Response 1

7th August 2014

Dear Sirs,

Staffordshire County Council Usual Cost of Care 2014/2015

1. This is the response of SARCP to the Staffordshire County Council (“SCC”) letter to Care Providers dated 14th July 2014 concerning the above.

2. SARCP are very concerned at the delay in SCC coming to a decision. Under the High Court Order sealed on 10th June SCC agreed to set its usual fees for the current year on or before 30th June. SCC is in breach of the High Court Order and it is clear that this originally agreed time will be considerably, and unacceptably, overshot.

3. This response is accordingly wholly without prejudice to the position of SARCP as regards the SCC High Court Order default and as to any action that SARCP may take in this regard.

4. As you will know SARCP represent over 150 care homes, both residential and with nursing, comprising just over 5000 beds.

5. SCC has recently expressed the desire for a better relationship with care homes. The approach of SCC to the “inflation increase” for the current year hardly supports this, and this is something that care homes will note.

6. SARCP has undertaken extensive enquiries and consultation with its members and what is now submitted is put forward on behalf of the membership.

The Staffordshire Association of

Registered Care Providers Offices 23/24, Brookside Business Park, Cold Meece, Nr. Stone

Staffordshire. ST15 0RZ

Gen Enq: 01785 760070 Fax: 01785 761442

CRB: 01785 761190 Training: 01785 761252

Email: Chairman@sarcp.com

7. Whilst SARCP note that there is no calculation provided to support the SCC inflation figure of 1.75% this would, for the current year, be acceptable but without prejudice to a more detailed review for 2015/2016, where the figure now mentioned by SCC for the year under discussion would not necessarily be accepted.

8. It is noted that Messrs LaingBuisson, who have extensive expertise in these matters, have recently publicly stated that they currently estimate that a 2.4% increase is necessary to keep up with care home cost inflation.

9. SARCP do, however, assert that SCC would be wholly wrong to impose any purported and unspecified “efficiencies” as a “clawback” to be set against what should be an inflationary rise to secure the real ongoing value of the fair and actual cost for care.

10. SARCP has considered the underlying legal aspects to what SCC proposes.

11. There are serious failings in the legality of what SCC intend, both contractually and in wider public law.

12. Under the current contract arrangements as relate to existing residents (Contract clause 4.2), SCC “shall review and (if appropriate) adjust the Standard Rates in order to take account of (firstly) the effects of inflation and (secondly) changes in either, legislative requirements, or the registration standards, which are applicable to the Home. As part of each annual review, the Council shall consult with any organisations which appear to the Council to be reasonably representative of the proprietors of the care homes which will be affected by the review. In determining whether or not there should be any adjustment as aforesaid, the Council shall take account of any material changes in the financial resources which are available to it for the purchase of care in care homes”.

13. Under the High Court Order (Schedule B, point 4) relative to the recent Judicial Review proceedings against SCC, SCC agreed that “in respect of any future revision or alteration or increase of the SCC usual fees these will be applied always under the Terms and Conditions of any contract between ..[them].. and care home providers”. This clearly ties SCC into dealing with the current inflationary increase in strict accord with the contract terms – which do not permit the “clawback” proposed. SCC should not act so as to put itself in further non-compliance with the High Court Order.

14. SCC has not indicated any material changes in any financial resources which are available to it for the purchase of care in care homes. Whilst there are general public announcements as to “cuts” imposed by Central Government, SCC still have statutory and contractual obligations and these will impinge upon how money available is distributed. The provision of care is a statutory obligation and comes before any services that are not strictly required by law.

15. If SCC wished to plead “material changes in ... financial resources” then it must set out the position in fine detail for comment and consultation – it cannot just make a simple statement to this effect. It is noted that nothing in this regard is advanced to suggest justification for what SCC propose.

16. The contract limits the matters which SCC must address in relation to the annual inflationary increase – and there is no provision for other matters to be taken into account. These matters are (as above) inflation – and this is agreed/conceded by SCC – and changes in legislation. Here there will be the new Care Quality Commission (“CQC”) Regulations to come into force in October, the higher statutory National Minimum Wage and the new pension law requirements for staff, which will all add to costs.

17. Thus upon the contractual position, SCC are bound to make the inflationary increase without any “clawback”.

18. Whilst the very recent case of Abbeyfield Newcastle upon Tyne Society –v- Newcastle City Council [2014] EWHC 2437 (Ch) has its own special facts that are different from the present situation the case demonstrates that the Courts will look at contractual positions and enforce the same against local authorities.

19. SCC must not take into account irrelevant considerations and the statement that SCC wishes to move “towards integrated commissioning arrangements with [their] NHS partners” as a reason for their proposed position is both an irrelevance and unlawful.

20. SCC will be in breach of its public duty legal requirements if it fails to pay the inflationary increase without “clawback”.

21. SCC must pay the proper actual cost of care. If this was correctly set for 2013/2014 and SCC accept that there is an

inflationary increase due, then a fortiori the failure to pay this must mean that SCC will not be paying the proper actual cost of care for 2014/2015.

22. To date there has been a failure by SCC to consider where “efficiencies” can be made and the impact that these would have, and to produce an appropriate impact paper for consultation. This is also a legal failing, and further comment is made below.

23. Quite apart from, and without prejudice to, the matters set out above, SARCP now consider the “efficiencies” issue.

24. SCC gives no indication as to how or where a care home might make “efficiencies”. This bland general “requirement” should not have been made. Any proposal should have come with specific indicators and evidential material in support to show that what is suggested is possible, and also a proper impact study for consideration.

25. SARCP will show that what is suggested is inappropriate and realistically impossible to achieve, particularly against the statutory and regulatory background concerning care provision, as well as the SCC contract requirements and contract monitoring.

26. As SCC contractually seek “best value” – continuous improvement – any reduction in a care home facilities or the quality of care cannot be the basis of the suggested saving – not that any SARCP member care home would want to take this approach, quite apart from the regulatory position.

27. Any savings will have to be drawn from “revenue expenses” for a care home. This means that the usual expenses need to be considered. The percentages mentioned are exclusive of finance costs.

28. Staffing: this represents apx 68% of a care home’s revenue expenses, including for recruitment. The options are to cut staff (with possibly other staff taking on more duties) or to cut wages. Staff levels are essentially controlled by the regulatory requirements enforced by the CQC and are also looked at in SCC contract monitoring.

29. Sacking staff to make savings is not an option for care homes. Also, they cannot “outsource” as many other businesses (and Local Authorities) can – care homes have generally done this

as far as may be possible, particularly as regards administration (eg payroll services).

30. Wages cannot be cut! With care home fees so depressed for so long many staff are paid the National Minimum Wage, so there is no possible reduction there! There is further comment as to the National Minimum Wage below.

31. SCC have been promoting a move to the “living wage” concept and SARCP, and member care homes, support this, and care staff deserve proper reward. Obviously, there can be no movement in this direction whilst SCC seeks to effectively reduce the real value of the fees paid by SCC for care.

32. This Autumn will see the introduction of the new pension arrangements for staff (additional to a rise in the National Minimum Wage from £6.31 to £6.50 – a rise of fractionally over 3%, ie approaching twice the SCC inflation figure) and this will add further pressure on wage and administration costs. The above inflation rise in the National Minimum Wage will also “cascade” upwards with necessary increases for more senior staff – another pressure on revenue expenses.

33. With staff costs being such a high proportion of revenue expenses -- and with an above inflation rise in the National Minimum Wage in the Autumn -- there is very limited room for making any significant savings elsewhere, but the position should be examined.

34. Food: usually about 7% of revenue costs. Would SCC suggest smaller portions for residents, less choice on menus, or something else? Many care homes buy in bulk and/or through purchasing schemes. There are unlikely savings here -- and none should be contemplated.

35. Repairs and Renewals: in the order of 10% of revenue expenses. Yes, repairs etc can be put off – but have to be dealt with sometime and “a stitch in time saves nine”. The fabric and decorative look of a care home has to be maintained and equipment has to be serviced and renewed and extended. Over past years with fees depressed, as has been recognised, many care homes have “got by” only by leaving over repairs and spending for new equipment. This cannot continue if care homes are to function properly and residents cared for safely – and SCC

contract monitors are among the first to criticise any failings in equipment or the fabric or look of care homes. A well maintained environment is also proper for those who live in a care home.

36. Utilities: being around 7% of revenue expenditure. Many care homes, particularly the larger homes, will negotiate long term contracts for best value, but generally there is little, if any, room for savings on electricity, gas, other fuels, water, telephones etc. Smaller care homes just have to accept what utility charges arise. To make “efficiencies” would SCC suggest (or condone) heating being time restricted or turned down?

37. Registration costs: whilst only around 1% of revenue costs, these are not within the control of care homes and no savings can be made here. The incoming new inspection and oversight arrangements with CQC are also expected to increase the cost of compliance with regulatory provisions.

38. Insurance: some 2% of revenue costs. Best arrangements are negotiated. SCC has some minimum requirements to be met. Members report that insurance premiums are rising.

39. Staff Training: usually about 2% of revenue costs. Absolutely essential. Quite apart from the SCC contract requirement that all staff are to be suitably trained and qualified, there is the CQC regulatory position. Requirements for training are constantly rising – properly so – and this is not an area where cut-backs can be considered, or even contemplated.

40. Other Expenditures: around 3% of revenue expenses, ie the balance of the costs of operating a care home which will cover activities and entertainment for residents, sundry medical supplies, accountancy, travel etc. Individually none will support any saving that would be of significance.

41. The above does not take into account financing costs. It is well publically trailed, even by the Governor of the Bank of England, that interest rates will be rising in the months to come, and, probably, sooner rather than later. NatWest are already circulating to commercial customers email items headed “Don’t panic! Be prepared for interest rate rises”. There is a clear inevitability here! Bearing in mind the level of financing needed by most care homes, this could have a significant effect, and needs to be borne in mind as regards care home operating costs.

42. Taking a simple example of a care home with revenue costs (excluding finance costs) of £100,000 (a figure taken purely for ease of mathematical calculation), excluding staffing, staff training, utilities and regulatory fees, there is (on the above) only £22,000 left where “efficiencies” can be contemplated.

43. On the 1.75% figure, this means £1750 on the £100,000 --- but this is 7.95% on these remaining items of expenditure, ie repairs and renewals, insurance and all of the sundry items. And this is not the real position!

44. “Efficiences” of 1.75% without any inflationary rise may “hold” a position, but there is still actual ongoing inflation to be dealt with.

45. If care homes are to accommodate what is suggested, there really needs to be a 3.5% to 4% saving in this present year if the current position is to be held and inflation met. Staff will have to be paid increased wages, above standard inflation – refer above -- (and the new pension contributions), efficiencies or no efficiencies. This also applies to other anticipated costs, eg utilities, food, etc.

46. If 4% as mentioned in your letter of 14th July 2014 (and which is the real figure that care homes will have to meet for the current year) is used then the remaining items that could possibly cover “efficiencies” (repairs and renewals, insurance and all of the sundry items) face “efficiencies” of over 18%! Not possible.

47. It is not for care homes to “bail out” SCC however hard SCC may find the current situation, and it is wholly wrong for SCC to even propose this, which is clearly implicit in the letter under response.

48. It is equally wrong for SCC to seek to use a monopoly purchaser position to force its own situation upon care providers and to distort the care home sector.

49. SCC would surely say that it would be quite improper for care homes to increase fees to privately funded residents to cover the inflationary increase needed. No-one should have to subsidise SCC in this way, although this has been forced by SCC upon privately funded residents over recent years.

50. It is not for SCC to say that it requires “efficiencies” and that where they come from is the care home’s problem. That is a completely unreasonable approach. If SCC (having only very

recently taken their own professional advice as to the cost of care) are to suggest “efficiencies” they should set out what they expect both in detail and with reasons as to why and how the quality of care of residents will not be affected.

51. The current proposal from SCC has already had an unfortunate impact.

52. SARCP have been liasing with Creative Healthcare CIC in a possible scheme to secure a high quality arts programme for care homes at a reasonable cost. SCC was understood to be making some financial support for the programme. SARCP Executive and staff have given time to this project with Ms Kate Gant of Creative Healthcare CIC. Initially 30 member care homes expressed an interest in participating in the scheme at £540 for six sessions spread over the next twelve months. The SCC proposal to freeze the fee paid for the current year has resulted in possible interest in the scheme dropping to just one care home! Members quote the proposal from SCC as the reason for the change: care homes are reluctant to spend more when faced with the SCC proposal – spending, even on such an excellent project does not assist with “efficiencies”. Not spending on this prospective arts programme is seen as one way where providers can refrain from increasing costs. This is all to the detriment of residents.

53. Care homes will always be looking for sustainable efficiencies, that is the nature of business. Our members are, however, acutely concerned as to being able to continually provide good care. SCC should support this. SCC has to pay the true cost of care.

54. With years of underfunding of local authority supported residents in care homes, expenditures are already cut to the bone and it is impossible to cover further cuts, and perhaps this is why SCC does not develop their proposal.

55. If care homes are to have to make cuts there is a serious risk that statutes and regulations will be breached. Looking at the new Regulations to come into force in the Autumn and the new approach to regulation by CQC, the risk of default is even higher.

56. A care home is a business and to prosper there needs to be reasonable profit. This was acknowledged in the fee set for 2013/2014 and the SCC underlying evidence in that regard.

57. Profits support investment and the inadequate fees of recent years have depressed profits and thus investment in moderate and major capital projects by Proprietors. Investment is just coming back into care homes and this must not be lost.

58. If there are not properly viable care homes (and there is the regulatory requirement to be viable) then the overall market will be destabilised and will decrease, and SCC will breach its duty to secure and maintain a market capacity.

59. A just published study by the Institute of Public Care at Oxford Brookes University, actually commissioned by CQC (“The Stability of the Care Market and Market Oversight in England”) warns that the older peoples care home market in England is “fragile” and that high provider debts, local authority fees ... [being insufficient for care provided] ... and pay rises could lead to “financial crisis”.

60. Noting the three particular points made in this Oxford Brookes study: provider debt will be further strained by expected interest rate rises; local authority fees – SCC propose no increase, which actually means a decrease in real terms; and pay rises – discussed above; all indicate rising pressures on the care home sector with possible “financial crisis” results. SCC should not be part of this. SCC should pay the proper and actual cost of care.

61. It is well known that quality of care and financial stability are linked.

62. The Parliamentary Public Accounts Committee has also just published a Report into Adult Social Care in England. The Committee’s Report has found that there are continuing risks to the quality of care and continuity of services because of pressures on providers and changing oversight arrangements. The Rt. Hon. Margaret Hodge MP as Madam Chairman of the Public Accounts Committee highlights local authorities cutting costs by paying lower fees, leading to low wages in the sector – leading to lower skill levels, and inevitably poorer levels of service for residents.

63. SCC should not be involved in any undermining of this link between the quality of care and financial stability by failing to meet its financial obligations to care providers.

64. SCC has not properly considered the effect and impact of the proposed cancellation of the inflationary rise by the “efficiency

savings” either as to individual homes or as to the market generally -- and given such consideration, the “efficiencies/clawback” proposal in untenable.

65. If SCC secure what they propose then it is likely that this could be self-defeating for SCC. Care homes will only be able to contract at fees above the SCC standard rate – thus there will be a rise in “top-ups” required (probably more than the 1.75% figure) in order to cover proper costs, and overall this may well cost SCC more than the inflationary increase that should be paid.

66. It is generally absolutely clear that the sole purpose of the “idea” and wording of the “efficiencies” gambit is simply to allow SCC to avoid making payment of the required inflationary increase under the contractual and public legal obligations of SCC.

67. Thus, for 2014/2015 there should be the 1.75 % increase in the SCC standard fee as from 1st April 2014 without any supposed “efficiency” clawback as suggested.

Yours sincerely,

Emma Averill

Emma Averill, Madam Chairman, SARCP

Response 2

Response 3

Dear Mr Samuels, I am writing to you on behalf of Elderhomes Group in respect of your email dated 14th July 2014. We are the operator of Autumn and Manor House, Bridge Court, Burton Court, Trent Court, Rider House and Ernvale. Firstly we do acknowledge the tough economic times that not only effects the public purse and indeed the private sector also. We are however under the same market forces as the local authorities and whilst we wish to work with the local authority we have to raise concern that a net zero percent increase in fee is not in any way shape or form assist us as a responsible provider increase the quality of care and the experience of the outcomes of the health and social care act 2014. Indeed I am sure some providers will struggle to meet those expectations if they are not already doing so. I am moved therefore to request that we set up a meeting with you as soon as possible to discuss this and how we can best work with you to supply perhaps specialist solutions that are currently not provided for in Staffordshire. Elderhomes group is eager to develop quality specialist services that meet local needs. We look forward to hearing from you shortly. Kind Regards Mike Mike Higginson Operations Manager

Response 4

Further to your letter of 14th July, I am writing to confirm that we accept the proposal of zero percent uplifts for the financial year 2014/2015. Kindest regards Natalie Bowbrick On behalf of Laird Mackay Managing Director Elderly Division

Natalie Bowbrick PA to Group Chief Financial Officer Bradbury House, 830 The Crescent, Colchester, Essex, CO4 9YQ DDI 01206 224181 Tel 01206 224100 Fax 01206 224196 Mobile

Caring Homes Group is part of MHL Holdco Ltd - registration number 08585667 Bradbury House, 830 The Crescent, Colchester Business Park, Colchester, Essex, CO4 9YQ

Response 5

Good Afternoon Could you please clarify the meaning of the paragraph below please. The decision the Council is minded to take would be to increase the usual cost (and hence the contract price) by 1.75% for 2014/15. However the Council would be looking to secure a minimum of 4% efficiencies from your contract price for the same period. In recognition of the current pressures within the residential care market we are proposing to not apply the residual 2.25% efficiency savings for the financial year 2014/15, therefore leaving a net effect of zero. Thank you Kind Regards Lynn Lister Accounts Department, Morecare Nursing Home

Response 6

I am sorry Mr Samuels

I do not understand. Are you stating we are not getting an increment this year?

Regards

Mrs T Malhotra