Living wage and shortfall of qualified nurses challenges UK care home operators
Staff costs increased by 7% over 2016/17 to £22,512 per resident. This is the highest annual increase since 2009/10, with staff costs per resident rising since 2011/12.
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Staff costs
To mitigate the staff cost increases mainly driven by the introduction of National Living Wage, operators inflated fee rates, subsequently reducing staff costs as a percentage of income from 58.2% to 57.5%.
The geographical divergence in staff costs is intuitive, as shown in the table below, with the largest per resident costs in the South East at £26,725, followed by London and the South West at similar costs.
With staff costs representing 53.6% of income, the higher fees achieved in the South East comfortably compensated for higher labour costs. In comparison to the 2015/16 financial year, Wales had a 19% increase in staff costs per resident with double digit increases in the North West (12%), the East, and East Midlands (both 11%). Once again, the region with the lowest operating costs was the North East at £17,826 per resident.
Significantly the region also has a relatively low cost as a percentage at 55.9%. Northern Ireland is showing high staff costs as a percentage of income at 68.2%, arguably making care provision in the region unviable. This is mainly due to agency costs contributing to 11.7% of total staff costs.
"Of course Brexit is likely to only exacerbate the crisis, with a risk of qualified nurses who are EU citizens returning to the continent."
Agency costs were also high in the South East at 9.4%, up from 8.3% in 2015/16. Across all regions, agency costs have reduced slightly, from 7.5% to 7.4% but require further reduction to ensure continuity of staff and better quality of care.
Government policy-making has also had an influence on the labour force. There was a fall in applications by students in England to nursing and midwifery courses at British universities, influenced no doubt by the Government’s decision to charge fees to nursing students and replace NHS bursaries with student loans.
Of course Brexit is likely to only exacerbate the crisis, with a risk of qualified nurses who are EU citizens returning to the continent. The government has committed to invest an extra £2bn into the social care system, which will hopefully help mitigate the staffing crisis issue to an extent.
In light of the nursing staff crisis, a shift towards personal care home developments is clear with personal care homes representing 64% of all new care homes opened in 2016/17.
Property costs
Property costs comprising utilities, council tax, insurance, repairs and maintenance, are small in comparison to staffing costs, but they clearly must be managed efficiently to maximise profits.
Property costs per bed increased by 5.8% in 2016/17 from last year’s reporting period to £2,322 per bed. This equates to 6.6% of income.
With the exception of the fall witnessed in 2014/15, property costs per bed have been on the rise since dataset records began in 2006. The bulk of the increase in property costs is accounted for by uplifts in both repairs and maintenance costs, as well as rising utility bills.
On a regional basis, property costs range from 6.0% of income in London and the South East to 7.7% of income in the North West.
A large proportion of the care and nursing home stock in the country is either older converted properties or older purpose built properties where upkeep is costly and regular maintenance is required.
"A large proportion of the care and nursing home stock in the country is either older converted properties or older purpose built properties where upkeep is costly and regular maintenance is required."
Older properties are also less energy efficient, leading to higher utility bills and therefore property owners should look to invest in technology to reduce their energy bills and thus improve the profitability of their homes.
Typically, a property built prior to 2000 costs £2,938 per bed as opposed to a property built post 2000 costing £2,271 per bed. In order to remain competitive, ensure sustainable operations and obtain an uplift in fees to remain profitable, operators will continue to feel pressure, specifically on older properties, to reinvest, refurbish, extend or redevelop their properties.
Food costs
The third largest cost for care home operators is the food bill, which consumes 3.6% of income. In comparison to last year’s reporting period food cost per resident increased from £1,302 (£3.57 per day) to £1,425 (£3.90 per day), which is a significant 9.4% annual increase and represents the highest annual percentage increase per bed when compared with other operational costs.
The regional spread in food costs is again intuitive with the South East significantly above national average and the North East and Northern Ireland significantly below the national average.
"There was a fall in applications by students in England to nursing and midwifery courses at British universities, influenced no doubt by the Government’s decision to charge fees to nursing students and replace NHS bursaries with student loans."
Wales has had a noticeable shift towards an increased food cost, moving from below national average to well-above national average when compared with last year’s reporting period, influenced by in part by changes in the underlying dataset.
Food cost as percentage of income has remained static at 3.6% from 2015/16 to 2016/17 financial years, which means that operators have been able to increase food costs in line with their fees.
The increase is driven by operators’ continuing efforts to invest in good quality produce tailored to individual residents, offering choice and a wide variety of fresh fruit, diary, vegetables, grains and protein, as nutrition for the elderly and specifically for dementia residents is an important area of focus.
The premium service will specifically be welcomed by residents that are willing and able to pay the premium and likewise operators will continue to invest within this focus area to improve the wellbeing of residents.
Other factors influencing increased food costs include currency movements following the EU referendum and crop damage in Southern Europe due to adverse weather.