Do you currently have more empty beds than usual because of the pandemic?
If you do, then like many care providers, will you take what clients you can at any price in order to fill those beds?
And if you will, does that mean you think that an empty bed is the worst possible scenario?
If you take a client for a low fee because you think an occupied bed is always better than an empty bed, then please read on.
Far too many care homes are financially vulnerable and now, with more empty beds than usual, the pressure to fill them for whatever fee their local council or CCG is willing to pay, is huge.
But if the fee is less than the cost of caring for that client, why would you take them?
It seems an odd question to ask. Why would you take a person for a fee that would result in you losing money?
But I ask it because so many care providers do. For years they have accepted the low fees that their local authorities and CCGs have been willing to pay or felt pressured to bid low online to win a client.
And because of this, we have record numbers of care homes closing because they run out of money. We have lost over 25,000 beds in the last 5 years and many care homes across the country are at risk of having to close.
So, either the care provider thinks an occupied bed is always preferable to an empty bed or they don’t really know how much it costs to care for their residents. Either way, I’m going to show in this blog post why a bed occupied for a low fee is not better than having an empty bed.
These reasons, and any others I’ve missed, point to the same thing – these care providers don’t know their numbers.
Actually, you may feel pressured to take low-fee clients to fill empty beds because you have a loan with your bank which has a covenant in place that stipulates you must have a certain level of occupancy or you will break their covenant.
I spoke with a regional director for a high street bank who’s portfolio of customers is pretty much all care providers (bar a couple of dentists) about this dilemma. Should a care provider take a client at a loss just to meet the stipulated occupancy level?
He said no. We would rather our client speak with us and we would much prefer they received the fees they need so they are able to meet their financial obligations even if that means having a lower occupancy than the covenant requires. It’s a conversation we would want to have, and we would be flexible.
So, taking that occupancy target off the table, as I said, the only reason this makes any sense is because many care providers simply don’t do the numbers.
They don’t calculate and submit a fee they know they need. Instead they accept a fee or submit a low fee to win a client and hope that it will be enough.
Across England, local authorities, pay on average only £596 a week for residential beds and £764 for nursing beds delivering basic care. (LaingBuisson 2020).
To see if these fees are high enough I’ve calculated realistic costs for caring for residents in a 30-bed residential home and for residents in a 30-bed nursing home.
You see in the table below a residential and a nursing client who have no extra care needs and one of each with a small amount of extra care required. A referrer would not, without good reason, increase their fee for such a small amount of care. They would expect this extra care to be provided as part of the fee already offered – in these cases the £596 and £764 you see in the grey column.
The red column in the table below shows the actual costs for these client types. As I said these are realistic costs based on typical fixed and staff costs and standard hourly rates.
The first thing to note is that only the residential client, who needs no extra care, costs less to look after than the weekly fee.
As you see, the nursing home is making a loss from day one on the average fee English councils currently pay, which, clearly means that there are many nursing homes in England (couldn’t find the average fees for the other regions) who are making losses on their residents.
Look at the residential client who is a ‘falls-risk’. The cost of this extra care was based on 10 minutes escorting, 6 times a day by a carer who is on the NLW of £8.72 an hour plus employer on-cost of 30% giving an hourly rate of £11.34.
That’s 1 hour extra care a day, 7 days a week, which adds up to £79.93 extra care provision a week. That seemingly small additional care wipes out the profit of £74.95 a week and turns that client into a financial loss.
And if you think this is trivial, that adds up to £4,156.36 of extra care that you would have to pay for each year. What if all 30 clients needed a ‘little’ extra care like this? That’s £124,691 worth of care that you would be funding each year.
Of course, your numbers will be different but my point is that unless you do the maths how do you know whether the fee you are receiving is enough or is in fact sending you down the road to insolvency?
These are real numbers. No wonder care homes are becoming insolvent.
The same argument applies to which is the greater of two evils – an empty bed or an occupied bed for a fee that is too low. Do the maths.
Take the 30-bedded residential home example. They have an empty bed for which they would receive a fee of £596, which would cover their weekly running (fixed and staff) costs £521.05 and give a weekly profit of £74.95.
You accept that with an empty bed there is no profit to be made and so in this case you would be missing out on £74.95 profit a week or you would be reducing your overall profit by £2.85 per the remaining 29 residents.
Clearly, you want to minimise your costs and hence the loss from this empty bed.
In this example, the fixed costs come to £102.51 a week. (You see how the fixed costs are split per resident in the table below.) Worst case, you don’t reduce this fixed cost and therefore spread that cost amongst the remaining 29 residents and that’s an extra cost of £3.53 per resident.
But there are things you can do to reduce this cost. Close the room and turn off the heating and lights. No hotel services need to be provided – no laundry, food and drink, cleaning of room, etc.
How much does each resident cost to feed and provide drink to each week? £4 a day say? That alone brings the cost down to £78.51. What about laundry and cleaning costs and heating?
Let’s say, you can reduce your fixed cost to £70 a week for an empty bed. That then works out to be an increased cost of only £2.41 for each of your remaining residents.
Your staff costs are of course greater, and in this example, they come to £418.55. (Add that and the fixed cost and you get the £521.05 shown in the first table.)
Worst case, that cost will be the equivalent of £14.43 extra cost on each of the remaining 29 residents.
Your staff-to-client ratio will increase, but can you change your rota to make it work better and eliminate the need for agency staff – who, to be honest, you really don’t want in your care home right now, if you can avoid it.
Can you stop extra shifts being taken and ask people to use up some of their annual holiday allowance? I’m not saying all of this is possible for you, but simply ideas to consider.
If you can’t reduce this staff cost, then adding staff and reduced fixed costs together and you’re looking at the empty bed costing you £488.55 a week. That’s extra cost against each of the remaining 29 residents of £16.85 per week until you fill that bed.
This doesn’t sound as bad compared to if you hadn’t done the maths and just see and empty bed that needs filling.
When you do the maths, you gain the kind of visibility you need, to be able to work out the financial impact on you for each empty bed you have and for how long they can stay empty. You can figure out how many empty beds you can handle for how long before you have to take more drastic action like reduce your number of staff.
And when you have this visibility you can be more confident to not do a knee-jerk reaction and just accept any fee to fill your bed.
When you have this kind of visibility you are in more control and not hoping you will make the right decision.
Compare that cost of having an empty bed to filling the bed for the right fee.
At some point the residential care home receives a referral and an opportunity to fill its bed. The cost of this example residential client with no extra care needs is essentially its running cost of £521.05.
But this time, instead of accepting the referrer’s fee of £596 the care provider calculates and submits the real fee they need.
If that was our cost for that resident, we would add 2.5% to cushion against future cost rises like NLW or in recent times Covid-19. This would bring £521.05 to £534.07 and then we would add a healthy profit of say 30%. This would make the target fee £762.97 and return a profit of £241.92.
Now, having worked out that the empty bed is costing me £16.85 a week but if I can get anywhere near my target fee I’m looking at returning a profit of £241.92, I’d be inclined to hold out and negotiate harder.
And if you are receiving fees across your residents that return healthy profits, then you can easily swallow a loss of profit on each of £16.85 a week.
So, should you fill an empty bed for a low fee that is unlikely to cover your costs? Hopefully, you’re now leaning towards the ‘NO’ answer.
But if you’re still not convinced, take the nursing home example that is making a loss of at least £71.76 on each of its residents. It’s breakeven cost (before extra individual care is added) is £835.76.
Across 29 residents that’s a worst-case weekly cost (no cost-reduction efficiencies made to fixed and staff costs) of just £28.82 per resident.
In this case, the empty bed is clearly less of a loss than the occupied bed at the referrers’ fee of £764.
The numbers are less important than the principle…
A low fee that doesn’t cover your costs is NOT preferable to an empty bed.
With an empty bed comes the opportunity to fill it for the right fee.
You could fill your empty bed, the next day or the next week, for the fee you need or be stuck with a client for years on a low fee that ends up costing you many thousands of pounds a year.
We would rather have an empty bed because we know we can work around that situation until we fill it. We know that this is preferable to being stuck with a client whose care we will have to subsidise for potentially years to come.
If you are worried that care providers in your area do accept the low fees LAs want them to take, well don’t be. Even if they wouldn’t be caring for that person at a loss (which they probably would be) you know your numbers and you know you would be.
If your care home is a good care home, then it’s not going to stay empty for months on end and, on the right fee, you will quickly make up for the cost of that empty bed.
The key to making the right decision is to know your numbers.
How much does each individual resident cost you to care for? If you don’t know your numbers then you can only guess and hope, which is dangerous.
There really is no point in filling that bed if you are going to make a loss. And the real problem is that you could end up caring for that person for years – making a loss every week.
This is what’s going on with many care homes all over the country – they are making no profit and annual losses of many thousands of pounds.
And they are doing this because they don’t accurately calculate the fees their care home business needs and are not calculating things like the impact of empty beds so that they can make informed decisions.
KNOW YOUR NUMBERS AND SET ACCURATE INDIVIDUAL FEES. THIS IS THE ONLY WAY TO ENSURE YOUR CARE HOME IS FINANCIALLY RESILIENT ENOUGH TO SURVIVE.
Knowing what fees you need for each person in your care is very powerful. It puts you in control. Even if you decide to reduce your target profit in order to fill an empty bed, at least you make that decision from a position of certainty.
The numbers eliminate the uncertainty. If you cannot make enough profit on the offered fee then don’t accept it. It’s as simple as that.
So, the key question is…do you know how to set the right fees?
If you don’t know how to set the right fees, then please make this your top priority. And don’t leave setting the right fees to gut-feel and guesswork.
The fixed and staff cost tables come from a tool called the Quality Care Calculator. With this tool you can set these running costs for the year (or until a large hike in costs takes place such as with Covid-19 or the annual NLW rise).
Then (and here’s the really powerful benefit of this tool) you can enter the care needs of a particular person and the tool will calculate how much this care will cost on a weekly basis and give you your overall breakeven point for that person.
Add your future-proof cushion percentage and target profit percentage and the tool will calculate the fee you need.
It will hide your profit back into your running costs so you referrer isn’t aware of your private business needs.
You will have an accurately calculated quote which shows the care needed and the cost of that care, which you can use to present a strong case to your referrer.
You can build a library of all of your current residents with this tool as well as create new quotes for new referrals.
The Quality Care Calculator is a powerful tool that will take the guesswork out of setting the fees you need…and it’s free to try.
Don’t accept low fees to fill empty beds. Calculate the fees you need and hold your ground.
Don’t let the fear of empty beds ruin your business.
This post has been updated from 29 May 2020