Social Care funding & outsourcing |Bad ideas from both main parties

Two sharply contrasting policy announcements from the two major parties over the last couple of weeks, but equally frustrating.

First up was BoJo, with an announcement that he will prioritise funding for health and social care:

Next up was Shadow Chancellor with an announcement about ending public sector outsourcing:

There is of course one policy that would address both sets of policy issues:

Bring care homes back into public ownership.

Frankly this makes a lot more sense than bringing school catering contracts back in house. Delivering health and social care is a core competency of the public sector. It’s bloody good at it, and operates the largest health care organisation in the world. Schools are good at teaching, but mass catering isn’t really one of their core skills. It’s something that the private sector does much better.

[As a side note – lots of Local Authorities – many of them old Labour operated race and gender bars in Council employment well into the C21st. The most highly paid manual jobs were reserved for white men. Women and non-white workers were paid much less. Councils face huge bills for discrimination – Birmingham Council will spend more than £1bn on equal pay claims. It was easier to outsource these jobs to different providers]

If you don’t mind I’m going to shift between talking about policy and talking about economics. Health care is provided or commissioned by the NHS and is free at the point of use. Social care is means tested, and is the responsibility of the individual to look after themselves. This distinction goes back to the establishment of the NHS in the 1940s.

Where it gets complex is NHS Continuing care, where the individual has social care needs which are contingent on a healthcare condition, for example someone who has dementia. If you aren’t eligible for NHS continuing care but you are in a Nursing home you can be asked to pay for the social care costs. This is what BoJo is referring to in his Express article. There is a perception that having to sell property assets to pay for social care rather than handing them down to your children is an affront to people’s rights to inherit wealth. If you are reading this in Scotland social care in residential homes is free, although I think that money would have been much better spent tackling chronic ill health and falling life expectancy 

Before we use this definition to start and look at some statistics about care it is important to acknowledge that an enormous amount of caring takes place within families, and isn’t recognised in the statistics. As services have shrunk in the age of austerity so the amount of unpaid caring has increased.

The number of local authority residential care places peaked in 1984. Councils provided 144,564 places, the private sector provided 66,700 places and the voluntary sector 42,704. Although the extent of private sector provision was low, it was increasing rapidly – in 1980 it had only been 37,177.

By 2017, Local Authorities provision had shrunk to 19,200 places, the voluntary sector was roughly the same – 44,600, while private sector provision had soared to 179,000 places

Some of this was due to the Private Sector building more homes, while Councils closed them. Durham County Council closed it’s last remaining care homes, including Chevely House in Belmont a few years ago, claiming that the cost per bed £918 per week per bed for Council run homes compared to £474 it paid to the Private Sector.

By comparison there are just over 200,000 nursing home beds. The average cost for a care home bed is just over £600 per week, the average cost of nursing care just over £800

Demand is growing as the number of over-65s increases, and even though people increasingly prefer to be cared for at home we are close to the point where there are more people who want/need residential care than there are beds. This has huge implications for the NHS were the main reason for a delayed discharge of care is the lack of a suitable residential placement. 

But lots of the shift was pure outsourcing. Council homes were handed over to the private sector who ran them at a profit, and at a lower cost.

It might be helpful to explain my own perspective here. I did lots of work on older people’s care when I was a PCT CEO. The NHS had inherited a massive mess from the outgoing Conservative administration. They had been encouraging the NHS to reduce the number of cases funded through continuing care in order to force more people to meet their own costs.

If you are already familiar with the history of continuing care legislation you can skip the next bit, as it deals with shifts in Government policy over the last decade or 2.

The Thatcher government were keen to change the original definition of health and social care contained in the 1946 Act in order to reduce the amount of care which was free at the point of use, and increase the amount that was means tested. This led to the 1990 Health Service and Community Care Act, and in particular a rather awful policy document issued by the NHS Management Executive – HSG (92) 50:“Local Authority Contracts for Residential and Nursing Home Care: NHS Related Aspects”

HSG (92) 50 starts with the ominous sentence:

“The original distinction between health and social care contained in the 1946 Act had been changed by the 1990 Health Service and Community Care Act” .

It went on

“The local authority is responsible for purchasing services to meet the general nursing care needs of that person, including the cost of incontinence services (eg laundry) and those incontinence and nursing supplies which are not available on NHS prescription. Health authorities will be responsible for purchasing, within the resources available and in line with their priorities, physiotherapy, chiropody and speech and language therapy, with the appropriate equipment, and the provision of specialist nursing advice, eg continence advice and stoma care, for those people placed in nursing homes by local authorities with the consent of a DHA”

This redefinition of nursing care shifted costs from the NHS to the individual because Local Authority care was means tested. If you really want to hate the Tories for doing bad things to the NHS hate them for this.

HSG (95) 8; LAC (95) 5) made this clearer:

“Many people regard care in a Nursing Home as health care, and therefore the purchasing responsibility of the NHS. However, under the NHS and Community Care Act, Social Services were given a new responsibility for purchasing Nursing Home beds. As with the previous arrangement through the Department of Social Security this is subject to a means test. The regulations governing this are laid down nationally”

If you didn’t work in the NHS in the last days of the Tories you have no idea of the tyranny of Health Service Guidance and Health Service Circulars (HSG and HSC) often issued more than once a day by the Health Service Executive. The vast expansion of NHS bureaucracy under Thatcher, then Major had spawned the HSE housed in a purpose built impregnable management fortress near the Leeds ring road:

If there is one thing to praise the Blair Government for it did at least get rid of the Health Service Executive, and limit the number of HSCs that could be issued.

The continuing care rules were legally challenged in R. v. North and East Devon Health Authority, ex parte Coughlan, a landmark judgement which had forced the NHS to accept liability for a large number of continuing care cases.

Justice Hidden, in his judgement made the following ruling:

“I conclude that nursing is “health care” and can never be “social care” and that ….. HSG (95) 8 did not make any change to any NHS responsibility for health care services including nursing”.

In this context I was a newly appointed PCT CEO charged with sorting out the impact of this judgement on local patients.

Redcar and Cleveland Council still had a mixed economy. There were large Council owned Care Homes across the Borough, mixed in with private provision. We had continual battles with the private home owners, and kept a common line over costs:

While all of this was going on the Council was closing some of it’s own residential homes, moving patients into the private sector and replacing them with sheltered housing or specialist dementia care.

My experiences with the care home market in Redcar and Cleveland left me with a profound belief that models of service provision based on outsourcing everything don’t work. In a key market like care provision the public sector should retain their own provision, even in a mixed market, in order to be able to shape market provision.

As a side note to this when we were reviewing patients for eligibility I came across an individual who had been allowed to move into older people’s residential care in his mid-50s because he was mates with the Councillor who chaired Social Services committee. For my generation a moving into residential care seems like a terrible way to live, clearly not for some!

Now that we have established the policy/legal context lets look at the private sector market structure.

The 4 largest providers have only 15% of the market between them: Four Seasons (4.9%), Bupa Care Homes (4.7%), Barchester Healthcare (2.8%) and HC-One (2.4%). The top 25 provides have 30% of the market. Small and medium sized providers still have lots and lots of the market. HC-One are in the process of aquiring BUPAs business, making them the single largest provider. The majority of companies in the market have less than 3 homes.

This would indicate that there are few economies of scale, and the cost base of care homes is driven by people costs – the number of staff needed to cover care rotas. At the moment staffing costs are 57.5% of total costs across the sector, and in order to maintain profit homes need to reduce the percentage of their income which goes out in wages. The problem of costs is linked inextricably with high staff turnover, as high as 30% of staff per year in some regions. The industry has a high level of immigrant employees, and the hostility to immigration over the last decade has made staffing problems worse.

As well as these direct care costs there are significant costs associated with the purchase or construction of buildings and meeting Care Standards Commission standards. These costs are typically funded through borrowing, and the whole industry has high levels of debt. The largest providers have high levels of Private Equity debt.

It was this kind of financing crisis which brought down the Southern Cross, the then largest care home provider in 2011. Things improved briefly, but a similar financing crisis forced Allied Health care into administration in December last year, and Four Seasons into administration 4 months later. There have been similar, smaller regional collapses on a regular basis.

These companies have 2 main customers; those funded by Local authorities, those funding their own care. Local Authorities have a lot more purchasing power than private funders, and can negotiate a much better price, typically 40% lower. Roughly 60% of customers are LA funded. The bigger chains of care homes have much higher proportions of LA funded clients. Smaller, privately owned homes have much higher proportions of private payers. Homes with higher proportions of private payers are much more profitable, and are concentrated in more affluent areas. The bigger chains have higher numbers of LA funded clients because they offer a more stable and predictable source of income which their investors like

Source: House of Commons Library

This is one of the commercial factors that drives BoJos policy – not only are some people having to fund their own care, but there is a perception that by paying higher prices they are subsidising other residents. In reality private paying clients tend to live in homes with low levels of Council funded residents and vice versa.

The Competition and Markets Authority investigated the care home market last year to investigate cross-subsidisation, although they concluded that the problem was lack of funding into Local authorities rather than private funders being ripped off. This reflects the reduction in fees paid by Local Authorities – since 2010 Local Authority rates per bed have fallen by 6% in real terms.

There is a starct contrast betwen the golden age of social care funding increase under the last Labour Government – peaking at 4% above inflation in 2006/7, and a rea terms cut in central government funding for social care

The Coalition Government’s 2010 Comprehensive Spending Review, local
government spending fell by 26% in real terms by 2014/15, although the fall was mitigated to 14% once council tax increases and other factors were taken into account. 

Spending on care by local authorities (including funds transferred from the NHS through the Better Care Fund) fell by 5.3% in real terms between 2010-11 and 2016-17 despite rising demand and a more acute illnesses.

As fees fell so did the profits of care home companies. EBITDA across the sector has fallen from 30%+ 10 years ago to 20% now. This still seems pretty generous but when the costs of finance are taken out there isn;t much profit left

Despite the Coughlan judgement people with conditions like Dementia are still liable to pay for their own social care costs until their assets fall below a particular level.  At the moment the floor is £23,500.  The last Conservative Manifesto Conservative proposed raising that floor to £100,000 and introduce a life time cap of £72,000.   For the first time in the case of people being cared for in their own home, that calculation includes the value of their house.  This was attacked by the Labour Party as “the Dementia Tax”forcing a Government U-Turn.   Crazy that a supposed left wing Labour leadership would defend inherited wealth in this way.

This was a massively expensive promise, costing nearly £15bn over the next decade.  It would nearly as expensive as implementing a Scottish style free social care model.

Sadly this bit of politicking has made the debate harder – the system isn’t sustainable without additional resources.  Because older people are richer than working age adults any policy which increases tax payer funding for social care in highly regressive.   Any policy changes are expensive  – £20 per week extra in costs per person equals £1bn a year

The current generation of older people have large amounts of unearned wealth generated by the property market, and the fairest way to fund the increase in social care funding is using this accumulated wealth.  We would still need additional taxpayer funding, but by asking older people to contribute some of the wealth tied up in their properties we would make the burden on current taxpayers (most of whom don’t have the same level of accumulated property wealth 

But extra funding doesn’t answer all of the problems.   It will help raise the prices homes can charge, which will stabilise the sector.

In order to expand supply the state should start and by up distressed chains of care homes. The big cost that is sinking homes is debt. The Government can refinance this debt at a heavy discount.   Once the state is actively playing in the market it can start and expand it’s own provision taking advantage of cheap Government borrowing.   As an active participant in the market it can start and shape future provision and address market failure.  

The state can also give care home workers more chances for career progression, from caring into Nursing for example, making care work more attractive as a career.   

The UK also has a shortage of housing with care – effectively retirement communities.   Only 0.6 per cent of over 65s live in housing with care, 10 times less than in more mature retirement housing markets such as the USA and Australia, where over 5 per cent of over 65s live in housing with care. Obviously the climate in Florida is more attractive than Saltburn or Seaham, but areas like this with cheap land would be obvious areas to expand purpose built retirement communities.   At the moment the way that Local Authorities and the NHS are funded mean that no-one would welcome such a development in their local area

This gets us to the existential problem. Without an expansion of supply the sector we will start and run out of beds in the next 5 years.   In some parts of the country it is a lot less than that, and residents will have to move a further and further away to find a place. This is the urgent problem that needs Government to solve, not protecting inherited wealth, or re-nationalising dinner ladies.

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