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All care home managers and owners ought to know how their business is performing against its competitors. We realise that each home is different but an analysis of margins, costs etc. against the competition can help highlight areas of concern and, of course, highlight where your business is performing well.

The financial performance of any business is a key focus for any owner and manager. The financial results will almost certainly impact on fundamental operational decisions, CQC recognise this and legislation is in place that requires operators to consider the financial viability and position of their homes to ensure that care standards are not impacted due to financial constraints.

UK Care Home residents by main funding source

Funding sources have remained consistent over the past year with 48% of care homes being funded by local authorities, 40% are privately funded whereas only 12% are funded by the NHS or CCGs. This follows the trend of previous years in which the private fee paying market is continuing to increase, especially in the South East of the country. Many operators face the same dilemma with regards to private fee levels being used to subsidise lower paying local authority funded services users and have no option but to take a commercial view on this to remain viable.

Funding source Percentage (%)
Local Authority 48
Privately funded 40
NHS/CCG 12

Fees – Elderly Care

Average weekly fees continue to be a challenge for many operators, with funding pressures in both nursing and personal care by many local authorities. Many of our clients have benefited from increases in specialist care income streams, but this is highly dependent on the needs of residents and the demand on providers in the local area.

 Average weekly fees Nursing Personal/residential
East of England £738 £585
East Midlands £643 £597
London and South East £813 £722
North East England £568 £483
North West England £570 £522
Scotland £660 £558
South West England £782 £687
Wales £608 £527
West Midlands £670 £632
Yorkshire & The Humber £545 £492
*Source: JLL Elderly Care Homes KPI 2015/16

 

Some local authority fee rates are indeed increasing due to a new number of reasons, and these are:

  • Judicial reviews
  • Integrated budgets
  • Better care fund

Payroll costs

Payroll costs present a mixed picture, with falling levels in personal care homes but rising levels in the more specialised nursing and specialist sectors. Going forward we expect the increase in the National Minimum Wage (effective from 1 October 2016) and National Living Wage (effective from 1 April 2017) to impact operators, together with additional pension costs following the implementation of Auto-Enrolment.

% of total revenue PC  NH SP
2016 H1 50.7 56.9 55.7
2015 H2 51.0 56.1 56.5
2015 H1 50.8 56.1 55.0
2014 H2 51.7 56.2 53.8
*Source: Colliers Healthcare Market Review 2016

Non-Payroll costs

Non-payroll costs across all forms of care have fallen, largely due to income increases across the board. These costs do tend to relate to operators fixed costs and therefore this trend is not surprising to see. Nursing care, for the first time, is showing a sub-fifteen percent average of non-payroll costs, which we expect being a result of the FNC increases during the past year.

% of total revenue PC NH SP
2016 H1 17.0 14.9 14.8
2015 H2 17.1 15.0 14.6
2015 H1 17.2 15.1 15.8
2014 H2 17.1 15.0 15.9
*Source: Colliers Healthcare Market Review 2016

EBITDAR

There have been modest profit increases for EBITDAR (Profit Margins), with percentage of total revenue for personal care rising to 32.3% in 2016, up by 0.5% from 31.8%. However, nursing homes feel the pressure of wage increases and show a fall in profitability, with profits reducing by 0.7% to 28.2%, down from 28.9% in 2015.

% of total revenue PC NH SP
2016 H1 32.3 28.2 29.6
2015 H2 31.8 28.9 29.0
2015 H1 32.0 28.9 29.3
2014 H2 31.0 28.7 30.2
*Source: Colliers Healthcare Market Review 2016

The impact of nurse shortages

The national shortage of nurses doesn’t just impact the NHS; it impacts the private sector as well. This is partly down the fact that there is a high cost of agency staff. The cost of agency staff in the East of England, London and the South East and the West Midlands all come to more than £20,000.

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.

Our offices

Pegasus House, 463a Glossop Road, Sheffield, S10 2QD

5 Sidings Court, White Rose Way, Doncaster, DN4 5NU

Jubilee House, 32 Duncan Close, Moulton Park, Northampton, NN3 6WL

Sheffield

0114 266 7141

Doncaster

01302 367 262

Northampton

01604 645 600

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