Industry sector:

Care home: Setting the fee level

The care home sector is very competitive and it is important to set your fees at the right level. Nursing home fees are normally around £200 or more a week higher than residential home fees, reflecting the higher level of care that they provide. Your fees should reflect the standard and quality of the care and the facilities that your home offers.

Three important factors to consider when setting your fees are:

  • the amount that you will need to charge to cover all of your operating costs and make an acceptable profit margin
  • the going rate in your area for the type of services that you will be offering
  • the maximum amounts the local authority will pay towards residential and nursing care for elderly people

Try to find out what other care homes in your area charge. Compare their facilities and quality standards with those that you intend to offer. Find out what is included in their charges - and what isn't.

In many cases, the going rate will be the maximum amount that the local authority pays for particular levels of care. Try to find out what your local authority's fee limits are - contact the care homes section of your local social services department. Many local authorities publish this information on their website.

You may decide to set your own fees at a level close to or below the local authority maximum. It is important to do this if you anticipate that a large percentage of your clients will be state funded. In a typical 'middle of the road' home charging an average fee, around 40% of residents would normally be fully state funded by their local authority. Remember that local authorities who are purchasing care on a resident's behalf have a duty to obtain good value for the money they pay out.

However, if you think that there is a demand for a more upmarket service from clients who can afford to top-up state funding or pay their own fees, you may decide to ignore these limits. Alternatively, you might decide to charge a higher fee, but to accept state funded clients at a lower rate.

Make sure your fees are set out as clearly as possible so that residents understand exactly how much their care will cost them. Avoid bumping up bills unfairly with hidden extras. When fees have to go up, make sure that your residents know about the rise as soon as possible and understand the financial implications. The Office of Fair Trading (OFT - since replaced by the Competition and Markets Authority) published a report on care home fees in the mid 2000s that recommended greater clarity, simpler fee structures and more information about fees for elderly people. In November 2018 the CMA published guidance for care home businesses on treating residents fairly, including clearly setting out the fees payable. You can download Care homes: consumer law advice for providers from the website.