Domiciliary Care - 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:
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 domiciliary home care 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 the Leicestershire Care Alliance, the trade organisation which represents care home providers across Leicester, Leicestershire & Rutland, which offered support and guidance to individual home care agencies 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 Department of Health and Social Care (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.
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 21 providers submitted a survey to inform both the council’s FCoC return and the wider analysis of the local home care market that is to follow.
All surveys that were submitted were within the scope of the exercise. None were therefore excluded on these grounds. However, 1 survey was submitted too late to be included in the analysis.
Six further surveys were excluded on the grounds of data quality, mostly owing to gaps from unanswered questions. The data submitted within these surveys will contribute to our understanding of the local market, but the providers did not supply sufficient data to be able to reliably calculate their total care worker costs or their full business overhead costs.
We have therefore been able to use 14 home care surveys to underpin the analysis in the council’s FCoC return. All of these surveys have full unit cost calculations, both for care worker costs and for business costs.
We are also aware that 7 of the 14 providers with usable surveys also operate in Leicestershire County. For 4 of these 7 providers, their hours in that area are minimal and so will have little to no bearing on their unit costs. The other 3 providers deliver a significant number of hours in that area. However, these providers are all National Living Wage (NLW) payers once travel time is taken into account, and they are also efficient providers. Their inclusion does not therefore adversely impact the median results.
Number of appointments
Lower quartile/median/upper quartile of number of appointments per week by visit length (15/30/45/60 mins)
The table below sets out information covering the lower quartile, median and upper quartile of number of appointments per week by visit duration. The data is based on all council commissioning as of 31 March 2022. This is a far more reliable indicator of visit patterns in the market than any sample data.
| 15mins | 30mins | 45mins | 60mins | |
| First quartile | 0.0 | 76.8 | 56.0 | 23.8 |
| Median | 0.0 | 391.0 | 236.5 | 118.0 |
| Third quartile | 4.8 | 1,069.5 | 562.0 | 222.0 |
Justification of the proposed approach to return on operations
Councils can decide what return on operations (or surplus) to include in their FCoC return.
It is important to recognise that this return on operations cannot all be taken out of the respective business as profit. The surplus is also needed to pay both for investment back into the business and for exceptional costs that will inevitably arise from time to time.
Our expectation of a sustainable surplus would normally range from 3% upwards. Further to this, our view is that a surplus below 5% can only be considered sustainable where the assumed costs are not ridged and there is therefore some elasticity to reduce costs. By contrast, a higher assumption may be reasonable where the operating costs are assumed to be the product of an extremely efficient organisation.
The analysis undertaken on provider surveys provided the following observations:
- Based on the surveys received, providers stated sustainable profit levels ranging from around 3% and upwards. Many of the highest stated sustainable profit levels were from independent providers where the owner’s time working for the business is not fully reflected as a cost (though in the analysis undertaken, we have added modest notional costs in many such instances for both commensurability with other businesses and to ensure ‘costs’ are not unduly understated). It can therefore be difficult to interpret some providers’ expected or desired ‘profit’ level.
- Profit levels in the obtained accompanying analysis of company accounts across the exercise range from small losses to high profits (in some cases upwards of 20%, though again this can be distorted by unpaid owner input for small operations and provider groups where results reflect a combination of branches of varying degrees of success). It is important to recognise that, within our market, there are a range of providers, from those who are struggling to operate within their current fee income to those who are making very healthy profits.
- When determining an appropriate return on operations, the council also needs to consider our existing payment rules, as comparatively generous payment rules can indirectly include a significant amount of surplus (generation of revenue without the normal associated costs). By contrast, if payment rules are ‘tighter’, providers could be incurring costs where there is no associated income. Our payment rules have been flexible over the period of the pandemic in order to assist the provider market with challenges to financial viability and sustainability. This would be a further consideration.
- Another critical dimension to consider around assumptions relating to the level of surplus is the nature and balance of the local provider market, in particular: (i) the size of local home care branches, (ii) whether certain providers have exclusivity rights (e.g. a right of first refusal of new clients through any ranking/order for allocation of commissioned packages), and, (iii) whether the market is principally made up of owner-operated or corporate businesses.
- In almost all home care businesses, the main financial risks from changes in demand relate to back-office staffing (which is harder to flex week-to-week) and other fixed costs (such as rent and insurance). For this reason, smaller, owner-managed business can often operate with less risk, as they invariably have lower fixed costs, especially where the owner is either unsalaried or has only a low salary. The fact that owners receive remuneration through a combination of pay, profit and the expenses they charge to the business also means the level of ‘surplus’ such providers require may be less than some groups.
Using this intelligence and the related dynamics of our local commissioned market, the council has made an initial judgment about a level of return on operations and this has provisionally been set at 5% in the FCoC analysis. 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. As stated above in this report, further work will be undertaken to inform the rates on which to base our usual fee rates/commissioning going forwards. The return on operations element of the fee will be further considered as part of that work.
Lower quartile, median and upper quartile costs
A table setting out 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, the provider had to report enough data to be able to calculate all their care worker costs AND/OR all their business overheads. If the total observation count is higher than the respective counts for the sub-sections, this will be because of a handful of providers where we could not report both sets of costs.
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.
Please also refer to Appendix 2 to this report, which also includes (consistent with the cost per contact hour of Annex A), the cost per visit for each of 15, 30, 45 and 60 minute visits. These are theoretical models, calculated on the assumption that the only variables that change are the contact time (visit duration) and travel costs (i.e. shorter visits have larger relative travel times so cost relatively more). It is also assumed that there are no changes in average travel time between visits, sickness levels, and that workforce characteristics remain unchanged.
To note – based on the data available from the FCOC exercise, the ‘median’ values included in the appended tables for the summarisation of total costs for each category of cost (i.e. Total Care Worker Costs; Total Business Costs) 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 for the count of useable responses, the overall total costs for each category of expenditure (as a median) represents the total costs for each domiciliary care provider 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, with the queries and clarification process ongoing well into September. The financial year was 2022/23. In some instances, historic cost data was used for non-staff cost categories based on the providers 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. Each cost line was updated from the middle of their respective financial year to May 2022 (close to the start of the 2022/23 financial year).
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. 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.
Using the data we have collected through this exercise, we will work with Care Analytics to configure various standardised cost models to inform the council’s future commissioning. We will also provide a clear basis to update these cost models for inflation based on the above considerations.
It should be noted that the main domiciliary care framework in Leicester is due to be re-procured effective from April 2024. It is likely that the council’s commissioning of home care could significantly change over the next few years as it implements its commissioning strategies. As a result, provider costs will potentially change depending on how the council commissions home care in the future, as costs incurred by home care providers tend to be intrinsically linked to how the council commissions and pays for home care.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 home care delivery and the operating practices of each branch. It also asks for a detailed breakdown of current back-office staffing and wages/salary by role and a series of questions about care worker pay rates, including supporting information, so that a reliable average rate of pay can be calculated. The survey also collects information about employment terms and conditions, so that employment on-costs can be accurately calculated. Providers had the opportunity to present their pay structure in whatever format was easiest to them. This is essential for home care owing to the diverse ways home care providers pay their care workers.
Non-staff operating costs were collected from previous or current financial years at a granular level. 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.
Finally, providers had the opportunity to answer a variety of questions in their own words to inform the market review.
Appendix 1
Lower quartile, median and upper quartile costs
| Cost of care exercise results | 18+ domiciliary care | Response rates by question | 1st quartile | Median | 3rd quartile |
| Total careworker costs | £13.55 | 14 | £12.74 | £13.55 | £13.73 |
| Direct care | £9.60 | 14 | £9.52 | £9.60 | £9.62 |
| Travel time | £0.73 | 14 | £0.46 | £0.73 | £1.23 |
| Mileage | £0.24 | 14 | £0.15 | £0.24 | £0.52 |
| PPE | £0.05 | 11 | £0.03 | £0.05 | £0.11 |
| Training (staff time) | £0.18 | 13 | £0.17 | £0.18 | £0.19 |
| Holiday | £1.26 | 14 | £1.21 | £1.26 | £1.32 |
| Additional noncontact pay costs | £0.00 | 0 | £0.00 | £0.00 | £0.00 |
| Sickness/maternity and paternity pay | £0.10 | 14 | £0.10 | £0.10 | £0.11 |
| Notice/suspension pay | £0.03 | 14 | £0.03 | £0.03 | £0.03 |
| NI (direct care hours) | £0.80 | 14 | £0.70 | £0.80 | £0.93 |
| Pension (direct care hours) | £0.19 | 14 | £0.14 | £0.19 | £0.22 |
| Total Business Costs | £4.08 | 14 | £3.69 | £4.08 | £4.64 |
| Back office staff | £2.04 | 14 | £1.89 | £2.04 | £2.33 |
| Travel costs (parking/vehicle lease et cetera) | £0.08 | 12 | £0.07 | £0.08 | £0.16 |
| Rent/rates/utilities | £0.33 | 14 | £0.25 | £0.33 | £0.41 |
| Recruitment/DBS | £0.06 | 10 | £0.02 | £0.06 | £0.11 |
| Training (third party) | £0.15 | 9 | £0.04 | £0.15 | £0.29 |
| IT (hardware, software CRM, ECM) | £0.21 | 12 | £0.12 | £0.21 | £0.28 |
| Telephony | £0.06 | 12 | £0.04 | £0.06 | £0.14 |
| Stationery/postage | £0.06 | 14 | £0.05 | £0.06 | £0.09 |
| Insurance | £0.07 | 14 | £0.06 | £0.07 | £0.10 |
| Legal/finance/professional fees | £0.12 | 12 | £0.08 | £0.12 | £0.22 |
| Marketing | £0.05 | 10 | £0.01 | £0.05 | £0.10 |
| Audit and compliance | £0.09 | 4 | £0.02 | £0.09 | £0.15 |
| Uniforms and other consumables | £0.08 | 11 | £0.05 | £0.08 | £0.10 |
| Assistive technology | £0.03 | 3 | £0.02 | £0.03 | £0.09 |
| Central/head office recharges | £0.48 | 9 | £0.15 | £0.48 | £1.41 |
| Other overheads | £0.17 | 14 | £0.13 | £0.17 | £0.22 |
| CQC fees | £0.07 | 14 | £0.05 | £0.07 | £0.09 |
| Total Return on Operations | £0.88 | £0.82 | £0.88 | £0.92 | |
| TOTAL | £18.51 | £17.26 | £18.51 | £19.29 |
| Supporting information on important cost drivers used in the calculations: | 18+ domiciliary care | Response rates by question | 1st quartile | Median | 3rd quartile |
| Number of location level survey responses received | 14 | 14 | 14 | 14 | 14 |
| Number of locations eligible to fill in the survey (excluding those found to be ineligible) | 35 | 35 | 35 | 35 | 35 |
| Carer basic pay per hour | 10 | 14 | £9.50 | £9.50 | £9.50 |
| Minutes of travel per contact hour | 5 | 14 | 2.9 | 4.6 | 7.2 |
| Mileage payment per mile | 0 | 11 | £0.25 | £0.30 | £0.35 |
| Total direct care hours per annum | 95,520 | 14 | 65,639 | 95,520 | 143,385 |
Appendix 2
Median costs and durations of 15, 30, 45 and 60 minute visits
| Cost of care exercise results | 18+ domiciliary care | 15 minutes | 30 minutes | 45 minutes | 60 minutes |
| Total Careworker Costs | £13.55 | £15.34 | £13.65 | £13.09 | £12.81 |
| Direct care | £9.60 | £9.60 | £9.60 | £9.60 | £9.60 |
| Travel time | £0.73 | £2.03 | £1.02 | £0.68 | £0.51 |
| Mileage | £0.24 | £0.68 | £0.34 | £0.23 | £0.17 |
| PPE | £0.05 | £0.15 | £0.07 | £0.05 | £0.04 |
| Training (staff time) | £0.18 | £0.20 | £0.19 | £0.18 | £0.18 |
| Holiday | £1.26 | £1.41 | £1.29 | £1.25 | £1.23 |
| Additional noncontact pay costs | £0.00 | £0.00 | £0.00 | £0.00 | £0.00 |
| Sickness/maternity and paternity pay | £0.10 | £0.12 | £0.11 | £0.10 | £0.10 |
| Notice/suspension pay | £0.03 | £0.03 | £0.03 | £0.03 | £0.03 |
| NI (direct care hours) | £0.80 | £0.90 | £0.82 | £0.80 | £0.79 |
| Pension (direct care hours) | £0.19 | £0.21 | £0.19 | £0.19 | £0.18 |
| Total Business Costs | £4.08 | £4.08 | £4.08 | £4.08 | £4.08 |
| Back office staff | £2.04 | £2.04 | £2.04 | £2.04 | £2.04 |
| Travel costs (parking/vehicle lease et cetera) | £0.08 | £0.08 | £0.08 | £0.08 | £0.08 |
| Rent/rates/utilities | £0.33 | £0.33 | £0.33 | £0.33 | £0.33 |
| Recruitment/DBS | £0.06 | £0.06 | £0.06 | £0.06 | £0.06 |
| Training (third party) | £0.15 | £0.15 | £0.15 | £0.15 | £0.15 |
| IT (hardware, software CRM, ECM) | £0.21 | £0.21 | £0.21 | £0.21 | £0.21 |
| Telephony | £0.06 | £0.06 | £0.06 | £0.06 | £0.06 |
| Stationery/postage | £0.06 | £0.06 | £0.06 | £0.06 | £0.06 |
| Insurance | £0.07 | £0.07 | £0.07 | £0.07 | £0.07 |
| Legal/finance/professional fees | £0.12 | £0.12 | £0.12 | £0.12 | £0.12 |
| Marketing | £0.05 | £0.05 | £0.05 | £0.05 | £0.05 |
| Audit and compliance | £0.09 | £0.09 | £0.09 | £0.09 | £0.09 |
| Uniforms and other consumables | £0.08 | £0.08 | £0.08 | £0.08 | £0.08 |
| Assistive technology | £0.03 | £0.03 | £0.03 | £0.03 | £0.03 |
| Central/head office recharges | £0.48 | £0.48 | £0.48 | £0.48 | £0.48 |
| Other overheads | £0.17 | £0.17 | £0.17 | £0.17 | £0.17 |
| CQC fees | £0.07 | £0.07 | £0.07 | £0.07 | £0.07 |
| Total Return on Operations | £0.88 | £0.97 | £0.89 | £0.86 | £0.84 |
| TOTAL | £18.51 | £20.38 | £18.62 | £18.03 | £17.74 |
| Supporting information on important cost drivers used in the calculations: | 18+ domiciliary care |
| Number of location level survey responses received | 14 |
| Number of locations eligible to fill in the survey (excluding those found to be ineligible) | 35 |
| Carer basic pay per hour | 10 |
| Minutes of travel per contact hour | 5 |
| Mileage payment per mile | 0 |
| Total direct care hours per annum | 95,520 |