To be Sustainable, Home Care Needs to Make a Living
Sustainability of home care providers is self-evidently a good thing, particularly if we want excellent continuity and quality of care. The Central and local government, commissioning bodies and the CQC, CSSIW and Care Inspectorate all seek to create a sustainable marketplace for home care providers. They recognise the link between sustainability, the care that individuals receive, and meeting challenges such as delayed transfer of care.
Sustainability throws up issues for all players in this marketplace. The backdrop, naturally, is tighter budgets and increasing demand. Commissioners may be clear about what they feel they are able to afford (take the budget and divide it by the number of hours that need to be delivered). But what does that mean for home care providers?
To be sustainable, a care provider must have an adequate number of appropriately trained and experienced staff. They must also be able to hold onto those people. They need to have the money to pay staff and other costs, and enough left to invest in training, equipment and to repay investors.
Life would be simple if care providers could continually drive cost out of their business to arrive at an hourly charge that that commissioners could easily sustain (that word again). But, for many, there is little left to cut.
The full costs that contract rates have to meet include the following:
- Cost per employee
- Travel time costs
- Travel costs
- Holiday pay, NI, pension, sickness etc
- General administration overheads, Insurance, Registration fees
- Cost of capital (eg interest, dividends etc)
Are contract rates realistic? The number of local authority contracts handed back by care providers suggests that often they are not. Can the rates being paid allow providers to pay staff fairly so that they are motivated and retained?
What does home care really cost?
UKHCA recently calculated the ‘price’ of an hour of home care at £16.70. But even at this level providing a home care service in a particular area might not be sustainable.
The calculation assumes a mix of National Minimum Wage (NMW) and National Living Wage (NLW) rates of pay. For some providers, the mix may be different. The NLW rates apply to over 25s. So if local care needs demand more experienced care workers the provider’s costs may be higher.
In some areas, younger people are less available for the workforce and relatively more workers will be on the higher NLW rate. Local living and wage costs are likely to be relatively high and recruitment and retention may be difficult at NMW/NLW rates.
There are many factors that could make the £16.70 rate unsustainable. The pay rates used in the calculation are basic, with no uplift for specialist skills or antisocial hours. In areas where travel times between appointments are significant, higher rates may also be needed.
The more you know about the demographic and economic factors affecting an area the more accurately you can calculate sustainable rates for contracting and brokerage of care.
Care Providers need to make a surplus
The profit margin allowed for in the calculation is 3% of the sales value, which is probably a bare minimum for sustainability. Even if the provider is a not-for-profit organisation they need to generate a surplus. A surplus helps the care provider invest in training and equipment, meet obligations to investors and create reserves that can mitigate uneven cash flow.
Don’t assume that size equates to stability. Margins are low in some large providers. Could you manage if one of these fail?
The importance of cash
Cash flow is critical for any business. Even where large numbers of care staff are on zero hours contracts the business has fixed operating costs that need to be paid. Delays in awarding contracts or late payment of invoices are issues that few smaller care providers (and some larger ones) have the financial reserves to withstand.
Efficiency in the contracting, billing and payment process will improve cash flows and help with sustainability. If there is a dispute over a particular service or charge this should be dealt with in isolation rather than affect all payments to the provider.
Who carries the risk?
Longer-term contracts are clearly better for care providers. Block contracts place risk with commissioners in case of voids, while spot contracts give little security of revenue to the care providers. Finding the right balance isn’t always easy but an efficient commissioning and eBrokerage solution will help to address this issue in a way that is fair to care providers, commissioners, and taxpayers.
Open book accounting models will help improve commissioners’ understanding of the economic circumstances in which care providers operate. Again, efficient and uniform data flows linking staff costs, travel costs and overheads to billing will help establish what sustainability really looks like.
Sustainability isn’t a simple issue. To develop solutions that work for the long-term we need better quality data and more widespread use of efficient mechanisms for commissioning, brokerage and reporting, such as those provided by the CareForIT integrated commissioning and care management platform. Let’s work together to identify the issues and provide solutions to a sustainable home care model.