There has been a significant reduction in the level of care home fees received by care homes throughout 2013; combined continued pressure on occupancy rates across all three sectors of the care home industry, according to the 18th biannual Care Home Review from specialist healthcare advisors Colliers International.

Average Weekly Fees

The report, which focuses on the five key drivers of the care home industry, including occupancy rates, average weekly fees, payroll costs, non-payroll costs and profit margins (EBITDAR), found that average weekly fees for specialist care homes catering for people with long-term physical and learning disabilities fell by 4.2 per cent in the last year, and by 12.5 per cent since 2010, as funding bodies looked to make savings in care budgets. In the last six months. Average weekly fees in both specialist care and personal care homes suffered a substantial reduction of -2.6 per cent and -1.5 per cent respectively in the first half of 2013, coupled with a modest decline in nursing care fees.

Adam Lenton, Head of Healthcare at Colliers International, said: “There is significant pressure on fees affecting all types of care homes in the country and it would seem that a ‘top down’ approach is being applied by local authorities who are constantly looking to make cuts in their care budgets. The upshot is that operators of care homes will have no choice but to drive cost control in order to maintain profitability.”

Occupancy Levels

2013 has seen occupancy levels in the long-term elderly care sector reach their lowest levels since Colliers’ records began in 2002, as occupancy rates fell below 90 per cent across all care home types. Occupancy in the nursing care sector stands at 89.9 per cent, 88.7 per cent for personal care; and 89.9 per cent for specialist care.

Adam Lenton, added: “Overall occupancy levels in the long-term elderly sector have been consistently edging downward since the middle of 2005 although have been hovering around 90 per cent since the beginning of 2011. The UK Government continues to delay the provision of care for the elderly in a registered care environment for as long as possible. It is to the detriment of both care home workers and the elderly people themselves that the decision is a financial, budget-led consideration rather than led by the care needs of the person in question.”

Payroll Costs

Wage costs as a proportion of total revenue remained largely unchanged across the sectors, although payroll costs in personal and specialist care sectors declined marginally during the first half of 2013 to 51.4 per cent and 52.2 per cent respectively. Nursing sector payroll costs remained the same over the first half of the year at 56.6 per cent.

Non-Payroll Costs

Non-payroll costs incurred by care homes comprise both fixed costs such as council tax, accountancy and insurance, and variable costs such as provisions, utilities and motor costs. In specialist care homes, these rose marginally in in the first six months of the year from 12.9 to 13.1 per cent, although costs reduced slightly in personal care homes down to 16.9 per cent from 17.3 per cent. Non-wage costs remained static in nursing homes.

Colliers predicts that payroll and non-payroll costs pressures will continue to affect specialist care operators as a result of weekly fees and occupancy levels.

Profit Levels (EBITDAR)

Collies’ report also reveals a fall in profitability for the nursing home sector, owing to static income levels against increasing costs. Profit margins stand at 28.6 per cent in H2 2012. Adam Lenton explained, “In the personal care sector, operators have been able to counter increasing costs with staff savings. However, but nursing homes have a more constrained staffing environment, combined with inflationary pressure on pay which is limiting their ability to drive profit. We expect this to be a continuing theme for the sector in 2014.”

The research shows that profit margins (before making an allowance for central head office costs) for specialist care homes slipped for the second consecutive period, standing at 34.2 per cent of total revenue, linked to the reduction in fees. Profit margins in the nursing sector have remained unchanged in the last six months at 28.6 per cent of total revenue whilst EBITDAR margins for personal care homes have increased marginally by 0.5 per cent to 31.5 per cent.

“Looking ahead, the question remains, whether the pressure on operators to continue to control payroll and non-payroll cost increases, will give rise to sustainable future performance levels or whether we’ll see further pressures filter through. The most likely scenario is that the care homes reliant on local authority funding, operating poorer quality assets will find it even harder to maintain occupancy levels and profit margins, while the well run homes operating out of better quality purpose built homes, with a higher proportion of private fee-paying residents will continue to outperform through strong occupancy, year on year average fee growth and EBITDAR margins,” concluded Lenton.