Q; Can homecare become sustainable in the near future? What is the impact of the underfunding? What is the current situation and what can be done to tackle it?
A; Colin Angel, Policy Director, United Kingdom Homecare Association
The social care sector seems to have been under pressure for over a decade, but the warnings of possible market failure, particularly in the homecare sector, have suddenly got much more urgent and social care makes daily news headlines.
Independent and voluntary sector providers have already begun to signal the possibility of large-scale hand-backs of local authority funded homecare services. Some large homecare providers have shared evidence with United Kingdom Homecare Association (UKHCA) suggesting plans to exit from as many as 39% to 45% of their council contracts.
This matters because 883,000 older and disabled people used homecare services in the UK last year and public expectations that their care and health needs can be met effectively at home are increasing. Add to that the headlines we should expect about delayed discharges from hospital. We already know that the number of people sitting in hospital while home-based care is arranged has steadily increased over the year. The homecare sector has a vital role in relieving pressures on the NHS.
The warnings from social care aren’t just because a Spending Review provides the opportunity for a billow of shroud-waving in the hope of more money, but indicate a growing awareness of the pressures in a homecare sector. UKHCA estimates that the sector is running at a deficit of £514m this year, due to increase to £753m next year, if the costs of the new National Living Wage are not funded in care purchased by the public sector.[i]
The proportion of homecare purchased by the State, rather than by private individuals, is thought to be around 70%, so the rates councils pay for homecare services are critical for a functioning market. The statutory guidance to the Care Act 2014 (for England) forcefully reminds councils that they ‘must not undertake any actions which may threaten the sustainability of the market as a whole…for example, by setting fee levels below an amount which is not sustainable for providers in the long-term’.[ii]
UKHCA has produced a minimum price for State-funded homecare for several years.[iii] Using data obtained under the Freedom of Information Act, UKHCA could find only 28 councils out of 204 across Great Britain paying this minimum price.[iv]
The introduction of the National Living Wage, from April 2016, has been described as the final straw by many providers; not because the benefits of a properly paid workforce are not welcome, but because they know just how severe the impact of public spending cuts will continue to be. We heard from a large provider who has written to 78 local authorities about insufficient fee rates. Just 28 replies were received, with only one council increasing rates in response.
In a recent survey of homecare providers, 93% of those trading with councils had faced a real-terms decrease in the price paid for their services in the last 12 months, with 20% reporting authorities decreasing the actual fees paid.[v]
The vast majority of providers in this survey (71%) said they were not confident that the fee levels they were likely to receive would meet the additional costs of the new National Living Wage and that, even where they could, the additional costs would affect the quality of care, presumably because they would need to cut spending on training, supervisory staff or quality assurance.
We believe that there is strong evidence of pending market instability over the next year. In this survey, 11% of all providers thought that they would ‘definitely’ or ‘probably’ have ceased trading within the next twelve months. Just 38% of providers were completely confident that they would still be in business at the same time next year. In addition, 74% of providers trading with councils said that they would reduce the amount of publicly-funded care they delivered, estimated to affect 42% of all the service users they support.
The statutory guidance to the Care Act places robust requirements on authorities in England and the pay and conditions of the social care workforce feature in a number of them. Councils are expected to ‘assure themselves and have evidence that service providers deliver services through staff remunerated so as to retain an effective workforce’ at rates ‘at least sufficient to comply with the National Minimum Wage legislation’.[vi]
This assurance can’t just be a tick-box exercise (though we have already seen examples of this approach from several councils). The guidance also tells councils that contract terms and fee levels must not only promote the wellbeing of people who receive care and support, but ‘allow for the service provider ability to meet statutory obligations to pay at least the National Minimum Wage and provide effective training and development of staff’.[vii]
UKHCA’s Minimum Price for Homecare increased to £16.16 per hour following the October 2015 increase in the National Minimum Wage. The minimum price becomes £16.70 when the National Living Wage is introduced next April. We can reasonably assume that the average price for older people’s homecare across the UK (£13.66) will have changed little since we surveyed councils last year. The risks of this disparity for market stability should be obvious. UKHCA has repeatedly called on councils to enter into open-book costing exercises with providers to understand the real costs in local markets. There have been some encouraging moves by several councils, but by no means all.
UKHCA made four recommendations to Government when the National Living Wage was announced.[viii] Most importantly, the Spending Review 2015 must support social care with additional funding for councils; although we also believe that UK social care regulators must be empowered to oversee councils’ commissioning practice. The Chancellor could provide additional buffering by a change to the current VAT exemption, so that social care services become ‘zero-rated’; this would enable councils and private individuals to continue to purchase homecare services without paying VAT, and would enable homecare providers to reclaim VAT on the costs they incur. Finally, Government should consider tax incentives for private individuals funding their own social care, particularly as the Care Cap in England has effectively been abandoned.
We have also suggested that providers’ EBITDA margins could be a reasonable prediction for market behaviour. EBITDA margin provides a singular measure of business performance, useful for comparing similar companies across a single industry, as it minimises the non-operating effects that are unique to every company.
Ten major homecare providers advised that they were currently operating on EBITDA margins on local authority business of between 2.0% and 8.1% (median 4.1%). They estimated that unless the costs of the National Living Wage were funded this would fall to between -5.3% and 3.0% (median 1.3%). We suggest that these providers will consider exiting uneconomic contracts as EBITDA margin falls to 5% and are likely to exit the State-funded market at 3%. Needless to say, smaller providers are likely to require slightly higher margins to remain in business.
Even if providers continue just to survive in the homecare sector, they will have to consider whether costs associated with non-mandatory requirements will be cut and whether to support innovation which bears financial risk or up-front investment. Neither of these are desirable for people who use services, nor councils wanting to explore new models of care, including outcome-based commissioning.
The Care Quality Commission received ‘market oversight’ powers in England as a result of the Care Act. This regime will act as an early warning system, but its function is largely to alert authorities to the imminent failure of very large providers where coordinated action will be needed to maintain the continuity of care for people who use services on a temporary basis. Councils have responsibility for their local care markets, but what is needed is not additional monitoring, but real action which keeps the operating environment stable.
Money and politics
The repeated refrain ‘but we don’t have the money’, even when voiced by the most sympathetic local authority commissioners, cannot be an end of the discussion. Nor is ‘it’s not just about money’ a sufficient dodge for the real issue: we are now at the stage where it really is about money. There is a political decision for councils about the priority it places on the care of older and disabled citizens, who rely on a stable social care market to remain independent at home.
Colin Angel is the Policy Director at United Kingdom Homecare Association (UKHCA). Twitter: @colintwangel
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[i] Estimates by UKHCA submitted to HM Treasury, August 2015.
[ii] Department of Health (2014) Care and Support Statutory Guidance, paragraph 4.35.
[iii] Angel, C (2015) A Minimum Price for Homecare, Version 3.0.
[iv] Angel, C (2015) The Homecare Deficit. Sutton: United Kingdom Homecare Association.
[v] The survey, which will be published by the time this article is printed, was completed by 492 homecare providers in the UK, who delivered almost 888,000 hours of care a week to over 85,000 people.
[vi] Department of Health (2014) Care and Support Statutory Guidance, paragraph 4.30.
[vii] Department of Health (2014) Care and Support Statutory Guidance, paragraph 4.31.