Self-funders convert to council funding when their capital runs out, so the private share of beds is always lower than the private share of arrivals, and it falls when the fee rises.
Weight the fees by the mix of occupied beds, not the mix of admissions: self-funders convert to council funding when their capital runs out, so fewer beds pay privately than arrivals suggest. On an illustrative home where 50 per cent of admissions self-fund, only 28.5 per cent of occupied beds do, and the average weekly fee is 985, not the 1,065 the admissions mix implies. On 54 occupied beds that is 223,550 of revenue a year that was never going to arrive.
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 →
Payor mix is the most quoted and least computed number in a care home information memorandum. It is usually given as a share of admissions, or as a share of residents on one day, and then applied to the fee card as if it were stable. It is not stable. It moves with the length of stay, with residents' capital and with the private fee itself, which is why a fee increase returns less than it promises.
| Input | Value |
|---|---|
| Admissions arriving self-funding | 50% |
| Mean length of stay, months, all residents | 26 |
| Capital a self-funder can spend before state funding starts | 95,000 |
| Resident's weekly income contribution (pension and benefits) | 250 |
| Self-funder fee | 1,250 |
| Local authority fee | 880 |
| Occupancy, beds | 90%, 54 |
Two simplifications keep the arithmetic in view. Length of stay is the same for both groups and follows a constant hazard of leaving, so the average remaining stay does not depend on how long a resident has been in. And a converted resident pays the local authority rate with no third-party top-up. A full model replaces both with cohorts and a survival curve; the logic does not change.
1. Weekly draw on capital = private fee − income = 1,250 − 250 = 1,000
2. Months until capital runs out, T = 95,000 ÷ 1,000 ÷ (52 ÷ 12) = 21.9
3. Expected months paid privately = L × (1 − e−T/L) = 26 × (1 − e−21.9/26) = 14.8
4. Occupied private share = admissions share × private months ÷ L = 50% × 14.8 ÷ 26 = 28.5%
5. Average fee = 28.5% × 1,250 + 71.5% × 880 = 985
Step 3 is the expected value of the shorter of the stay and the capital: a self-funder who dies or leaves before month 21.9 never converts, one who stays longer converts at that month. Here 43.0 per cent of self-funders are still resident when their capital runs out. In Excel: =L*(1-EXP(-T/L)).
Step 4 is Little's law: the number of beds in a state equals the rate of arrival into it times the time spent in it. Half the arrivals spend 14.8 months paying privately, and every arrival spends 26 months in a bed on average, so private beds are 28.5 per cent of the total.
| Mix used | Private share | Average weekly fee | Annual revenue, 54 beds |
|---|---|---|---|
| Admissions mix | 50% | 1,065 | 2,990,520 |
| Occupied-bed mix | 28.5% | 985 | 2,766,970 |
The gap is 80 a week per bed and 223,550 a year. It is not a forecast error to be argued about. It is the arithmetic of who is still in the building.
Raise the private fee 6 per cent, to 1,325. On the current mix the average fee should rise by 21.36 a week. But the draw on capital rises to 1,075 a week, capital runs out at 20.4 months instead of 21.9, expected private months fall to 14.1, and the private share of beds falls to 27.2 per cent.
| Measure | Before | Mix held | Mix responds |
|---|---|---|---|
| Private fee | 1,250 | 1,325 | 1,325 |
| Occupied private share | 28.5% | 28.5% | 27.2% |
| Average weekly fee | 985.39 | 1,006.75 | 1,000.95 |
| Annual uplift, 54 beds | 59,986 | 43,695 |
The mix gives back 27.2 per cent of the increase. Each pound added to the private fee drains residents' capital faster and moves them sooner onto the local authority rate, which is 370 a week lower. The increase is real; it is just smaller than the fee card says, and the business plan that books the static figure overstates it.
| Capital to spend | 40% admitted private | 50% | 60% |
|---|---|---|---|
| 60,000 | 16.5%, 941 | 20.6%, 956 | 24.8%, 972 |
| 95,000 | 22.8%, 964 | 28.5%, 985 | 34.2%, 1,006 |
| 150,000 | 29.4%, 989 | 36.8%, 1,016 | 44.2%, 1,043 |
The wealth of the catchment matters as much as the admissions policy. A home in an area where self-funders bring 150,000 keeps 36.8 per cent of its beds private on the same 50 per cent of admissions; one where they bring 60,000 keeps 20.6 per cent. The give-back on a fee increase moves the same way: 31.9 per cent of the increase where capital is 60,000 and 20.7 per cent where it is 150,000, because capital that lasts longer is less sensitive to a faster draw.
The private share that pays the bills is the share of occupied bed-weeks, and it is set by admissions, length of stay and residents' capital together: 28.5 per cent here against 50 per cent of arrivals. Compute it before the average fee, and let it respond when the fee moves. The free Payor Mix Tracker for this case returns the occupied-bed mix behind any admissions mix and the share of a fee increase the mix gives back. What the resulting EBITDARM supports as rent and as a price is worked in what multiple cover and yield imply.
It is the split of residents by who pays: self-funders, the local authority, or health funding. The share that matters is of occupied bed-weeks, not admissions. On an illustrative home, 50 per cent of admissions self-fund but only 28.5 per cent of beds are private, because capital runs out after about 21.9 months on average.
Multiply the self-funding share of admissions by the average months each self-funder pays privately, and divide by the average length of stay. With 50 per cent of admissions, 14.8 months paid privately and a 26-month stay, the private share of occupied beds is 28.5 per cent.
Yes. A higher fee drains residents' capital faster, so they convert to the lower council rate sooner. On an illustrative home a 6 per cent increase cuts the private share of beds from 28.5 to 27.2 per cent, and the average fee rises 15.56 a week instead of 21.36.
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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