Blog Post by Des Kelly OBE, R&RA Trustee
April 14 2017: The mixed picture of the performance of care homes raises questions about the real drivers for change.
The recent report on care home trading performance from Knight Frank (Care Home Trading Performance Index, February 2017) makes fascinating reading. The report, completed for the fifth consecutive year, offers a benchmark for performance as measured by the key indicators of occupancy rates, average weekly fees, staff costs and profitability. This detailed report shows that the care home sector shows a third consecutive year of higher average fee levels and higher occupancy. This means that, despite rising staff costs, care providers have still been able to realise a rise in average profitability to 27.5% (up from 27.1% in the previous year).
average weekly fee rates are now £694 – an increase of 2.7% on the previous year and the fifth consecutive year of growth
Given all the recent headlines about chronic underfunding and forecasts of complete market collapse, what are we to make if these numbers? Average occupancy rates stand at 88.4% with significant regional variations across the U.K. from a range 86.2 – 92.1%. Those in nursing homes are lower than personal care homes for all regions. Longer life expectancy and a larger proportion aged over 80 are thought to be driving occupancy rates. Increasing numbers of residents lacking mental capacity, regulatory pressures through ratings and rising consumer expectations of standards must also be factors. The availability and quality of home care provision which is currently under particular pressure probably also contribute to this trend.
According to the Knight Frank report average weekly fee rates are now £694 – an increase of 2.7% on the previous year and the fifth consecutive year of growth. Fee levels are higher for nursing care again with significant regional variation from £566 to £897. In addition, the reliance on self-funding clients (which almost certainly accounts for the rise in fee rates) varies from 19.5% in the North East to 51.2% in the South East.
As a percentage of income, staff costs now account on average for 58.2% of turnover although it’s 61.1% in the North of England. It is also higher for not-for-profit providers as a result of the combination of higher pay rates, better terms and increased staffing levels. This analysis is for the period to the end of March 2016 and therefore does not include the impact of the new National Living Wage. So, rising occupancy, rising fee rates but rising staff costs – how does this impact on profitability? This review estimates that profitability has slightly increased to 27.5%. Interestingly personal care homes are achieving higher profits than nursing: 32.3% compared to 26.4%.
the care home sector is reasonably well insulated from many of the economic challenges faced by the U.K
Although the data is complex there is also evidence that profit in some of the largest care homes peaks at 35.9%. Knight Frank concludes therefore that the underlying trends suggest the care home sector is reasonably well insulated from many of the economic challenges faced by the U.K. Whilst the National Living Wage and the use of agency will put pressure on staff costs, occupancy and fees look set to continue rising. For various reasons we can expect that smaller care homes will most at risk and continue to exit the market.
These findings appear to fit well with the themes highlighted in the roundtable and survey report of Barclays, Knight Frank and Pinsent Masons facilitated by Caring Times which indicates rising occupancy levels, improving relationships with local authorities and generally positive confidence for the future. Focusing solely on care homes certainly appears to show a confidence for profitability although arguably it cannot be achieved consistently without delivering a quality service..
It is my belief that improvements in profitability will be a short term thing unless there is a long term funding settlement agreed following the forthcoming Green Paper. I’m a lot less confident that this will happen while the Government has its hands full with Brexit negotiations.