Here, we look at how government policies together with a rapidly changing business climate are shaping the care home industry and the initiatives needed for operators to stay profitable.
Care at Home and Care In a Home – Is this an Opportunity or a Misfortune?
Government austerity measures are increasingly affecting Local Authority ability to commission appropriate care for people who are unable to care for themselves. Budgets are no longer ring fenced and this, together with Government encouragement towards personal budgets for people to buy their own care and to stay at home for longer, means that the residential care home market is under pressure to maintain occupancy levels. Whilst this may provide an opportunity for the more responsive and proactive care at home agencies, care homes need to be equally responsive to the changing market if they are to remain profitable.
There is no doubt that advanced techniques such as Telehealth and Telecare will provide added confidence for elderly people to stay at home for longer, but the risk is that over time they become more fragile and are more prone to falls, social isolation and self neglect. In the long term this could cost more than the intended savings with increased unplanned admissions to hospital. The right balance certainly needs to be struck.
If care homes are to respond to a dip in occupancy rates they also need to respond by balancing their exposure to Local Authority funded care with attracting a stronger private clientele. There are strong signals coming from lenders that they are willing to support extensions and refurbishments. There is good evidence that reducing the number of rooms available by adapting existing space to include en suite accommodation can increase income rather than reduce it. But don’t forget to leave sufficient space to store the additional equipment needed to support increasingly frail residents.
In 2013-14, Demos is hosting a new Commission into the future of residential care, chaired by former Care Services Minister Paul Burstow MP (source 1). The Commission has been formed with the aim of developing a vision of residential care that is fit for the 21st century and takes note of the changing perceptions and demands of the post war generation, the so called baby boomers. Don’t worry that this is commissioned by the Shadow Minister, the report should give us an interesting insight into where the balance should be between residential care and care at home.
Don’t Forget – Up to25% of Capital Expenditure Can be Recovered
Providers who do decide to modernise their facilities, along the lines Mr. Burstow would like, face substantial costs. Provided businesses take the appropriate specialist advice at the right time, at least these costs can be recovered through good tax planning using ‘capital allowances’.
Capital allowance specialist at Albert Goodman Chartered Accountants, Tracey Watts, says “the Annual Investment Allowance of £250,000 provides an exciting opportunity to recover a significant proportion of capital expenditure through tax refunds or reduced tax bills in future years. For example, depending on their tax rates, care home operators can typically reclaim anywhere from 20% to 40% of their capital expenditure, be it on the purchase of a care home, building an extension or upgrading an existing facility.”
However, this is a complex area of tax and not as straightforward as some advisers would claim. For this reason, providers should always seek specialist guidance when considering capital allowances as part of their capital expenditure plan.
One thing is for certain – the quality and style of homes and the facilities they offer going forwards, will be crucial when baby boomers become service users, the generation that showers instead of taking a bath!
The Cost of Delivering Care
Whether it’s staff employment and training, energy bills or supplies, costs are rising year on year compared to income, especially if there is a high exposure to state funded care. Providers need to be constantly looking for good deals in the market as well as investing in smarter HR initiatives such as the National Skills Academy Value Based Recruitment Tool (source 2) The Somerset based Redlink Alliance/Registered Care Providers Association (source 3) partnership are ready to support Providers in their procurement initiatives.
Effective Staff Recruitment and Training can Help Efficiency
Staff costs are the single largest cost for operators and continue to rise, especially for specialist care providers, as appropriately skilled labour is becoming ever more crucial to sustaining a successful care business. Training costs, and therefore average costs per employee, are likely to increase going forward as the new arrangements for higher level QCF training start to bite next year – asking employees to take out student loans for higher level qualifications if they wish to pursue their careers in care will likely be more of a disincentive than and encouragement for both employees and employers.
Basic skills training in key areas such as health and safety, moving and handling, food hygiene and so on are also on the increase as Government incentives diminish and Local Authority budgets reduce.
On the other side of this coin, not facilitating the right training to meet the skills demanded to meet the needs of service users can leave the employer open to tribunal claims when things go wrong.
Your interactive training matrix not only supports your quality assurance obligations to the care regulator but supports you the employer to plan employment and training requirements so that you can achieve the right economic balance.
Staff turnover for the care sector is around 19.3% per annum – high compared to the private sector’s 13.7%. Providers that experience higher than average staff turnover may be worse hit as new recruits may have to undergo lengthier and costlier induction programmes to meet the minimum training requirements.
Operators Face Highest Ever Food Costs
According to a recent report from Colliers International, food costs in 2012 were the highest on record at £27.20 per person per week This was expected. Food costs for the UK as a whole have been creeping higher over recent years. Smarter sourcing of food stuffs and more efficient meal preparation on site should form part of any provider’s plans for cost management.
Scouting Around for the Best Energy Deals
The energy watchdog Ofgem had warned earlier this year that energy prices will continue rising for the foreseeable future due mainly to the infrastructure of the UK energy industry.
All consumers, including care home operators, should therefore ensure they regularly monitor and compare the market for best available rates – savings can be substantial if proactively managed.
Downward pressure on revenue and increasing costs – it seems like the perfect storm for providers is on the horizon. Service users will continue to expect more from service providers against raising expectations from the post war generation. We expect these conditions to last for several years to come, resulting in more closures of poorly managed homes, new opportunities for the ones that are able to adapt quickly to changing market demand and minimise their operating costs effectively.
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- Paul Burstow – “Residential care can no longer continue with business as usual…”
- National Skills Academy for Social Care – Recruitment Toolkit
- Redlink Alliance – Your Buying Partner