The extra care hours are the obvious cost. The beds given up and the works are the ones that get left out of the fee.
More than the extra staff alone. On an illustrative 20-bed residential unit converted into an 18-bed dementia unit, the extra care hours cost £149.52 per resident a week, but the lost beds and the capital spent add £64.42 more: to earn the same contribution as before, the dementia unit needs an average fee of £1,314, a premium of £214 a week, 19.4 per cent over the £1,100 residential fee, even after its occupancy rises from 88.0 to 93.0 per cent.
Worked in full in Senior Living and Healthcare Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Dementia care is where much of the unmet demand in elderly care sits, and operators and landlords look at underused residential wings as candidates for conversion. The pitch usually quotes the higher fee a dementia bed commands. The test is whether that fee covers three things at once: more care hours per resident, the beds given up for secure circulation and communal space, and the cost of the works.
| Input | Residential today | Dementia after |
|---|---|---|
| Beds | 20 | 18 |
| Occupancy | 88.0% | 93.0% |
| Residents | 17.6 | 16.74 |
| Care hours per resident a day | 3.6 | 4.8 |
| Loaded cost per care hour delivered | £17.80 | £17.80 |
| Other variable cost per resident | £120 | £120 |
| Average fee | £1,100 | to solve |
| Capex per dementia bed / capital charge a year | £15,000 / 12.0% |
The loaded cost per care hour includes employer costs and cover for holiday, sickness and training, built up as in how many staff a care home needs. The care hours are an illustrative dependency assumption, not a regulatory ratio. Fixed costs of the home, the manager, kitchen and building, do not change and drop out of the comparison. The capital charge of 12.0 per cent a year on £270,000 of works, £32,400, stands for the return the owner requires on the money spent.
Care cost per resident = care hours a day × 7 × cost per hour
Contribution = residents × (fee − care cost − other variable cost) − capital charge
Required dementia fee = (residential contribution + capital charge) ÷ dementia residents + care cost + other variable cost
In Excel, with the residential contribution in B2, the weekly capital charge in B3, dementia residents in B4, care hours in B5, hourly cost in B6 and other variable cost in B7: =(B2+B3)/B4+B5*7*B6+B7.
Today each residential resident costs £448.56 a week in care and contributes £531.44, so the unit contributes £9,353 a week, £487,683 a year, towards the home's fixed costs and rent. A dementia resident at 4.8 hours a day costs £598.08 in care, 8.4 more hours a week. The capital charge is £621 a week. Spread the target contribution and the capital charge over 16.74 residents and add back the costs, and the fee must be £1,313.94.
| Component | £ a week |
|---|---|
| Extra care hours, 1.2 a day at £17.80 | 149.52 |
| Fewer residents to carry the same contribution | 27.30 |
| Capital charge on the works | 37.12 |
| Required premium | 213.94 |
The higher occupancy helps but does not offset the two lost beds: 16.74 residents against 17.6, so each must contribute £558.74 rather than £531.44. Staffing is about 70 per cent of the premium; the rest is the building.
| Premium achieved | Contribution a week | Against residential, a week | A year |
|---|---|---|---|
| £150 | £8,283 | −£1,070 | −£55,811 |
| £200 | £9,120 | −£233 | −£12,170 |
| £250 | £9,957 | £604 | £31,471 |
| £300 | £10,794 | £1,441 | £75,113 |
| Care hours a day | 88% occupied | 93% | 97% |
|---|---|---|---|
| 4.4 | £198 | £164 | £140 |
| 4.8 | £248 | £214 | £189 |
| 5.2 | £298 | £264 | £239 |
Each extra 0.4 care hours a day adds £50 to the required premium; each few points of occupancy take back about half that. The layout matters as much: if the conversion keeps all 20 beds the premium falls to £158, and if it gives up four, to 16 beds, it rises to £284. A scheme that needs a large lounge and a secure garden carved out of bedrooms has to command a markedly higher fee.
The premium is an average across payors. If a large share of dementia residents are funded by the local authority at an enhanced rate that adds less than £214, private payers have to carry more of it. How the mix of funding moves an average fee is worked in how payor mix changes a care home's average weekly fee.
Setting the dementia premium at the cost of the extra staff. At £149.52 the unit looks self-financing, but it contributes £1,078 a week less than the residential wing it replaced, £56,230 a year, because the lost beds and the works were never priced. For a landlord, that shortfall comes straight out of the operator's rent cover.
Solve for the fee that keeps the unit's contribution whole after the capital charge: £1,314 here, a £214 premium, of which only £149.52 is staff. Then test it against what the local market and the local authority actually pay. Senior Living and Healthcare Real Estate builds a home from care hours through to rent cover, and the free workbook for this case carries the rota and employer cost model behind the hourly rate.
It depends on dependency and on the building. In the illustrative case dementia residents need 4.8 care hours a day against 3.6, which at £17.80 a loaded hour adds £149.52 a week. Including two lost beds and the capital charge on the works, the fee has to be £214 a week higher to match the residential unit's contribution.
Only if the market pays enough premium. On the illustrative 18-bed unit a £250 weekly premium adds £31,471 a year of contribution over the residential wing, while a £150 premium loses £55,811. The break-even is £214 at 93.0 per cent occupancy, falling to £158 if the conversion keeps all 20 beds.
Because the same contribution has to be earned from fewer residents. Going from 20 to 18 beds leaves 16.74 residents at 93.0 per cent instead of 17.6 at 88.0, adding £27.30 a week to the required premium; giving up four beds instead of two raises the premium from £214 to £284.
This article is one calculation from Senior Living and Healthcare Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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