Age 65+ care homes - Cost of Care Report
Background and context
The Market Sustainability and Fair Cost of Care Fund (‘the fund’) sets out funding parameters in support of local authorities to prepare their markets for reform, including the further commencement of Section 18(3) of the Care Act 2014 in October 2023, and to specifically support local authorities to move towards paying providers a fair cost of care.
As a condition of receiving future funding from the fund, local authorities are required to evidence the work undertaken to prepare their markets for wider charging reform and thereby increase market sustainability. This required them to produce:
- Cost of care exercises for 65+ care homes and 18+ domiciliary care
- A provisional market sustainability plan, using the cost of care exercise as a key input to identify risks in the local market, with particular consideration given to the further commencement of Section 18(3) of the Care Act 2014 (which is currently in force only for domiciliary care) – a final plan will be submitted in February 2023
- A spend report detailing how funding allocated for 2022/23 is being spent in line with the fund’s purpose
The remainder of this report sets out the approach adopted by Leicester City Council in meeting the conditions of the fund and how the cost of care estimates submitted to DHSC within Annex A have been arrived at.
Approach to the exercise
The local authority, alongside a number of other East Midlands local authorities, commissioned the services of Care Analytics, a specialist in the financial analysis of care markets and the cost of care, to undertake a ‘Fair Cost of Care’ (FCoC) detailed cost analysis exercise. All providers operating in the 65+ care home market within the area of the local authority were sent a detailed survey designed to capture the necessary operational and contextual detail to draw out the inherent costs of delivering care in the local market. Reponses were received directly by Care Analytics, rather than by the local authority, in order to address any concerns regarding confidentiality of business data. These returns have been reviewed by Care Analytics, with responses clarified where needed, in order to produce the resulting data analysis of median and quartile costs required from this exercise.
Provider engagement sessions were set up for providers to attend, in order to go through the survey template and wider FCoC process with the support of Care Analytics. We additionally worked closely with East Midlands Care, known as ‘EMCARE’, the trade organisation which represents care home providers across Leicester, Leicestershire & Rutland, which offered support and guidance to individual care homes in collaboration with the local authority to promote the data collection exercise.
Interpretation of Annex A results
At this point it is extremely important that DHSC understands the context of the data that has been reported in Annex A by this authority. Whilst we acknowledge the intentions of the wider exercise, and noting the significant benefits in terms of greater understanding of the market that it has given us, we cannot stress strongly enough that the FCoC median costs alone are not an appropriate basis to inform council commissioning fee rates.
Whilst it is fair to say that the median is less skewed by high outlier values (as opposed to mathematical averages), the median values themselves can be skewed if the dataset does not comprise an appropriate and representative sample of the existing make-up of providers in the local market. Although Leicester’s survey response resulted in a reasonable sample size (see section below on ‘response rates’), this should not be taken as necessarily indicating that the sample was sufficiently representative of the market. It is also vitally important to recognise (and ensure) whether the data that has been obtained reflects an overall pool of efficient providers as referenced in the requirements of Section 4.31 of the Care and Support Statutory Guidance.
We are particularly conscious that different care home operators operating in our local market have different underlying business models. For example, care homes operated by groups have a different level of head office costs than do those operated by independent smaller operations. In addition, newer built care homes will inherently have higher capital investments as opposed to older care homes, where mortgages have been considerably reduced or settled over time. These are both key considerations when setting an appropriate return on capital. We would also need to fully assess the impact of post-pandemic occupancy levels in care homes and any residual impact that may be having on unit costs (which again would impact the calculation of an appropriate return on operations).
In considering the scale and pace of changes to future fee rates, the council will have due regard to the figures generated through the recent FCoC exercise. At this stage, although that exercise has provided valuable intelligence and insight into the local care market, significant weaknesses in the methodology used to calculate the median costs of care mean that those figures do not represent a robust basis on which to make assumptions about the actual cost of care delivery. Further analysis of the market, drawing on data gathered through the FCoC exercise, as well as other sources of data, will be undertaken in order to develop a more robust understanding of actual care delivery costs, and this will then inform decisions about the anticipated future level of fee rates and the pace at which progress towards these should be made. This work will be evidenced in the final market sustainability plan, to be submitted in February 2023.
Response rates
A total of 26 care homes submitted a survey to inform both the council’s FCoC return and the wider analysis of the local care home market that is to follow.
Of these submitted surveys, we have been able to use 24 in the FCoC return. The other 2 care homes that submitted a survey were out of scope of the exercise. One home mostly supported younger adults and the other was a specialist home where the average number of care worker hours per resident was above 100 hours per week. Both homes therefore had very different cost structures and operating models to predominantly older adult care homes, even if some or all the residents happen to be aged 65+.
All surveys that were in scope of the exercise were usable after an extensive query process to resolve gaps, uncertainties, and other data quality issues. Therefore, out of the total of 49 of older adult care homes in Leicester, 24 (49%) ultimately submitted a usable survey. This includes 6 (55%) out of 11 older adult nursing homes and 18 (46%) out of 38 older adult residential care homes. Additionally, 4 out of the 6 older adult nursing homes reported a significant number of residential residents and so their data has been used for both the residential and nursing analysis. Where nursing homes reported only a handful of residential residents (i.e. without nursing), all residents were classified as nursing.
Justification of the proposed approach to return on capital and return on operations
Within Annex E to the fund, DHSC has provided some guidance in support of the calculation of a return on capital and a return on operations. There is a large amount of discretion around the underlying calculation of both elements and expectations of a level of return will differ across provider business structures. Clearly the level of return needs to deal with the layers of risk and desired profit. We have set out below our proposed approach for both elements:
- Return on capital
We have provisionally used the ‘Potential Approach 1’ as set out in the DHSC guidance whereby the return on capital value has been calculated using the median freehold value per bed (note: separate valuations have been obtained from this exercise for 65+ residential care and 65+ residential care with nursing care homes). A return on capital has then been calculated using a rate of return on capital of 6.0%. We are clear that, at this stage, this represents a highly provisional figure, and its final value is subject to change as we undertake further analysis of the market.
The above method is a similar approach to that used within our existing fees model. The alternative DHSC suggested method (‘Potential Approach 2’) using the Local Housing Allowance for Leicester would potentially generate a lower return.
- Return on operations
Return on operations is a mark-up on operating costs. It is clear that, to maintain a working market, providers need a reasonable rate of return on operations. The public sector should not be rewarding care home operators with excess profits, but equally we recognise that providers need to make a return to remain in the market and maintain provision. We have provisionally input 5% for a return on operations. We believe this is a fair minimum plausible mark-up, though we note that different operating models can produce very different needs for a rate of operating return. The figure should therefore be seen as a guide rather than representing a robust assessment.
Lower quartile, median and upper quartile costs
A table setting out, for each service type, details showing the count of observations, lower quartile, median and upper quartile (where relevant) of all items in Annex A, Section 3 is included as Appendix 1 to this report.
To be included in the FCoC analysis, a care home had to report one or both of all their staffing costs and all their non-staffing costs. Where the total observation count is higher than the respective counts for staffing or non-staffing, this will be due to a handful of care homes which only reported either their staffing or their non-staffing data, but not both.
Annex A, Section 3
The full table in Annex A, Section 3 is included as Appendix 2 to this report and sets out the median values for each care type.
To note – based on the data available from the FCOC exercise, the ‘median’ values included in Appendix 1 and Appendix 2 for the summarisation of total costs for each category of cost (i.e. Total Care Home Staffing; Total Care Home Premises etc) are not necessarily the sum of the sub-cost lines immediately below.
Whilst the detailed lines of expenditure (the sub-cost lines) represent the median of that cost line based on the analysed survey responses, the overall total costs for each category of expenditure (as a median) represents the total costs for each care home who returned a survey response for that specific categorisation (or group) of costs.
Basis of data collection
The data from providers was collected during July and August 2022. The financial year was 2022/23. In some instances, historic cost data was used for non-staff cost categories, based on the provider’s most recent completed financial accounts. Each such cost was then uplifted to a 2022/23 equivalent baseline using an appropriate CPI index. This was done at the most granular level possible so that inflation adjustments are as accurate as possible.
Providers were also asked to identify any costs that had (or would) increase for 2022/23 to an extent that would not be reflected using CPI measures of inflation. Many providers took advantage of this by providing details about structural cost increases, notably utilities and insurance. Each provider’s costs were updated to reflect any new baseline where data was supplied.
Payroll data was collected from a recent payroll period in the 2022/23 financial year to inform employer national insurance and pension contributions as a percentage of wages.
For future years, in order to uplift the FCoC cost model:
- Staffing costs would be uplifted using a combination of the National Living Wage (for lower paid staff) and any other reasonable method (for higher paid staff). Such a methodology would need to reflect any pay differentials where necessary to reflect different roles/responsibilities of staff.
- Non-staff costs would be uplifted using an appropriate CPI index.
- Any inflation methodology would also need to take into account structural changes relevant to care home costs.
Description of the questions asked/template used as part of the data gathering exercise
The survey was designed by Care Analytics. It is an adapted version of the survey that they have used to conduct their existing market review service. As Care Analytics’ market reviews have a wider scope than the FCoC exercise required by DHSC, the survey includes a wider set of questions. This will enable a thorough analysis of the marketplace to be undertaken subsequent to the current FCoC process.
The survey asks detailed questions about the care home’s facilities and residents. It then asks for a detailed breakdown of current staffing, wage rates by role, employment terms and conditions, and use of agency staff. Non-staff operating costs are collected from previous or current financial years at a granular level. Finally, there are a range of free text questions that providers can answer in their own words to inform the market review.
To promote engagement, providers were offered the opportunity to submit financial information in whatever format was exported from their finance system or was already available in their accounts. Care Analytics then standardised the data into the required format for analysis. Many providers took advantage of this opportunity as it saved them considerable time.
To support the data submissions received from providers via the survey, two financial years’ worth of accounts data were also requested, in order to help identify outlier costs or exceptional spends in any one particular year. This then allowed for informed treatment for the purpose of the exercise.
We have standardised non-staff costs to fit the necessary structure of the FCoC Annex A template. This is not an exact science as costs are recorded in diverse ways in finance systems. Wherever possible, we have sought not to leave costs as ‘other’, as this makes meaningful comparison between homes difficult.
Appendix 1
Lower quartile, median and upper quartile costs
Residential care
| Total | £642 1st quartile |
£719 2nd quartile |
£916 3rd quartile |
|
| Cost of care exercise results | Count of answers | All residential placements (excluding nurses) | All residential placements (excluding nurses) | All residential placements (excluding nurses) |
| Total Care Home Staffing | 21 | £426.89 | £440.20 | £510.97 |
| Nursing Staff | ||||
| Care Staff | 21 | £272.51 | £311.84 | £342.40 |
| Therapy Staff (Occupational & Physio) | ||||
| Activity Coordinators | 18 | £6.32 | £8.43 | £11.99 |
| Service Management (Registered Manager/Deputy) | 21 | £25.56 | £39.07 | £45.29 |
| Reception & Admin staff at the home | 18 | £10.44 | £12.06 | £15.56 |
| Chefs/Cooks | 21 | £13.94 | £22.22 | £26.77 |
| Domestic staff (cleaning, laundry & kitchen) | 21 | £38.76 | £49.11 | £83.81 |
| Maintenance & Gardening | 19 | £10.19 | £15.58 | £24.63 |
| Other care home staffing (please specify) | ||||
| Total Care Home Premises | 21 | £17.94 | £30.76 | £40.22 |
| Fixtures & fittings | 10 | £2.73 | £3.85 | £11.20 |
| Repairs and maintenance | 21 | £13.17 | £21.13 | £28.63 |
| Furniture, furnishings and equipment | 15 | £3.08 | £8.95 | £12.20 |
| Other care home premises costs (please specify) | ||||
| Total Care Home Supplies and Services | 21 | £103.21 | £117.42 | £137.11 |
| Food supplies | 21 | £26.84 | £28.43 | £31.48 |
| Domestic and cleaning supplies | 17 | £9.37 | £11.97 | £15.47 |
| Medical supplies (excluding PPE) | 20 | £1.33 | £3.26 | £7.75 |
| PPE | 12 | £0.74 | £1.59 | £3.16 |
| Office supplies (home specific) | 21 | £1.29 | £4.52 | £6.29 |
| Insurance (all risks) | 21 | £3.32 | £4.50 | £10.32 |
| Registration fees | 19 | £3.03 | £3.70 | £4.47 |
| Telephone & internet | 21 | £0.89 | £1.68 | £2.41 |
| Council tax / rates | 18 | £0.74 | £1.13 | £2.15 |
| Electricity, Gas & Water | 21 | £30.93 | £36.16 | £41.71 |
| Trade and clinical waste | 19 | £4.04 | £4.99 | £6.60 |
| Transport & Activities | 21 | £0.46 | £2.04 | £6.49 |
| Other care home supplies and services costs (please specify) | 21 | £2.65 | £6.93 | £15.69 |
| Total Head Office | 21 | £21.64 | £36.80 | £92.44 |
| Central / Regional Management | 9 | £18.54 | £23.31 | £56.15 |
| Support Services (finance/HR/legal/marketing etc.) | 21 | £5.47 | £10.22 | £20.30 |
| Recruitment, Training & Vetting (incl. DBS checks) | 14 | £0.89 | £1.89 | £2.50 |
| Other head office costs (please specify) | 11 | £25.57 | £39.68 | £64.89 |
| Total Return on Operations | £28.48 | £31.26 | £39.04 | |
| Total Return on Capital | £44.19 | £62.27 | £95.75 | |
| TOTAL | £642.36 | £718.71 | £915.52 |
| Supporting information on important cost drivers used in the calculations: | Count of answers | All residential placements (excluding nurses) | All residential placements (excluding nurses) | All residential placements (excluding nurses) |
| Number of location level survey responses received | 22 | 22 | 22 | 22 |
| Number of locations eligible to fill in the survey (excluding those found to be ineligible) | 49 | 49 | 49 | 49 |
| Number of residents covered by the responses | 669 | 669 | 669 | 669 |
| Number of carer hours per resident per week | 21 | 23.9 | 27.6 | 28.9 |
| Number of nursing hours per resident per week | ||||
| Average carer basic pay per hour | 22 | £9.89 | £9.97 | £10.30 |
| Average nurse basic pay per hour | ||||
| Average occupancy as a percentage of active beds | 22 | 84.4% | 96.3% | 100.0% |
| Freehold valuation per bed | 17 | £38,302 | £53,964 | £82,983 |
Nursing care
| Total | £914 1st quartile |
£1,030 2nd quartile |
£1,121 3rd quartile |
|
| Cost of care exercise results | Count of answers | All residential placements (excluding nurses) | All residential placements (excluding nurses) | All residential placements (excluding nurses) |
| Total Care Home Staffing | 6 | £617.86 | £666.52 | £702.78 |
| Nursing Staff | 6 | £150.77 | £174.12 | £194.56 |
| Care Staff | 6 | £290.94 | £313.22 | £323.75 |
| Therapy Staff (Occupational & Physio) | ||||
| Activity Coordinators | 5 | £7.12 | £8.14 | £9.11 |
| Service Management (Registered Manager/Deputy) | 6 | £37.59 | £40.62 | £41.27 |
| Reception & Admin staff at the home | 6 | £11.03 | £14.16 | £22.47 |
| Chefs/Cooks | 6 | £17.15 | £20.08 | £23.06 |
| Domestic staff (cleaning, laundry & kitchen) | 6 | £40.06 | £45.34 | £52.77 |
| Maintenance & Gardening | 6 | £12.04 | £17.25 | £20.92 |
| Other care home staffing (please specify) | ||||
| Total Care Home Premises | 6 | £19.27 | £32.20 | £43.96 |
| Fixtures & fittings | - | £0.00 | £0.00 | £0.00 |
| Repairs and maintenance | 6 | £14.04 | £18.33 | £31.64 |
| Furniture, furnishings and equipment | 4 | £7.28 | £10.72 | £14.07 |
| Other care home premises costs (please specify) | ||||
| Total Care Home Supplies and Services | 6 | £131.51 | £138.97 | £145.19 |
| Food supplies | 6 | £29.08 | £30.82 | £31.89 |
| Domestic and cleaning supplies | 4 | £8.84 | £10.79 | £14.03 |
| Medical supplies (excluding PPE) | 6 | £7.75 | £9.62 | £15.42 |
| PPE | 3 | £2.59 | £3.64 | £6.30 |
| Office supplies (home specific) | 5 | £1.71 | £4.82 | £6.06 |
| Insurance (all risks) | 6 | £8.96 | £10.05 | £11.53 |
| Registration fees | 4 | £3.54 | £3.73 | £4.41 |
| Telephone & internet | 6 | £1.58 | £2.82 | £4.00 |
| Council tax / rates | 5 | £0.40 | £1.08 | £1.20 |
| Electricity, Gas & Water | 6 | £31.02 | £35.73 | £46.46 |
| Trade and clinical waste | 6 | £5.29 | £8.48 | £11.21 |
| Transport & Activities | 6 | £3.41 | £6.98 | £9.61 |
| Other care home supplies and services costs (please specify) | 5 | £8.21 | £13.10 | £13.66 |
| Total Head Office | 6 | £29.83 | £58.59 | £78.18 |
| Central / Regional Management | 2 | £80.68 | £104.47 | £128.26 |
| Support Services (finance/HR/legal/marketing etc.) | 6 | £3.37 | £8.89 | £20.03 |
| Recruitment, Training & Vetting (incl. DBS checks) | 6 | £0.97 | £2.50 | £2.51 |
| Other head office costs (please specify) | 2 | £21.72 | £26.77 | £31.82 |
| Total Return on Operations | £39.92 | £44.81 | £48.51 | |
| Total Return on Capital | £75.34 | £88.96 | £102.59 | |
| TOTAL | £913.73 | £1,030.07 | £1,121.20 |
| Supporting information on important cost drivers used in the calculations: | Count of answers | All nursing placements | All nursing placements | All nursing placements |
| Number of location level survey responses received | 6 | 6 | 6 | 6 |
| Number of locations eligible to fill in the survey (excluding those found to be ineligible) | 11 | 11 | 11 | 11 |
| Number of residents covered by the responses | 6 | 185 | 185 | 185 |
| Number of carer hours per resident per week | 6 | 23.4 | 26.1 | 28.7 |
| Number of nursing hours per resident per week | 6.8 | 7.3 | 8.4 | |
| Average carer basic pay per hour | 6 | £9.78 | £9.90 | £10.44 |
| Average nurse basic pay per hour | £17.75 | £18.02 | £18.45 | |
| Average occupancy as a percentage of active beds | 6 | 85.5% | 90.8% | 98.3% |
| Freehold valuation per bed | 2 | £65,291 | £77,100 | £88,909 |
Appendix 2
Annex A, Section 3 Median values for each care type cost
| Total | £719 | £1,030 |
| Cost of care exercise results | All residential placements (excluding nurses) | All nursing placements |
| Total Care Home Staffing | £440.20 | £666.52 |
| Nursing Staff | £174.12 | |
| Care Staff | £311.84 | £313.22 |
| Therapy Staff (Occupational & Physio) | ||
| Activity Coordinators | £8.43 | £8.14 |
| Service Management (Registered Manager/Deputy) | £39.07 | £40.62 |
| Reception & Admin staff at the home | £12.06 | £14.16 |
| Chefs / Cooks | £22.22 | £20.08 |
| Domestic staff (cleaning, laundry & kitchen) | £49.11 | £45.34 |
| Maintenance & Gardening | £15.58 | £17.25 |
| Other care home staffing (please specify) | ||
| Total Care Home Premises | £30.76 | £32.20 |
| Fixtures & fittings | £3.85 | £0.00 |
| Repairs and maintenance | £21.13 | £18.33 |
| Furniture, furnishings and equipment | £8.95 | £10.72 |
| Other care home premises costs (please specify) | ||
| Total Care Home Supplies and Services | £117.42 | £138.97 |
| Food supplies | £28.43 | £30.82 |
| Domestic and cleaning supplies | £11.97 | £10.79 |
| Medical supplies (excluding PPE) | £3.26 | £9.62 |
| PPE | £1.59 | £3.64 |
| Office supplies (home specific) | £4.52 | £4.82 |
| Insurance (all risks) | £4.50 | £10.05 |
| Registration fees | £3.70 | £3.73 |
| Telephone & internet | £1.68 | £2.82 |
| Council tax/rates | £1.13 | £1.08 |
| Electricity, Gas & Water | £36.16 | £35.73 |
| Trade and clinical waste | £4.99 | £8.48 |
| Transport & Activities | £2.04 | £6.98 |
| Other care home supplies and services costs (please specify) | £6.93 | £13.10 |
| Total Head Office | £36.80 | £58.59 |
| Central / Regional Management | £23.31 | £104.47 |
| Support Services (finance/HR/ legal/marketing etc.) | £10.22 | £8.89 |
| Recruitment, Training & Vetting (incl. DBS checks) | £1.89 | £2.50 |
| Other head office costs (please specify) | £39.68 | £26.77 |
| Total Return on Operations | £31.26 | £44.81 |
| Total Return on Capital | £62.27 | £88.96 |
| TOTAL | £718.71 | £1,030.07 |
| Supporting information on important cost drivers used in the calculations: | All residential placements (excluding nurses) | All nursing placements |
| Number of location level survey responses received | 22 | 6 |
| Number of locations eligible to fill in the survey (excluding those found to be ineligible) | 49 | 11 |
| Number of residents covered by the responses | 669 | 185 |
| Number of carer hours per resident per week | 27.6 | 26.1 |
| Number of nursing hours per resident per week | 7.3 | |
| Average carer basic pay per hour | £9.97 | £9.90 |
| Average nurse basic pay per hour | £18.02 | |
| Average occupancy as a percentage of active beds | 96.3% | 90.8% |
| Freehold valuation per bed | £53,964 | £77,100 |