More Than A Cash Injection Needed To Fix Social Care

The ability to raise council tax by 2% above existing thresholds, with those funds ring-fenced ‘exclusively’ for social care, is unlikely to make an impact in the face of the ‘real and imminent danger’ of a care home bed capacity crisis, according to a paper published today by healthcare economist William Laing.

Writing in a White Paper which will be debated at an event in central London next week, the head of healthcare experts LaingBuisson has argued that the 2% Council Tax ‘precept’ flexibility to supplement social care funding will not throw a financial lifeline to the care home sector. It may pay for initial National Living Wage cost increases, but councils will want to spend most of any additional council tax funding they raise on meeting immediate financial pressures and few councils will have enough left over to fix dysfunctional local care markets, especially if that means giving priority to the sort of fee hikes necessary to re-build care home profit margins which have been squeezed to dangerous levels by a cumulative 6% real terms reduction in council paid fees since the start of the austerity programme in 2011/12. As a result, the provider disinvestment trend which is already threatening some local markets will be reinforced.

Describing a bleak scenario for Britain’s publicly funded care home sector, in the light of the Chancellor’s Comprehensive Spending Review announcement, Mr Laing said:

‘With further home closures, occupancy rates in those that remain will rise. Market power will shift to providers and a point will eventually be reached where central government has no other realistic option but to provide councils with the means to re-incentivise sufficient investment in care home capacity to enable councils to fulfil their statutory duties. But this will in all probability only happen when a full-blown capacity crisis is clearly visible’

Mr Laing continued:

‘The Chancellor’s strategy of shifting the task of raising more social care money over to local authorities is a clever one, but it simply reinforces the underlying problem which is that no-one, either in central or local government, is taking responsibility for good market management of the care sector. Central government says it has given councils enough money, while councils say it has not, and therefore they cannot afford to pay reasonable fees to local providers. For more than twenty years since the 1993 reforms, governments of all political colours have presided over an increasingly dysfunctional care home market which has come to depend for its survival on massive cross subsidies from private to public payers. The average private pay ‘premium’ is now over 40% over and above what the public sector pays for like for like services.’

In a proposal designed to fix the underlying dysfunctionality, the well-respected healthcare economist pitches a plan aimed at taking the heat out of local care home fee negotiations by treating care home property as a utility which attracts a nationally set rate of return on council placements: The components of the plan are:

–    Create a national economic regulator function (‘Ofcare’) for the care home sector, to be charged with:

o    setting a target rate of return for care home property used for council placements, just as Ofgem and Ofwat set rates of return for power and water utilities;

o    based on CQC physical environment standards, establishing a process for determining local capital cost benchmarks per room, taking into account local land prices (and local construction / maintenance costs if necessary)

–    Transfer responsibility for paying care home property costs from councils to Housing Benefit.

o    The effect of this would be to rationalise funding for all care modalities, placing care homes on the same basis as extra care for older people and supported living for younger adults with learning disabilities and other needs;

–    Set up a process for classifying each care home with a council contract with an appropriate physical environment grade, linked to a complementary set of locally based care home Housing Benefit bands.

Mr Laing further explained:
‘The effect of the proposed package would be to focus local fee negotiations between councils and care home representatives very clearly on meeting staffing and other current costs of provision and reasonable operating profit. These are much simpler and easier to quantify than capital costs, which depend on asset values and return on capital, which many councils find hard to grasp. Removing property costs from the equation would probably avoid most of the judicial reviews of fee setting which have been a feature of the care home scene in recent years and are a waste of everyone’s time. Yes, the public sector will have to pay more to sustain a healthy care market, but in terms of administration the whole package could easily be cost neutral and even cost saving to UK plc.’

Commenting on the main message from the White Paper, Mr Laing said:

‘The continuing ‘stand-off’ between central and local government, where no-one is taking responsibility for good  management of the social care market, has led to a highly polarised environment, with inadequate profits in areas highly exposed to public pay and super-profits earned by some providers in areas of high private pay. It is also the root cause of endemic cross subsidisation, with private payers now paying an average 40% plus premium over public payers for like for like accommodation. This market failure will have to be resolved by 2020 when, the government revealed in the CSR small print, it intends to implement the postponed Part 2 of the Care Act. Otherwise it will be faced with the same fears of destabilising a highly polarised care market which led to the postponement for 2016.’

Prior to general publication the White Paper, entitled Stabilising the care home sector & preparing for implementation of Part 2 of the Care Act in 2020, will be debated at the forthcoming Dorson LaingBuisson conference Social Care – The Perfect Storm? in central London on 1 December 2015. To find out more visit www.dorson-laingbuisson.com.