cost.

Image taken from the Quality Care Calculator. A tool to accurately calculate your bed fees.

Now you know your running cost, and how much care your carers (and nurses) can provide within this cost, could you provide care under this CCG contract?

Let’s look at how much care you would be expected to deliver to Tier 0 residents?

The contract specifies 46 specific behaviours or types of care provision under Tier 0 that you would need to manage for between £700 and £1000 a week.

These behaviours (and I’ve done some maths for the first two) include:

  • Episodes of challenging behaviour which is predictable.

Even if the behaviour is predictable, it is still challenging and may require a number of people to manage. For example, let’s say you need 3 carers to deliver personal care to this challenging person. The care takes 30 minutes. That’s 90 minutes (3 people) overall, twice a day. So that is 180 minutes a day, which is 1,260 minutes or 21 hours of extra care each week.

Image taken from the Quality Care Calculator.

 On the average hourly rate of £11.34 this extra care would cost £34.02 a day or £238.14 a week.

Image taken from the Quality Care Calculator.

Just to summarise – that predictable challenging behaviour would take 21 hours of care and cost an extra £238.14 a week.

For the 30-bed nursing home that extra cost would increase its overall breakeven cost for this person from £935.76 (assuming that extra £100 a week Coronavirus cost per resident) to £1,173.90.

On a maximum offered fee of £1000, this home would make a loss of £173.90 a week or £9,042.80 a year. And that’s simply because of this need for extra personal care only.

To care for a person with this behaviour and return a fairly healthy 25% profit margin, this home would need a fee of £1,565.20 (25% profit margin on a cost of £1,173.90).

Hang on – that is more than the maximum fee offered for Tier 1 clients, never mind Tier 0.

  • Needs feeding by a nurse or trained carer due to risk of aspiration, need to ensure correct consistency of food and fluids and correct position.

Let’s say this task can be carried out by a trained carer. (Probably on a higher average rate but we’ll stick to £11.34 an hour with on-cost.) Assume one carer for 30 minutes, 3 times a day and you have 90 minutes of care a day. That’s 630 minutes or 10 hrs and 30 min of extra care a week.

Image taken from the Quality Care Calculator.

That’s a weekly cost of £119.07.

Image taken from the Quality Care Calculator.

For this 30-bed care home, this resident would now cost £1,054.83 a week (including ‘coronavirus cost’). On £1000 maximum fee, this resident would make the home a loss of £54.83 a week or £2,851.16 a year.

  • Resistant and/or non-compliance with medication or care routine.
  • Attempts to leave the residence.
  • Some sexually or socially inappropriate behaviour.
  • Attempts to mobilise without supervision and is not safe.
  • Receives frequent intervention from the GP.
  • Reliant totally on others for safeguarding.
  • Risk management plan indicates that individuals requires timely skilled intervention.
  • Has mood swings that require monitoring.
  • Immobile.
  • Unable to assist with transfers or repositioning.
  • Identified risk of skin breakdown requiring daily intervention.
  • Pressure damage up to grade 2.
  • Observation is needed to ensure that medication has been taken due to cognitive impairment.

Of course, one person won’t have all of these problems but even looking at them individually you can see the need for extra care.

For example, if a person is resistant and/or non-compliant how much extra care time would staff need to spend with them? Would the next 3 behaviours in the above list warrant some 1:1 care? How would you ensure a person who ‘has mood swings that requires monitoring’ is safe and those around him are safe?

Would you have to carry out 15-minute observations? How much would 12 hours of 5-minute observations every 15 minutes cost this care home?

 

Image taken from the Quality Care Calculator.

This would add up to an extra 28 hours a week of care for this person at a cost of £317.52.

Image taken from the Quality Care Calculator.

That £317.52 would put the cost of this client to £1,253.28. On £1000 maximum offered fee that would result in a loss of £253.28 a week or £13,170.56 a year.

Sign up to this contract and you had better hope there is next to nothing wrong with them beyond needing basic care. But if that were the case then this CCG would want to pay you down at the £700 mark.

The fee range for Tier 1 clients – £1000 to £1,500 – has to cover the 46 challenges for Tier 0, plus some of the following:

  • Unpredictable aggression of a physical and/or verbal nature, that has no trigger.
  • Frequent use of PRN medication.
  • Aggression is targeted at several members of staff or residents.
  • Hides or takes things from other residents.
  • Noise, screaming, shouting or swearing over protracted periods of time.
  • Invading personal space of others resulting in safeguarding concerns.
  • Resistant to interventions – requires two or more staff.
  • Frequent intervention from the Mental Health Services.
  • Issues with elimination and continence management that requires specialist monitoring and involvement of continence specialist (supra pubic).

I’m not going to work out these extra costs because you can see for yourself that even the maximum fee for Tier 1 clients will be woefully low. Some of these behaviours shout the need for 1:1 care. How much would 12-hour 1:1 care cost this care home?

 

Images taken from the Quality Care Calculator.

That’s an extra £952.56 a week!

And they expect you to take this client for no more than £1,500 a week. For this home to cover its running costs of £935.76 and deliver that 12-hour 1:1, their breakeven point would be £1,888.32. On a fee of £1,500 that’s a loss of £388 a week or £20,192.64 a year.

I hope I’ve successfully made the point and that this kind of ‘tiered’ contract will financially cripple any care home that signs up to it.

And if that wasn’t enough, if you do read the post from a year ago when this contract first came out in draft, I also reveal that you had a allocate a minimum amount of care and nurse time to each client.

For Tier 1 clients it was 40 hours of care and 12.5 hours of nursing.

For the example care home, I showed that, within its breakeven cost, it could deliver around 4 hours of care and an hour and 11mins of nursing a day to each resident. This equates to 28 hours of care and 8 hours of nursing each week to each resident.

If this ‘minimum hours’ clause is still in this year’s contract, then the extra 12 hours of care and 4.5 hours of nursing that the 30-bed care home would have to provide Tier 1 residents, would cost it an extra £136.08 and £111.15 a week respectively or a total of an extra £247.23 regardless of the care the person required.

That brings the breakeven cost to £1,182.99 (greater than the minimum offered level of £1000) just to meet the stipulated hours of care and nursing you would have to deliver each resident in that tier, regardless of their needs. That would require a fee of £1,577.32 to stay financially healthy – a fee greater than the maximum offered level.

For each Tier 2 client, you would be required to deliver 60 of care and 15 nursing each week. That’s 32 hours of care over the 28 hours, and 7 hours of nursing over the 8 hours, a week you can deliver as part of your running costs!

The maths just doesn’t work.

This CCG Group want to abolish 1:1 care, but as you clearly see, clients with some of these behaviours and challenges will require just that. Instead, they want you to employ more staff to cover the hours the contract stipulates and to negate the need for 1:1 care.

This is what they say, “The aim of the introduction of the tiered funding model is to create flexibility for providers to identify how care needs of an individual can be met in the least restrictive manner without the default of 1:1 funding being requested. 1:1 funding for individuals from 01 April 2021 over and above the tiers will cease.  It is expected that in line with the clinical criteria within the tiers that all care needs can be met.”

They even word it like it is a better solution for you because it creates ‘flexibility’. Hogwash. Everything about this contract shouts save money and none of it even whispers what’s best for people who need your care nor what you need to be financially viable.

So, are new contracts the route to insolvency?

The contract this group of CCGs want care homes to sign up to absolutely is. The numbers just don’t work.

It’s clear that your LAs and CCGs don’t know how much care costs. One from each during a meeting I was at a couple of years ago actually confessed they don’t and said how useful it would be if they did. Regardless, they are measured on keeping fees within acceptable limits so that they don’t exceed the authority’s budget.

These contracts show zero consideration for your business.

It’s all in their favour and will cause you nothing but misery and hardship.

Actually, I’ve written 5 compelling reasons in a post (link below) as to why you should not accept referrer prices without checking your own costs.

5 Reasons Why You Should Never Accept Referrer Care Fees or Reference Prices

My message here is know your numbers. Know your costs. Whether being asked to sign up to CCG contracts or LA contracts, do your due diligence. Do the maths for your care home(s).

If the maths doesn’t work out, then don’t sign up to these contracts. Referrers need your beds. They have to ensure there are enough beds in their region. Talk to your care associations and have them challenge contracts (with a louder voice) that would, like this one, basically kill your business.

Our association has carried out some checking and are challenging the legality of moving clients under existing contracts to this new tiered system.

We and other providers who fall under this contract are also preparing to serve notice on those clients who fall under these CCGs. Many clients in our care homes didn’t come through set contracts but simply came to us because the referrer needed a bed.

We won’t sign up to contracts that threaten the very existence of our homes. I sincerely hope you won’t either.

We set the fees we need to deliver the often very complex care our residents need. We recognise that we are a private business and know what fees we need to be able to deliver good care and keep the nursing homes financially viable.

Please do your maths and set the fees you really need.

 

If you aren’t sure how to set the right fees then check out that report Will Your care Home Survive This Crisis? In it I take you through how to set the right fees step by step AND how to negotiate for that fee and overcome your referrer’s objections.

And if you want to make it much easier to calculate the right fees and negotiate from a stronger position of clarity then click this link and check out the calculator that you saw images of in this post and give it a go. You get 14-days free trial.

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