Economically we are in trouble – thousands of businesses have closed for an unknown period and many of them won’t reopen. Most private sectors are in a terrible economic crisis. Few exceptions include companies that make and supply the PPE and testers and all the other equipment we need to tackle this pandemic, supermarkets, domestic oil suppliers and social care.
Actually, let me re-phrase that… social care should be an exception, shouldn’t be in financial crisis but is and has been for years. With year-on-year record care home insolvencies, the social care sector has been in crisis for so long it almost feels like the norm.
But ironically, as we try and get through this awful pandemic, there as never been a better time to make your care home financially healthy. Demand for your beds has never been greater and councils have been given the funding to pay what you need and free up much needed NHS beds. (I know not all councils are doing that but that’s another matter.)
At the risk of being indelicate, when you take on new clients from your customers – your local authorities and CCGs, be brave enough to set the fee you really need and resist the pressure to reduce it.
Just to really drum this home…there has never been a better time to set and receive the fees you need in order to maintain a financially healthy, well-run care home and to turn this sector around for good.
For years the social care sector has been underfunded because for some bizarre reason you have allowed your customers to control how much they are willing to pay.
For years councils have set bed prices. Since the Care Act they haven’t been able to be so black and white and so instead they pressure you to keep your fees down.
- Talk your fee down because they say they can find a cheaper bed elsewhere (not always true) and exploit your fear of having empty beds;
- Make you bid against each other through an online bidding portal;
- Tell you that since the global crash in 2008 they don’t have enough money and ‘need you to work with them’ to deliver the care people need.
For years, the cost to deliver your service, the profit you’ve needed to return and hence what price you’ve needed to set, has been irrelevant to your customers.
And because of that, the care sector has been the only sector in the country that has experienced year-on-year record insolvency for the last 9 years.
Stop for a second and think about this crazy situation. Can you think of any situation where you, the customer, can dictate how much you’re willing to pay for a product or service and the supplier says ‘yes ok’ regardless of how much loss they would make if they did? (And this isn’t about haggling.)
What makes this crazy situation even more insane, is that your customers have no idea how much it costs you to run your care home and deliver the services you do.
I was at a council strategy meeting in 2019 and two referrers (one from a CCG) admitted that they didn’t actually know how much it cost to deliver care. They simply have a remit to try and keep costs down and so will naturally question your fee and try to reduce it. They actually wanted to learn how you calculate the fees you need, so they have a better understanding.
So now is your chance to educate them. Now is your chance to submit the fees you really need and no longer struggle.
You will never get a better opportunity to turn your care home around and to turn this sector around for good.
Whether for new clients or as part of a client review – now is the time to start setting the right fee and being confident enough to hold firm and not succumb to pressure.
The only way you can be confident enough to do this is to accurately calculate the fee you need and fully understand the consequences of accepting a lower fee.
By accurately calculating the fee you need based on the needs of the person and the needs of your care home business, you will know (not hope) that you have set the right fee.
You eliminate the guesswork and by doing so you eliminate any temptation to reduce that fee below a known level because you know it will financially damage your care home. Imagine, knowing what fee you need and hence eliminating any doubt as to the level of fee you can accept.
A clear understanding of the fee you need would essentially take you from a place where you can be negotiated down, to a place where you can’t.
It takes the decision away from you so you have no choice but to say, “No, this is the fee I need.” The power no longer sits with your referrer – it sits with you.
Knowing restricts your choices, strengthens your position, and hence weakens their negotiating power.
So you need to do 2 things. You need to start setting the right fees and you need to establish a set of rules to work with that will ensure you don’t reduce your fee to a level that hurts your care home.
Start Setting the right fees
Do you know how to set the right fees? It’s not such a dumb question – after-all, for years you’ve had to squeeze the care a person needs into a fee that your referrer has pressured you into accepting. You’ve had to deliver the required care hoping that the fee was covering your costs and returning some kind of profit.
As I covered in detail in my previous post, your fee needs to cover:
- A share of your running costs which will cover a set amount of basic care for each resident;
- The individual extra care (including nursing) hours that a person needs;
- A future contingency (Impact Analysis) percentage that covers future rises in your costs such as NLW, fuel, food, etc.) and
- A healthy profit of at least 30%.
Do you know how to calculate these stages and reach the right fee, because it’s not trivial? Every extra care beyond that allowed as part of your running costs must be costed out and these costs add up.
If a person needed some extra help with feeding and drinking through the day, would that be covered in the basic care time allocated as part of your running costs, or would that be extra? Managing the risk of a person who is unsteady and has a history of falling over, could easily cost you an extra £100 a week. Carrying out 15-minute observations on one person through the night could cost over £300 a week.
Do you calculate how much these tasks cost you and add then to your fee? If you don’t then chances are you are paying for them out of your own money.
If you aren’t sure how to set the right fee then check out this new tool called the Quality Care Calculator. It helps you work out how much all the care will cost so you accurately reach the fee you need for each individual person.
Establish a set of rules
Your only area for negotiation is anything above your breakeven point – the cost to care for this person comprising your running costs and extra individual care cost – that is your Impact Analysis and profit.
For example, you may decide not to add any Impact Analysis percentage because for this person, you are providing respite or end-of-life care. (Future cost rises in coming years won’t apply here.)
A healthy business makes at least 30% profit. You need to aim to make at least this if your care home business is to remain financially healthy.
You may decide you can reduce your profit margin a little because, for example, if you do your referrer will send two people to your care home and you have empty beds. But be careful how much of your profit you’re willing to take off, as your care home business overall still needs to make around 30% profit.
One thing about empty beds – don’t panic about them. You will have a different breakeven point for each person that you care for. You cannot go below this because if you do you’ll make a loss every week for however many years they are in your care.
Unfortunately, many providers don’t know what this breakeven point is and accept fees below it. The result is they deliver care at a loss for years. I talk about this in much more depth in my ebook The Secret to a Successful Care Home Business.
Establish a set of rules that you or your managers will adhere to and which will further strengthen your negotiation position. And don’t panic if your referrer says they will find another provider who will take that person for the fee they want to pay. Let them.
A care provider who accepts a referrer’s low fee is a care provider who doesn’t know their costs properly and is on the path to insolvency.
But it doesn’t matter if they threaten to place elsewhere, if the fee is too low for you then it is too low. Make the maths and the rules give you the clarity you need to make an informed decision.
Calculating the right fee and having a set of negotiating rules establishes a strong position and gives you back control.
If you are struggling on low fees there really has never been a better time to say enough. Councils have the money and they need your beds like never before. One council has gone from needing around 50 beds a week to around 200!
Seriously, don’t miss this opportunity to finally be paid what you need to maintain a financially stable care home. And don’t be tempted to stop setting the fees you need once the pandemic is behind us.
And this is actually bigger than you. For years care providers have accepted low fees and as such, way too many care homes have become insolvent. This has left the sector in crisis with far too few beds and no one willing to invest in it. (One major high street bank has pulled out of the sector and we had to move our bank accounts.)
Setting and receiving the right fees will force the government to provide the required funding permanently and lift the sector out of the crisis it has been in for years – a sector that our society needs to not just survive but thrive and grow.
Please, for the sake of your care home and for the sake of the care sector – start to set the fees you need today.
If you do need help with calculating the right fees, then do check out the Quality Care Calculator. Right now, it is at a promotional price that makes it the equivalent of 82p a day.