Brian McEnery, Chair of HIQA and Head of Healthcare in BDO shares some insights on strategy & financial management of Nursing Homes with Orna Stokes of Ulster Bank.
Nursing Homes are all about caring for people, is Financial Management for Nursing Homes different to Financial Management in commercially trading businesses?
Nursing homes are businesses, but Nursing Home owners and managers, are sometimes more focused on the social and care aspects of the nursing home, and cost management is often seen as a “dirty word”
In this day and age, in most business sectors, it would be very surprising to come across a trading business with turnover of €3m-€5m per annum which did not operate an effective management accounting process, which includes setting budgets for each income and cost line at the start of each year, and then monitoring the performance of each line item closely.
Successful trading businesses of this size, typically, produce detailed management accounts, on a regular basis during the year, and take action to address income and cost deviations from budget throughout their trading year. Good business managers do not wait for the end of the year to see how they are doing financially, they keep the financial performance under tight control and know the line items personally. They make sure they understand the impact of a percentage movement in a cost item on their bottom line.
In my experience, income and cost management, are not at odds with great care giving. Some of the best care experiences are provided by Nursing Home operators who are attuned to the financial performance of their businesses.
Nursing Homes need to introduce better practices around financial and cost management, set financial goals for each line item on their P&L, produce monthly and even weekly management accounts, and monitor Key Performance Indicators closely, so they can identify deviations from forecast and take remedial action, to ensure the financial performance of the Nursing Home is optimum.
What about Capital Values and how this impedes re-investment in the sector?
Under Fair Deal, margins and therefore Earnings (EBITDA earnings before interest, tax, depreciation & amortisation) have fallen across the sector. The price of a Going Concern business is typically calculated as a multiple of Earnings (EBITDA).
In the Nursing Home sector, at this time, the value of a Nursing Home is generally less on a P/E ( Price to Earnings) basis than it would cost to replace the asset. To encourage a healthy market for Nursing Homes, and to encourage further investment in the sector, the Fair Deal pricing model needs to be revisited, otherwise it is inevitable that we will not see the reinvestment in this sector that is required.
The income generated by Nursing Homes, is in the main, set by Fair Deal pricing. Nursing Home operators feel they have little influence on their incomes, unless they expand their nursing home bed numbers.
It is true that Nursing Home fees are dominated by Fair Deal pricing, and there are issues with Fair Deal pricing, as highlighted by Tadhg Daly, NHI. However as with any other business, Nursing Home operators need to explore and develop strategies for expanding their “product range”.
Tadhg has flagged the need for a holistic client-centric approach to care giving, which includes home care, community care and Nursing Home care, rather than just offering Nursing Home beds.
“Older Care” Providers should develop care delivery strategies which include Independent Living Units, premium day care programmes and introduce community and home care services.
As older people are taking more control of their decision making, and finances, facility operators who offer premium quality independent living units, where residents can bring their own possession, and entertain family and friends in attractive settings, will find that older people who are not in need of care will proactively choose these units as places to live.
Operators who develop and offer attractive leisure and day programmes will find that older people, who are not resident in their facilities, will pro-actively choose to participate in this activities. And options are not limited to this age-group, Care Home providers operating from a large footprint should consider developing childcare facilities near their care homes.
Brian McEnery is a Healthcare Consulting and Corporate Restructuring Partner in BDO Accountants and Business Advisors. Brian has a broad range of healthcare experience, both from a financial and operational perspective, and has been an advisor in the older person care sector for the last two decades.
Orna Stokes is Senior Manager in Ulster Bank’s Customer Experience & Products Team. Orna.stokes@UlsterBank.com or on 087 6222182
*DKM Economic Consultants, on behalf of the Department of Health “Potential Measures to Encourage Provision of Nursing Home & Community Nursing Unit Facilities”, December 2015”.
This post originally appeared in the www.independent.ie