The Department of Health and Social Care (“DHSC”) published statutory guidance on 24 March 2022.
Local Authorities (“LAs”) are required to report to DHSC on cost of care exercises for 65 years plus care homes and 18 plus domiciliary care together with a Market Sustainability plan and details of how they have spent the new government funds.
LAs are required to supply this to the DHSC by no later than 14 October 2022 (i.e. so as to inform the rate setting for 2023/4).
This is not optional. LAs are required to comply and are required to collaborate with service providers.
This amounts to a complete change from the usual LA dominated fee discussions.
It is a once in a generation opportunity for care providers to influence fee rates on an equal basis with LAs.
There is no reason to wait for approaches from LAs. LAs are required to seek financial information from care providers. We recommend that providers initiate the process by each supplying cost details for 2021/2 and 2022/3 and emphasise any costs which have been reduced necessarily to stay viable in the face of inadequate fees.
The National Care Association (“NCA”) is working with advisers to provide a simple information template for providers to complete. This should be available by the end of April 2022.
LAs are required to compile this information to show costs in this area and specifically show Return on Capital (“ROC”) and Return on Operations (“ROO”).
ROC is basically surplus income as a percentage of net assets (the difference between assets and liabilities).
ROO may be best described as EBITDA – the run rate profit excluding finance and tax charges.
LAs will then be required to show:
- Averages in their area; and
- Median levels in their area
Median is the DHSC’s preferred measure. That is the middle point of all the financial information supplied.
Average is a total of all information divided by the number of cases taken.
Average is distorted by outlier high and low figures.
Hence median is a fairer measure.
Once ROC/ROD is established and converted into a percentage it is relatively simple to show whether the resultant figure is sufficient to cover:
- All proper costs
- Capital loan repayments
- Funds for reinvestment (LAs are specifically required to factor in necessary reinvestment capacity in ROC/ROO and the consequent fair cost).
Analysis can then show how fee rate increases are flexed to achieve a fair result.
The “fair” result will be determined not by LAs but by the DHSC.
That is a huge change.
The opportunity for providers is to supply LAs with correct cost figures flexed to achieve viable ROC/ROO.
This is not about negotiations with or pleas to LAs, but rather providing LAs with information to report to DHSC.
It is crucial that all providers supply their information and it is urgent. The opportunity will not come again.
The exercise will produce a base “fair” starting point for 2023/4 moving forwards.
For those who are concerned about confidentiality, NCA or other care associations can produce an anonymous process whereby a provider’s identity is shared on a very limited basis to counter allegations of fictional figures. Remember all providers’ financial information is publicly available.
The guidance is written with jargon and complexity, but the principle is simple.
Providers have this opportunity to tell the DHSC the truth about the financial position of their business and the sector.
If providers would like help with or advice on how to approach local authorities regarding the cost of care exercise Ridouts can help. Please contact our specialist team of solicitors on 0207 317 0340 or ask for a call back via the website.
