Service Costing Considerations Report
This exercise is based on a Service Costing Framework we have developed which is designed to build an actual service costing ‘piece by piece’. It asks you to consider and enter information for a series of relevant costing components, and it then calculates the total price. You can also read the full Care and Support West 2022 Cost Pressures Report here.
Written by: Mik Alban (Care & Support West Development Director) in conjunction with, and on behalf of, Care and Support West (C&SW). C&SW is an umbrella body Care Association representing regulated and non-regulated providers of the full range of adult social care across North Somerset, Bristol City, South Gloucestershire and Bath and Northeast Somerset.
Executive Summary
1. The purpose of this ‘Service Costing Considerations’ document is to promote dialogue and help establish a long-overdue narrative around what is actually required to ‘fix social care’.
2. Grounded in our development of our own comprehensive Service Costing Framework and Cost Pressure reports over the last decade, this document is designed to look at service costing requirements one issue at a time and to present these considerations in layperson’s terms.
3. Everyone involved needs to understand the reality of costing social care services … and we see this as a perfect opportunity for some genuine coproduction.
4. It is widely recognised that funding models for social care services are not fit for purpose and are grounded far more in what local authorities (with very limited budgets) can afford to pay, rather than what needs to be paid in order to create and deliver the social care infrastructure that as a society, we need. As it stands local authorities are increasingly unable to meet their statutory duties as more and more providers are not picking up care or support packages (or they are handing them back) and people’s needs are increasingly going unmet.
5. Against this backdrop, any recalibration exercise to try and establish a fair cost of care, needs to guard against using historic costs to establish future rates. We need a social care sector that is fit for purpose. Not the extension of one that is on its knees and haemorrhaging staff.
6. If we are going to get this right, we need to do away with the smoke and mirrors. We need transparency. As part of this, it would be useful for key ‘indicator figures’ used to measure the health of the marketplace to be more public. These should include:
levels of unmet need
the amount of care and support packages being handed back
the number and type of care providers that are leaving the marketplace
the number of new entrants to the marketplace.
7. If we are ever going to develop the social care workforce that society needs both now and into the future, the fundamental issue that needs to be addressed is that of staff pay. Not only are these staff significantly undervalued for the work they do, current rates of pay combined with the cost of living crisis, are meaning that more and more frontline staff are just not going to be able to afford to work in social care.
8. Research carried out by Unfair to Care demonstrated that many frontline social care workers would be paid 39% or nearly £7000 more a year, if they held equivalent positions within the NHS, local authorities and other public-funded industries. This equates to a mid-scale point hourly rate of around £12.61 an hour … or a rise of 32.73% on the current National Minimum Wage of £9.50.
9. Unless social care pays a premium, we will lose staff to, and not be able to attract them from other sectors. We estimate that to secure the workforce needed to fix social care, the wage bill for the sector is going to have to rise to around a third more than it currently is.
10. It would be really helpful for there to be a clear pay structure for social care staff akin to that used by the NHS. We are wanting and needing to integrate health and social care. Putting staff in these sectors on a more equal footing, would be a good way to promote this.
11. An effective social care pay structure needs to include:
a) Basic rates of pay for front line care and support staff that are sufficiently above the NMW (and other competing sectors) to enable the sector to recruit the staff it needs.
b) A premium for working anti-social hours … including weekends, waking nights and bank holidays.
c) A premium where staff are required to work split shifts or to lone work.
d) A premium where staff are required to support or care for people with complex needs.
e) A premium to reward experience / length of service.
f) Further incentivising premiums for staff to take on greater levels of responsibility i.e. as Senior Carers, Senior Support Workers, Team Leaders, Deputy Managers etc.
12. Alongside increasing their basic rate of pay, social care staff need to be ‘looked after’ in the same way that NHS staff are in terms of the benefits they receive as part of their employment. This should include:
increasing the amount of paid holiday available to longer serving staff and / or those in more senior or demanding roles
better support for staff sickness … particularly where it is long term
having services such as Occupational Health and an Employee Assistance Programme as standard.
13. Considerations relating to ‘on costs’ need to find ways to adequately accommodate:
Employers National Insurance contribution … which has recently gone up.
Rates of paid holiday which better reflect and provide the opportunity to recover from the stresses and demands of the job.
Sick pay and maternity and paternity pay … the statutory minimums are just not adequate.
Health and wellbeing support services.
Suspension pay.
Time to attend training.
Employer’s pension contribution.
Non-contact time for such activities as record keeping, staff handovers and attending team meetings … which we estimate equates to around 12% of a front line care or support workers time
Shadowing time for new staff.
14. This document estimates on costs in the region of 30.91%, although there are some notable omissions from the list above from this figure. Depending on whether other elements are included as an on cost, this figure could go even higher.
15. Being a Registered Manager has become an increasingly demanding and professional role. Skills for Care identify that the average annual turnover rate for Registered Managers is 20.7%. It is an increasingly stressful role and Registered Managers are getting burnt out, fed up and are leaving. We estimate that the expectations on Registered Managers in terms of their workload have increased by at least a quarter and potentially a third since CQC came into being.
16. There is a need to recalibrate the amount of management time that is required to deliver services to the level expected. As part of this, it needs to be recognised that the more complex a client’s care or support needs are … and / or the more challenging their behaviour, the more management time that package will require.
17. Current annual uplift mechanisms are also essentially broken. At times agreed annual uplift formulae have not been applied at all, and when they have been, they have consistently failed to adequately compensate providers for the actual cost increases they have been subjected to. As part of this, providers experience RPI, never mind the (generally) lower CPI index as ‘conservative’ as insufficient to capture the inflationary cost pressures that they actually face.
18. In this document we propose a basket of goods and services that are more properly representative of a provider’s costs. We recommend that providers track the year-on-year percentage change in these costs as more refined evidence of the actual cost pressures they are facing. We also feel that there is a strong case for this (or something similar) to form the basis of a much more relevant annual uplift formula.
19. To be effective any annual uplift process would need to:
a) Maintain a viable differential between social care and other competitive sectors such as retail and hospitality … both of which have been significantly increasing their rates of pay … and then passing this on to customers.
b) Be based on a basket of goods and services that are more representative of a social care provider’s actual cost areas.
20. As continuous improvement is an expectation of both commissioners and regulators, it is effectively a ‘requirement’ of the service. As such it needs to be included as a cost line in its own right, rather than something providers are expected to deliver from their (extensively squeezed) profit margins ‘if they can afford to’.
21. CQC are very clear that they expect properties to be maintained to a high standard and many of these properties are subject to a higher level of wear and tear than you would normally expect. The current amount included within bed prices for this is not sufficient. This either results in work remaining undone for longer than it should be, or in providers having to use their profit margins to cover some of their repairs and replacements costs.
22. Once occupancy levels have fully recovered following the impact of the pandemic, a VOIDS contingency of between 7.5% and 10% needs to be built into the bed price in order to help mitigate the risks associated with reduced occupancy.
23. If clients have additional needs that cannot be adequately met by the core staffing profile, without compromising the service’s ability to meet other clients’ needs, then these additional hours need to be costed ‘in addition’, as Extra Special Needs (ESN) payments.
24. Profit is not a dirty word, and it needs to be recognised and properly understood that it is actually the lifeblood of social care provision in this country. No profit or surplus … no service. Inadequate levels of return … no incentive for investment. If as a society we want people and organisations to develop social care services, then there absolutely needs to be a financial motivation for them to do so.
25. Broadly, the key factors driving profit margins are:
a) The level of investment needed. The higher the investment, the greater the expected return.
b) The amount of time and effort that people need to put in. The more demanding it is, the greater the reward people will expect for their endeavours.
c) The level of risk associated with developing and maintaining the service. The riskier the venture, the higher the level of return that would be expected.
26. For any social care organisation, it is not the percentage level of profit that they aspire to that is important, it is the percentage level that they actually achieve that is the critical figure.
27. The current culture is all too often one where local authorities are trying to squeeze ‘aspirational’ profit margins. On top of that they are expecting these already highly squeezed margins to operate like some form of black hole and absorb a whole range of elements that historically have not been covered by annual uplifts.
28. The justification for underpaying providers because it ‘comes from the public purse’ is a naive and dangerous one. The public purse is there to fund societal infrastructure. Whilst there is a clear case for this to be done in a cost-effective manner, the use of the public purse justification to systematically underfund this vital infrastructure that society needs, is pushing the social care sector to the very edge of existence. That is the opposite of the good use of public money.
29. There is a lack of clarity and agreement around what represents a justifiable profit margin or surplus. We therefore include some ‘guide figures’ and some justifications for these. These are the types of profitability figures that we believe conversations need to be based around, if we are going to fix social care.
30. Our estimates are that for the market to be adequately incentivised, a reasonable rate of ‘achieved return’ on both financial (including capital) and ‘time and effort’ investment for a good service would be in the region of 10%. That would be after tax … so you are then looking at the need to achieve a higher gross profit margin … say 12% to 13% depending on how much corporation tax is needing to be paid.
31. If a company / organisation is looking to provide higher quality services … or services for more complex individuals … or ventures with more inherent risk (or where the provider carries all the risk), then they would / should be looking to achieve a higher level of return … maybe 15% … or 17% to 18% before tax.
32. If we continue to operate in a climate where annual uplifts are not fit for purpose and profit margins are seen as an all-consuming black hole, providers will need to build an additional ‘buffer’ into their costings, in order to maintain effective levels of incentive.
33. The extent of this will vary depending on the particular circumstance each year and so is difficult to predict precisely, but you are probably looking at around an additional 2% to 3.5%.
34. The current social care marketplace has been ‘distorted and constrained’ by sustained underfunding so that it is no longer fit for purpose. Far from being ‘fixed’ it is as close to collapse as it has ever been.
35. In order to maintain a healthy social care marketplace and ensure the necessary climate for investment, private providers should look to include profit margins in the region of 14% to 16.5% for good quality reasonable provision and in the region of 19% to 21.5% for higher quality provision, for more complex provision and / or where the provider is taken significant business risk.
36. Within the current economic paradigm, we will only have a robust social care sector if the principles of free market economics are allowed to operate unimpeded. Social Care costs what it costs. Free market economics has its own checks and balances built in.
37. Whilst the market might need stimulating if certain types of services are needed where there is a known under supply, overall, for providers to remain profitable, supply will not be able to outstrip demand. The market will find an equilibrium where clients will be offered choice and competition between providers will keep prices in check.
38. If the social care marketplace is destroyed, it is not going to be able to just ‘bounce back’. There will be a catastrophic shortfall between supply and demand, the implications of which we have not even begun to compute.
39. As with climate change, the trick is to see what is coming down the tracks and to take evasive action before it is too late. There is a fast-closing window of opportunity here. Do we have the collective wisdom needed to see this and to take that opportunity?