Care home provision for ages 65 and over

Contents

Background
Care homes in Southwark
Methodology to the cost of care exercise
Outcome of the exercise
Table 1: Breakdown of cost of care 
Table 2: Cost of care results per service type
 

Background

Southwark Council (“The Council”) welcomes the government’s interest in the social care sector as expressed in Build Back Better: Our Plan for Health and Social Care, albeit limited to home care for adults and care homes for older people. The council also welcomes the government’s interest in seeking a fair settlement for the funding of social care through the social care reforms.

It is important to note that unlike health care, residents are expected to make a contribution to the cost of their care – in part or in full – and this is why the media coverage often focuses on selling your home to pay for care. The national framework for charging is designed so that people pay what they can afford in relation to the price of care that the council pays. The cost of living crisis disproportionately affects those on the lowest incomes in our communities and people with disabilities are within the lowest income brackets and more likely to experience food and energy poverty. Whilst the value of Benefits will increase in line with inflation, the reality is that the cost of living continues to be high and therefore the council’s duty to achieve best value in the prices it pays for care becomes more important than ever.

For those fortunate enough to have funds to pay the full cost of care, they will be expecting councils to continue to manage the price of care until the other element of this social care reform – the (cost) of social care cap - is introduced, currently delayed until 2025.  

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Care homes in Southwark

Southwark has a population of over 300,000 people. The population is relatively young when compared to the rest of the country outside of London.  This might be why the number of older people’s care homes in the borough is relatively low when compared to other localities of a similar size. The council has seven care homes for older people and these are predominantly residential care homes. The council is seeking to increase Nursing Care provision and reduce Residential Care provision due to the development of extra care schemes or people choosing to live at home as long as possible with support from a home care provider. 

In last two years, the council has undertaken a number of procurement exercises to secure Residential and Nursing Care in the borough. The specifications for these types of provision has included a requirement for providers that we contract with signing up to the Residential Care Charter.  The Residential Care charter has three domains related to: safe care; high quality care and ethical care. According to our Capacity Tracker data-set, there are 576 people (as of 25 January 2023) working in our care homes and we hope that by 2027, they will all benefit from the Charter.

Due to the nature of the service delivery in care homes, the staff in the home may support people who are funded by the council, self-funders or people funded by other local authorities or health agencies. This means that the Charter was agreed by Cabinet with the expectation that where a provider’s price does not fully reflect the expectations of the Charter then the council will pay the Southwark Supplement. Southwark has one home that is fully compliant with the Charter and is working with three providers (in relation to 6 homes) to move to full compliance with the Charter by March 2023.

Given the importance and financial value of this service, the council secures best value through open competition and testing quality and price. The council uses a price envelope to ensure that all elements of the Ethical Care Charter are reflected in the range of rates within the envelope. In order to ensure that the contract prices paid to providers keep pace with the Living Wage Foundation decisions about the rates of the Living Wage and London Living Wage, the council awards uplifts to reflect the increase in the LLW and the associated on-costs, as per the ADASS formula, (the Association of Directors of Adult Social Services).

The main barrier to entering the care home sector is property. Southwark has sought to manage the market by making land and assets available for providers to deliver the care that our residents need. To that end we have leased and maintained four purpose-built care homes in the borough, leased land to a provider to build a nursing home and we are reviewing options to build an additional nursing home.

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Methodology to the cost of care exercise

Southwark Council undertook the government’s Fair Cost of Care exercise as per the issued guidance provided by Department of Health and Social Care (DHSC). This was a national exercise that took place during the national challenge of rising inflation driven primarily by energy and fuel costs, as well as the challenge of increasing demand and insufficient staffing to fulfil the presenting need.

As part of the local requirement during the exercise, the following were submitted onto DHSC’s portal on 14 October 2022:

• Providers’ cost of care report (Annex A, Section 5)
• Spend report (Annex A, Section 3)
• Cost of care report content (Annex B)
• Provisional Market sustainability plan (Annex C)

The submissions from the care home providers for the 65+ population were collected in June and July 2022 and are reported on their 2022 base price.

We approached seven providers via a survey and six provided the requested information – 86% return.  Prior to sending out the surveys, we met with providers to discuss the exercise.

The Council supported and encouraged providers to complete the toolkit for each relevant service and collect, collate, validate and analyse the responses - working to specific set timelines for providers to return individual cost of care data. 

Southwark have extensively compared all provider returns amongst each other to identify any potential outliers and recognise patterns which have formed. In doing so, there have been a few elements which have appeared to have incurred a large variance within the combined data set. This includes:

• Repairs and Maintenance displayed a large variance between the smallest value (£0.59) and the highest value (£19.94) per client per week, in which without industry guidance there could be inconsistencies as to what should be included within the element.
• The submissions had a large variance for the Central/ regional management costs includes a large variance between the smallest value (£0) and the largest value (£70.49), which could also have been misinterpreted.

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Outcome of the exercise

The six providers reported a range of costs by care setting/type as set out below in the two tables:

^{The count observations are not applicable for Southwark, as we received 6 responses for all categories in question.}

The definition of enhanced needs in Southwark has been captured in pen pictures of high, medium and low needs; these pen pictures were used in our tendering of care home contracts and therefore means that for some providers we pay a blended price for a home to care for residents with a range of needs.

The Return on Capital calculations involved the providers taking into consideration borrowing, interest, depreciation, cash flow funding and capital expenditure. Providers submitted on average a return on capital of 12%, which has been communicated as a fair and appropriate return to their investors and is aligned with industry standards of 11%.

As part of Return on Capital, operating costs excluding Interest, Tax, Depreciation, Amortisation and Rent (ITDAR) is captured separately.

The return on operations (ROO) calculations involves analysing the providers operating and central costs and adding a realistic mark-up on to costs to determine profit levels before tax per resident. According to a recent study by Hallidays in 2021, the industry benchmark for the return on operations was stated as 10.3%, whereas the average ROO reported by the eligible providers within the borough was 11%. This included possible reinvestment back into the business. ROO will consider operational risks such as:

• drops in occupancy
• inflationary pressures
• a provision for future investments (where not capitalised)
• dividend payments

The council recognises that paying a fair price for care is important for the sustainability of the care home sector (which continues to see organisations entering the market) and therefore procurement exercises, which are both transparent (i.e. advertised) and values-based (e.g. residential care charter), are the most objective way of securing/agreeing a fair price of care.

The council would like to thank all providers for taking the time to complete the exercise, your time and expertise is very much appreciated.

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Page last updated: 01 February 2023