Care home financial performance – what does the data say?
Knight Frank data shows a polarised market with private-pay homes seeing significantly higher profits than local authority funded homes
2 mins to read
By Joe Brame, Senior Healthcare Analyst
Given the importance of social care, national newspaper headlines are right to draw attention to the funding issues prevalent in the care sector. Such headlines though, often create an image of poor standards of care and chronic under-funding across the UK – an image that isn’t a fair reflection of the broader elderly care home market.
Looking at data from Knight Frank’s latest survey of care home trading performance gives a more balanced view. Our analysis shows that homes deriving over 75% of their income from local authority funded residents are typically reporting weaker financial performance with EBITDARM* margins often below 20%. Such homes have struggled against frozen local authority subsidies as well as rising staff costs and may be operating at a loss after rental obligations and interest payments are deducted.
In contrast, care homes focused on the private-pay market are reporting much higher levels of profitability, often in excess of 30%, owing to the fact they can charge higher fees targeted at a more affluent demographic of residents. Many operators have established very successful business models at this end of the market and are leading the development of a wave of new homes that deliver outstanding standards of care in outstanding facilities.
Clearly more needs to be done to support the care operators and homes that depend on local authority funding, but we must also celebrate the success of the homes performing well in order to give a fair reflection of our care sector. Further to this, we also need to remember that 80% of the UK care home market are currently rated by the CQC as “Good” or “Outstanding”. Clearly, funding is not the only factor in care provision and many homes should be commended for prioritising care quality over profit.
*EBITDARM – The industry standard definition of earnings before interest, tax depreciation, amortisation, rent and management allows for consistent comparison across all homes (owned or rented)