How To Manage The Costs Of Your Care Home

"The nurse wage has gone up from £11/ £12 / £13 per hour in care homes to £18 / £19 per hour in the West Midlands over the last 5 years. Similar increases are seen across the UK"

The biggest cost for a care home is staff wages (55-70%). Liam looks at nurse pay, agency rate calculations, and whether care homes are an attractive opportunity for independent operators.

Topics Covered In This Article

What Is The Basic Staffing Structure In A Care Home

Why We Might Turn To Agency Staff

How The Maths Of Using Agency Carers Skews Your Budget

The 2nd Largest Staff Cost = Nurse Hours

What Other Staffing Costs And Remedies Need To Be Considered?

Can Small Independent Care Homes Thrive?

Can Social Care Provision Be An Option For The Amateur?

Is Owning A Care Home Still Lucrative For A New Entrepreneur?

What Is The Basic Staffing Structure In A Care Home

For a care home with some nursing beds, you will have the following as your minimum staff structure:

● Home Manager

● Deputy Manager

● Nurses

● Carers

● Administrator

● Chef

● Housekeeping and laundry

● Maintenance

So far, so good!

Why We Might Turn To Agency Staff

Sometimes there are underlying issues which require us to use agency staff.

Some particular reasons can increase usage and become a reliance on a staffing partner – these reasons may include:

● a local recruitment issue

● a lack of transport to the care home

● a team issue

● a home manager issue or often

● a combination of several factors

We will get on to the main subject of the costs of this next, but it’s worth pointing out that the greater the dependence on agency, the harder it is for the existing staff to cope.

Plus, once started, agency usage tends to increase over time for a service provider.

Be aware that this can lead to service and safeguarding issues if too many agency staff don’t know the residents well.

It can also progress to serious cost control issues if things aren’t managed very carefully.

Here’s why….

How The Maths Of Using Agency Carers Skews Your Budget

The largest component of your staff costs will be Carer hours used per week.

If you have 50 beds available, and 25 beds filled (occupancy of 50%) you will be using roughly half of your budgeted hours.

So, with a budget for 1,000 hours per week and an occupancy rate of 50% you should be using half of your budget = 500 hours per week.

If you do this, your costs are being properly controlled of course.

But, if you now factor in that you are using agency carers for 125 of those 500 hours the cost picture changes.

For those 125 hours, you may be paying an additional 65% premium.

So that 500 hours per week you’re using is actually costing you equivalent to an extra 80 hours per week = you are actually spending 580 hours of your budget.

Now imagine 250 hours are on agency carers.

The maths means you are spending the equivalent of 640 hours from your budget of 500.

This is how costs start spiraling beyond your budget.

The 2nd Largest Staff Cost = Nurse Hours

Say your home has 15 nursing residents out of a wing of 25, you need a nurse on 24 / 7 without exception (as per the registration requirements for those beds).

Let’s look at the maths of that…

That means you need to have nursing cover for 84 hours on days (average 8am to 8pm shift) and 84 hours nights (average 8pm to 8am shift).

That’s 168 hours per week - likely covered by 3 to 7 nurses on a variety of contracts.

The nurse wage has gone up from £11/ £12 / £13 per hour in care homes to £18 / £19 per hour in the West Midlands over the last 5 years.

Similar increases are seen across the UK.

However (and here’s the real kicker) - the fees paid to care homes have not kept up with these increases.

That’s an anomaly that is causing serious repercussions that cannot be resolved.

168 nursing hours per week means an uplift of (at an average of £6 per hour) is £1,008 per week or £52,416 EXTRA per year.

If fees haven’t increased in line, then that’s a large cost that needs to be settled by the loss of something else, somewhere, to balance the books.

And yet nurses are in short supply and ‘competition’ from the NHS sets a standard for pay.

This all means that tenure is often shorter because nurses can change job easily.

It can be very hard, and expensive, to fully recruit up your nursing team via staffing agencies.

If half of your nurses’ hours are not contracted, you may be paying £25 - £30 per hour (at least) via an agency.

If that’s 84 hours per week where you are paying a premium of £10 per hour, that’s additional £840 per week / £43,680 per year to find.

What Other Staffing Costs And Remedies Need To Be Considered?

Now factor in the following to your potential staffing costs:

● minimum wage increases

● additional occasional staff shortages (ad hoc sickness, unpaid leave etc) leading to increased agency usage

● rising nurse wagesAll of this requires a sharp eye, and supportive management.

Good staff management helps reduce attrition of course, as does a generally well run service.

Staff often move on because of a perception of being poorly treated and or safety issues in a home.

If your home is a great place to work, supportive there’s less motivation for staff to move on.

Can Small Independent Care Homes Thrive?

The social care sector is oddly fragmented in that there are so many providers with 1 or 2 homes.

Of the 15,000+ care homes in the UK, it is estimated that more than a third are with organizations with just 1 or a couple of homes. (We have more social care facts here.)

This brings unique challenges in that they often cannot attract or fund the expertise that larger groups can – whether it be with IT systems, or the use of social care consultants or with niche training to up-skill the manager or senior staff.

In my book “So you want to be a care home manager” – Oct 2020, I referenced research showing that of the 6,500 beds removed from the sector in 2018 - 2019, most of them were from homes rated “Requires Improvement / Inadequate”.

In many cases this is where it is smaller groups or single home providers who’ve not updated, not been able to invest in the service and are falling short of increasingly demanding compliance from the CQC.

Whilst higher standards are welcome, what are smaller homes to do in order to meet these higher standards?

Ideally, the whole ecosystem of care should support higher standards.

However, at present we have a disconnect.

That is, the CQC and Local Authorities want higher standards (such as food / building / care / quality of staff / training etc.) but cannot pay the necessary fee rates which would fund improved services.

This is why the “social care is broken” mantra is so often in the press.

Fees need to match aspirations.

You can’t ask for more and keep giving less.

The fact is, fees have not kept up with service quality demands. Square pegs, round circles etc.

Can Social Care Provision Be An Option For The Amateur?

Traditionally, many care home providers have come from many medical backgrounds and professions.

Ex GPs for example.

And that has been welcome because these groups have some knowledge of the CQC.

But there’s a cost associated as they still need up-skilling if they are to discharge their responsibilities effectively (or they need to step back and use social care consultants or have a suitable management and support structure to ensure they meet the legal requirements to run a care service effectively).

I have many personal anecdotes from my own work and of colleagues where a care home has been run by the board of a charity and the board has no knowledge at all of social care law.

For these reasons, I think the time where amateurs can run care homes is over in its current form.

They need up-skilling and systems to monitor progress and they need to understand their responsibilities from the many angles we grapple with when running care services – be it recruitment, retention, finance management, care management, dealing with safeguarding, CQC, families, Social Workers etc.

Is Owning A Care Home Still Lucrative For A New Entrepreneur?

Some of the larger groups are disposing of homes that are unprofitable.

The reason for the sale of sites by groups can be a mixture of factors:

● outdate

● no. of beds not quite right

● recruitment issues inflate agency bill to unaffordable levels

● compliance issues

● over-dependence on Local Authority funded residents (these pay lower fees)

The sell-off of homes is leading to more entrepreneurs moving into the sector. Some enter believing running a care home is easy money.

It can be… but you need to be discerning and careful.

With the rise in the minimum wage coming into force, compliance standards, nurse wages and nurse and carer staff shortages, a home with Local Authority funded residents only could make a surplus a few years ago.

That is no longer the case.

These are sector wide challenges for the independents and the need to be focussed on budgets and costs is more vital now than ever.