A regulated market paying a fair price for care - or a wild west show?

In December 2021, amongst concern about the frailty of the social care market of provision, the Government announced a ‘Market Sustainability and Fair Cost of Care’ fund. Worth £1.4BN it would require councils to deliver on a key part of the Statutory Guidance to the Care Act. Councils should deliver a ‘sustainable care market’ through paying providers ‘a fair cost of care’. Fee levels must be sufficient to enable providers to resource their front lines appropriately whilst allowing no less and no more than ‘a reasonable rate of return by independent providers’.

The vision is inarguable - a regulated, stable network of providers committed to public service seeking no more than an agreed ‘fair’ return. There are, indeed, some providers who live up to this description. But there are others who do not. There are organisations for whom profit is the primary motivation. Either through using the power of their market position to secure higher prices or cutting operational costs they are extracting private profit from public funds. A recent study by the New Economics Foundation points out how it is these organisations that are in the majority. Four of the five largest home care providers are owned by either private equity firms, US hedge funds or billionaires based abroad.

Delivery of a vision of a market of providers putting public service first will require councils to ensure all providers are so motivated.

However, provisions elsewhere in the Statutory Guidance makes it impossible for councils to do so.

Impossibility of delivering a fair price

Arriving at a fair price cannot happen without a relationship of trust between councils and providers working in partnership. That requires the following four conditions:

1.    the provider and council share the same vision of making lives the best they can be through making best use of public resources

2.    the council empowers the provider to respond with the flexibility invariably necessary to achieve agreed outcomes set out in the council’s support plan

3.    providers accept the council has a duty to taxpayers and the whole service user base to ensure no more than the agreed fair price is paid

4.    an open book approach to negotiation so that all the providers’ costs are on the table and a fair return on capital and labour agreed.

But a recent high profile academic study of the relationship between councils and providers showed the reality being far removed from these conditions. Relationships are predominantly characterised as being weak on relationships and strong on rules. This is characteristic of what is called a task and volume approach to contracting. It is hierarchical, with the council seeking to extract as many tasks from the provider for as little money as possible. The researchers noted that the Care Act required the very opposite – a commissioning process strong on relationships and weak on rules. This is characteristic of an approach to contracting described as outcome based.

But this is not simply a matter of choice by councils’ commissioners, of bad commissioning practice needing to be replaced with good practice. They cannot flick a switch.

Councils’ commissioners are delivering exactly what their councils require of them.

Their responsibility is to create a market to meet the needs of individuals as assessed by the front line of practitioners and resource allocators. Therein lies the problem.

The system requires individual support plans to consist predominantly of standardised tasks. Task and volume contracts naturally follow.

The source of the reason for standardised support plans is that councils charge their front lines with delivering two legal imperatives simultaneously;

• meet all needs they have deemed ‘eligible’

• spend within whatever budget made available

They can only succeed by calibrating ‘eligibility’ to the budget. This requires them to standardise ‘need’ to create a controllable flow which is then adjusted to the budget. The process is addressed more fully in the article The Sham of Eligibility Responsibility for this state of affairs lies within the gaps and contradictions in the Statutory Guidance to the Care Act.

Nature of the market

A market place is thus created far removed from the Care Act and Market Sustainability vision. Less controlled more a wild west show. Power, not principles, is dominant. The power of the provider is in having the services the council needs while the power of the council lies in holding the public funds. Those parts of the market without power lose out. Employers of Personal Assistants have reported going as long as 10 years with no inflationary increases for wages. Small non-profit seeking independent organisations can similarly get short shrift.

What the facts show us

The facts bear out the true nature of the market. It shows in the price councils pay.

The unit cost of services are reported annually by NHS Digital based on data from council returns. The unit cost of residential and nursing care is measured as cost per week per resident and the unit cost of home care as cost per hour.

In a controlled market, we would expect to see unit costs clustered around an average, affected only by differences in regional land and wage costs. While costs for individuals can vary greatly with complexity of need, there is no reason to believe the range varies significantly from one population to another. The differences will average out.

The following table shows the situation in 2021/22, the year before the Market Sustainability funding from government. It shows the highest paying and lowest paying 10% of councils.

Unit costs 2021/22

	Residential and nursing care for working age adults	Residential and nursing care for older people	Home Care
10% highest paying	£1,916	£1,052	£22.7
10% lowest paying	£886	£525	£15.5

There is no clustering around an average. For residential and nursing care for working age adults the highest 10% paid more than double than the lowest; for older people nearly double; for home care 46% more. But the task and volume contracting process leaves councils without the information to know where in these huge spectrums the fair price actually lies. Who is getting more and who is getting less than the fair price? Councils do not know how much of the price they pay is spent by providers on strengthening their front lines and how much is lost to profit.

Moving forward three years, there is no doubt the extra Government funding has seen more money going to providers.

• The average weekly cost of residential and nursing care for older people has risen from £768 to £1,109, which is 33% above inflation (allowing 11.3% for inflation in those years).

• The average weekly cost of residential and nursing care for working age people has risen from £1,427 to £1,823, which is 16% above inflation 

• The average hourly cost of home care has risen from £18.9 to £24, which is 16% above inflation.

But any hope the extra money would have brought about a more rational market is shown to be dashed by the data from 2024/25.

Unit costs 2024/25

	Residential and nursing care for working age adults	Residential and nursing care for older people	Home Care
10% highest spending	£2,441	£1,312	£19.1
10% lowest spending	£1,179	£766	£28.1

Summary

In 2024/25, £27.6BN of the £34.5BN total spend was spent through independent providers. It cannot be known how well providers are using that money to provide best possible services and how much disappears into profits greater than would accrue under a fair cost of care regime. It may well run into several billions of pounds.

The remedy lies in creating the four conditions for a partnership rooted in trust between councils and providers. None of that can happen until councils’ assessment and support planning process identify the authentic, unique needs of each individual for which the market must be constructed through councils’ strategic commissioning function. The Charter for the Right to Wellbeing, embodied in the Roadmap for Independent Living for all, is designed to achieve this purpose.

Of the 5 largest providers in adult home

care, 4 were either owned by private

equity