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Care Act

Cost of Care Analysis

Analysis and Assumptions for the Cost of

Domiciliary Care within Essex

Title: The Market Project, Cost of Care Work stream

Project: Care Act, the Market

Version Number: 1.0

Version Date: 19th May 2016

Status: Published

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1. Purpose of the Document

1.1. Document Purpose

To provide the outputs from the Council’s cost of care analysis for Domiciliary Care including

the methodology deployed and the assumptions underpinning the model.

The intention is that this analysis will be refreshed on an annual basis timed to inform future

pricing strategies for the subsequent year.

1.2. Project Purpose

The project supports delivery of four interrelated outcomes

Understand the cost to Domiciliary Care providers of delivering care and support in Essex

Have an agreed amount in the Resource Allocation System (RAS) used to calculate the level

of Personal Budget applicable which is sufficient for people with assessed needs to source

outcomes based solutions which are legal in terms of wage legislation and guidance,

sustainable and of a good quality.

Provide clarity on our approach to pricing in any new procurement activity aligned to the

specification against which providers are expected to deliver

Enable the Council to understand the cost make-up of providing Domiciliary Care which

supports a more informed approach to managing cost pressures in the market

1.3. Document Audience

This document has been developed for ‘stakeholders’ that have been defined, who may wish to request evidence as part of the outputs of the cost of care.

Stakeholder type Stakeholders

Project Stakeholders The Care Act Programme Board The Market Project

Internal Stakeholders Commissioning Corporate Finance Commercial Adult Operations Children Services IS Legal Audit

External Government Departments

Department of Health Other Local Authorities NHS CCGs

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Stakeholder type Stakeholders

External Parties or organisations

Providers of Domiciliary Care Services Voluntary Organisations Charities Other Professionals, Power of Attorneys Essex Guardians

Residents Essex Residents Essex Individuals Receiving Services Carers Family Members

Domiciliary Cost of Care Calculation 2

2.1.1 Cost of Care Model

The cost of care calculation has been derived from a number of items. These items have

been incorporated into a template that was sent to all Domiciliary Care Providers within

Essex or to those based outside of the county who provide Domiciliary Care to Essex

individuals.

2.1.2 The Cost of Care Model and Template

The United Kingdom Home Care Association (UKHCA) template was used as the basis for collating the data. Domiciliary Care Providers were asked to complete the template and send it back. Below is a summary of the results, detailing the different cost elements that make up the overall cost of care hourly figure of £15.37 for standard personal care. The £15.37 figure is based on a fictional mid-sized organisation providing 4000 hours of care. This was chosen as a reasonable reflection of an organisation providing Domiciliary Care services allowing the analysis to be done on a County wide basis. The model uses a range of assumptions which are specified in section 3.2 below.

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The Domiciliary Cost of Care Model

The equivalent hourly rate for 24 hour care is £11.30 per hour and for rural locations £18.07. The breakdown of these rates is given in Appendix A.

Domiciliary Methodology and Assumptions 3

3.1 Methodology Approach

3.1.1 Engagement Events

The costs were based on multiple detailed engagement events with providers. The majority of

the engagement was through conversations in small groups (59 attendees from 35 providers),

1-2-1 meetings (7); phone conversations (4). Details of the provider events held are shown

below.

Date Location

5/10/2015 The County Hotel, 29 Rainsford Road, Chelmsford

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Date Location

Essex, CM1 2PZ

06/10/2015 Harlow Town Football Club, Elizabeth Way, Harlow,

CM19 5BE

08/10/2015 Wat Tyler Country Park, Pitsea Hall Lane, Pitsea,

Basildon, Essex, SS16 4UH

12/10/2015 The Weston Homes Community Stadium, United

Way, Colchester ,Essex, CO4 5UP

Templates

Cost breakdown templates were issued to providers and a number were returned. These

were used alongside other sources of market intelligence to inform the cost model

produced.

3.1.2 Cost Drivers

The following current and significant cost pressures were identified during engagement with

the market:

National Minimum Wage (NMW): since 2011, has increased by c. 62p/hour + NI and other on-costs

National Living Wage (NLW) has added 50p/hour + NI and other on-costs from April 2016

Pensions auto-enrolment have come in for almost all providers now

Need to pay staff more to attract people into and keep people in care work

Training costs – particularly the Care Certificate which is requiring more non-contact time and increased assessment costs and a move way from e-learning

Persistently high turnover results in a knock-on effect on a range of different costs e.g. training and recruitment

Compliance and regulation – the Care Quality Commission (CQC) has evolved its approach resulting in increased quality assurance costs for providers; the increased threat of litigation; registration fees due to go up considerably

Travel costs – now having to be included as part of Care Act and NMW requirements

Recruitment costs – higher turnover particularly amongst the largest providers; job board rates much higher recently due to volume of adverts; higher advertising costs; pre-employment checks; screening costs

Complexity of packages and discharge pressures mean much higher supervision and

coordination costs

3.1.3 Geography

The analysis conducted concluded that whilst there are cost differences seen in different

parts of the county, these tend to even out meaning that a single rate can be used from a

cost of care perspective.

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The exception to this is the difference between very rural and less rural areas, whereby the

additional travel distance leads to an increased cost of care figure as detailed in Appendix A.

Client Groups

The analysis also assumes that there are few differences in the direct costs of delivering to

any particular client group. There are differences created because of the volumes of hours

related to the number of service users – so employment practices are markedly different in

many services for adults with disabilities, for example the use of guaranteed hours or full

time contracts which then impact on recruitment and retention costs.

‘Assumption’ made from collective discussions and engagement with Providers and

knowledge that providers factor in the individual’s needs.

An Example of this includes the time it takes to provide personal care for an individual will

depend on the individual’s needs, providing washing support for an elderly client could take

the same length of time as a learning disability client.

3.1.4 Outturn Costings

A template based on the UKHCA template has been developed, applying percentage changes

only to direct costs.

3.1.5 Salary

For the Cost of Care calculation, we assumed the lowest legal pay rate, and factored this

against the National Minimum Data Set (NMDS, a source of workforce intelligence) figure

which tells us 11% of the market is under 25 and therefore subject to the NMW but not the

NLW.

3.1.6 Unsociable Hours

On unsociable hours, for the analysis, we have built in the payment of time and a half for

weekends, and double time on bank holidays.

The practice of paying enhancements for unsociable hours is a typical feature of the zero

hours culture within the social care market sector.

Via the engagement events, examples were given by providers who have managed to

introduce contracts where staffs are paid the same rate regardless of days of the week.

However these exist within the adults with disabilities market and where there are much

higher volumes of hours in a single package.

‘For the 24 hour live in and waking night services, we have assumed that these staff would

more likely be working on a shift basis, and therefore reduced the enhancements to time and

half at weekends to Sundays and bank holidays remain the same.’

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3.1.7 On-costs

For National Insurance, for our model:

‘We have assumed that following the changes in NI contribution in April 2016, then a

percentage of the workforce will still fall into the 0% banding. We used the NMDS figures for

part time contracts – c. 46% - as our starting point and assumed that some percentage of

that would still be at the lower rate.

For 24 live in and sleep rates we have assumed that staff would on average be working more

hours, and therefore assumed a lower percentage would fall into the zero % category. ‘

3.1.8 Travel

Assuming a 45 minute visit as a mid-point for commissioning practice.

1. For the minimum rate and the urban rate, we have assumed an “efficient” round – with

only 2 miles between visits and good traffic/travel conditions.

There is no specific data to enable us to arrive at a more detailed analysis but advice from

Essex County Council Adult Operations along with feedback from the engagement events

support this assumption.

At these levels, the two variables allow for a slower journey time or a shorter distance (or

variation thereof) without materially affecting other assumption in the rate.

2. For our cost model we have assumed mileage is paid at 35p per mile which is the Her

Majesty’s Revenue and Customs (HMRC) rate for annual mileage of less than 10,000

miles per year for the standard urban rate, and 25p within the rural rate assuming

higher mileage – above the 10,000 miles per year threshold.

3.1.9 Training

Assumed number of days

8 days in Year 1: four days for completing the 15 modules of the Care Certificate, 2 days for

additional organisational induction and specifics on moving and handling and Mental

Capacity Act/Deprivation of Liberty Safeguards (MCA/DoLs). 2 days for additional specialist

training – most likely to be medication, but in responding to competency concerns we want

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to ensure a good standard of care around particular conditions – for example dementia and

autism, both of which are covered by more specific guidelines.

In Years 2 and onwards, we are allowing 4 days – 1 day for refresher training, three days for

specialist or other training.

Given turnover is currently running in excess of 25% for the biggest providers in the Essex

care market (NMDS evidence), the aggregate would be something around 5 days, but given

all of this is only for a year to 18 months, we have assumed an on-going pressure of around 7

days.

Evidence: NICE Guidelines Policy

Management and Supervision

In the management overhead, we are allowing for a supervisory ratio of 1:15. This assumes a

number of part time workers.

In the management overheads, we are also allowing an amount for direct training

costs: c.£75/worker as a guideline – this is the cost of actually buying training.

3.1.10 Pension

Although many providers are already within the auto-enrolment regime and in some cases

have more generous provisions, we have assumed the statutory minimum position of 1%

which will apply to all providers, however small, during the course of 2016.

3.1.11 Annual Leave

We have taken the statutory minimum – 28 days including bank holidays – which accrues

regardless of contractual status and therefore is a fixed percentage of the hourly rate.

Evidence: National Insurance Contribution Rates

3.1.12 Overheads

In order to properly understand overheads, we populated the structure needed to run an

organisation delivering c.4000 hours of care:

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3. On overheads, we have not applied a blanket percentage overhead but to cost the

management and office infrastructure necessary specifically according to our average

agency (numbers of staff), so real costs are then matched across to the income driven by

hour.

4. One of the consequences of this approach and by using a different formula for

calculating the overhead, direct comparison with percentage figures in the UKHCA

model need to be treated with care, for example when changing assumptions for travel

and salary, we have fixed the overhead figures to keep to the actual cost figure.

5. The exception is the insurance which is variable driven by payroll costs amongst over

things, so an increase in pay because of rural working needs to be factored in.

6. Obviously all providers differ here, so we have tried to take a measure of the direct care

staff to supervisor ratio as one of the key considerations, acknowledging that one key to

quality in a provider is sufficiency of leadership and something looked at as part of the

CQC’s inspection regime.

7. We have assumed that not all of the overhead should be apportioned to the 4000 hours

commissioned by ECC as the provider would have other income sources.

8. We have enhanced the figure for IT from the UKHCA rate to reflect the on-going need

for IT and technology as a key part of modern service delivery and encourage a more

proactive approach to the use of assistive technology. We can look for evidence for this

as part of our contract and quality monitoring.

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9. We have also factored in direct costs for CQC registration and direct training delivery

costs (as opposed to supernumerary time which is included in the salary costs).

10. For 24 care we have assumed a much lower overhead, based on feedback from the

market that there are lower recruitment and placement management costs associated

with these roles. The 6% overhead for management and back office costs is based on

recalculating the number of staff needed to manage fewer service users, less

supervisory time in terms of travel and assessment, simpler invoicing and lower

administrate burden.

Evidence: CQC website, UKHCA website

3.1.13 Profit

Aside from the myriad ways in which profit is accounted for and described, there are many

variables in trying to assess profit, stipulating the “right” level of profit is likely to be

misleading.

In the calculations we used 3% profit simply to give an indication of the possible levels of

profit associated with a particular volume and mix of hours. However this figure is before

tax and other costs.

Overall, the approach is to fix the overall overhead such that if a provider can be more

efficient with other overheads then their profit would increase.

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Appendix A – Cost of Care for 24 Hour Care

and Rural Locations

24 Hour Care

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Rural Locations