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Care homes market hindered by falling fees

7 May 2015

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 May 7, 2015
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There has been another consecutive increase in the number of residents in care homes for the third time in eighteen months according to the 20th biannual Care Homes Review from specialist healthcare advisors Colliers International.

However profit margins are down due to limited public funding as operators increasingly struggle to absorb costs.

The report, which focuses on the five key performance indicators of the care home industry – occupancy rates, average weekly fees, payroll costs, non-payroll costs and profit margins – found that occupancy levels are continuing to rise in all sectors and now exceed 90 per cent in nursing homes, personal and specialist care homes.

But profit margins are becoming tighter. Falling fee levels coupled with rising costs have meant profitability has fallen in both nursing and specialist care sectors and have remained unchanged in the nursing home sector.

Adam Lenton, head of healthcare at Colliers International said: “Despite the rise in domiciliary care across the UK, there is clearly still a great need for registered residential care homes, which is only set to increase with the UK’s ageing population.

“However, limited public funding has led to stiff competition for the private purse, putting enormous pressure on fees and making for some particularly challenging trading conditions.  There are concerns that the Dilnot review will open up private fee rates to greater scrutiny leading to a possible fall in private fees and increased competition as a result.”

Average weekly fees have been edging lower over the last 18 months, with real fees (with inflation taken into account) tracking down in 2014, especially in the nursing sector. Nursing fees declined three per cent in real terms to £637 per week and by 12.6 per cent since 2009.

Specialist care homes saw weekly fees fall even further, by 6.7 per cent in real terms, demonstrating even greater pressure on profits, as a result of increasing costs and falling fees.  Personal care has generally fared better, maintaining its average fee in the last six months but has seen a 1.3 per cent decrease in real terms.

Whilst the analysis in the first half of 2014 has shown a small decline in nursing payroll costs, the challenge of staff recruitment continues to face care home operators. The recent National Minimum Wage increase to £6.50 per hour was also an inevitable cost to be absorbed.

“Use of agency staff is prevalent and there is renewed focus on sourcing overseas support to resolve staffing issues in the longer term. However in the short term, this is likely to put continued pressure of payroll costs for care home operators, particularly by those operators who are unable to pass the cost on by increasing fees,” Adam Lenton, continued.

Non-payroll costs across all sectors went up slightly, reaching 17.5 per cent in personal care, 15.1 in nursing care and 15.0 in specialist care. Rising costs in food and energy are yet further contributions to increasing pressures on business performance and resulting profits.

Source: http://www.carehome-magazine.co.uk/index.php?pageId=2&neId=150

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