Fair cost of care frequently asked question

Where this term is used it refers specifically to the documents and information at this link: Market Sustainability and Fair Cost of Care Fund: Purpose and conditions 2022 to 2023

Where this term is used it refers specifically to the documents and information at Market Sustainability and Fair Cost of Care Fund: Guidance 2022 to 2023

Where this term is used it refers specifically to the documents and information at Market Sustainability and Fair Cost of Care Fund: Grant determination and conditions 2022 to 2023

This term is used with specific reference to the cost of care exercise/s being carried out by local authorities are in accordance with the DHSC Policy and Guidance and in order to meet the DHSC grant conditions.

The term ‘cost of care exercise’ is used as a general reference to such exercises regardless of if they relate to the DHSC Policy or Guidance or not.

This term is used to make general reference to care providers in scope of the DHSC Guidance.

These terms are used to make reference to domiciliary care services or the organisation that deliver this care and support, which are in scope of the DHSC Guidance.

This term specifically relates to the Tool commissioned by CHIP and available to all local authorities, providers and third parties. The Tool can be accessed at PCH Domiciliary Care Cost of Care Tool

This term is used to refer to a single care home (technically a single CQC registered location).

Unless explicitly stated, use of this term will refer only to care homes in scope of the DHSC Guidance and will not make any distinction between those care homes that are registered to provide nursing care and those that are not. This term is also used to make general references to care homes (for example, the care home sector).

Care home provider / organisation

This term specifically relates to the Tool commissioned by PCH and available to all local authorities, providers and third parties. The Tool can be accessed at PCH Care Home Cost of Care Tool

This term is used to refer to a local authority that commissions care and support from a provider, regardless of where the CQC registered location of that provider is.

This term is used when describing where a care provider has its CQC registered location. For instance, “they are the host local authority for provider A” is another way of saying where provider A has their CQC registered location.

The CPA brings together the ten main national associations which represent independent and voluntary adult social care providers in England. As an alliance, it represents the whole sector and ensures a coordinated response to the major issues that affect it. 

Colleagues from CPA co-produced this document with colleagues from PCH.

This Programme is jointly delivered through the Association of Directors of Adult Social Services (ADASS) and the Local Government Association (LGA).

These organisations represents the interests of local government.

Colleagues from PCH co-produced this document with colleagues from CPA.

This is the collective term given to any people or organisations that have been commissioned by local authorities to support them to undertake these FCC exercises, but who are not:

Providers or their representatives Local authorities or their representatives

The DHSC Guidance states that: “Where an exercise was completed during or after April 2021 local authorities will need to consider:

• whether this accurately reflects current costs
• how they have adjusted for inflation since the exercise was carried out
• whether their approach to future inflation, return on capital and travel time remain relevant in future years”

The DHSC Guidance also states that local authorities are required to understand: "Actual costs as of April 2022, reflecting the impact of the April 2022 National Living Wage/National Minimum Wage rise. If data relates to 2021 to 2022, the approach to inflating costs to 2022 to 2023 prices should be made clear”.

The DHSC Guidance does not specify an exact data collection period but it does require that local authorities understand the current picture of costs (from April 2022 onwards) to determine the fair cost of care.

Two common approaches in completing FCC exercises

Extensive discussions with local authorities and providers have highlighted that there are two common approaches being taken in completing FCC exercises. In simple terms, one approach is to create a baseline and then establish how current costs have changed from that baseline and the other approach is to obtain the most recent cost information (where different information may relate to different periods).

These approaches are described below:

• Approach 1: Providers submit information; i) relating to a recent period or point in time and ii) on cost changes since that period. This gives separate information for the different periods. This is felt to be valuable as it creates a robust baseline against which all future cost changes can be compared. Under this approach, the period typically used is either the full 2021/22 financial year (approach advocated by the CPA) or an April 2022 snapshot. This type of approach has the advantage of creating a robust and consistent baseline of costs and if it is aligned to the provider's annual accounting period it will be possible to verify this information with their accounts.
• Approach 2: Under this approach providers submit the most up to date information they hold about each cost line, regardless of what period of time the data relates to. This is likely to lead to a mix of information relating to different points in time / periods. For instance, average occupancy may be for 2021/22, staff pay rates from April 1^st 2022 and insurance cost from June 2022 (as this is the renewal date). It is vital that under this type of approach, providers make it clear in their submission what information relates to what period so local authorities can treat information from different providers in a consistent way.

Based on the DHSC Guidance, the experience of those who have previously completed cost of care exercises and local authorities and providers involved in FCC exercises, the most critical factors (in order of importance) in relation to the submission of cost information are:

• Actual information – FCC exercises are focussed on collecting information about actual costs. Where it is not possible to use an actual cost, local authorities and providers should work together to create the most accurate and evidence-based position. For instance, establishing 2022/23 utility costs will be difficult but evidence of the amount used in 2021/22 and a shared view on the likely changes in unit price during 2022/23 will support a shared understanding of current and future costs. Providers should not include information on what they think their costs should be, or what they would want their costs to be (such as staff pay rates). Where a local authority believes this has happened, they should query this with the individual provider and may ultimately exclude this from their submission to DHSC.
• Clarity – Local authorities and providers should each be clear on the agreed approach and on what information is being requested, from whom and in relation to what date / period. Local authorities and providers should have ongoing communication throughout this process to address any uncertainty as it arises.
• Robustness – Local authorities and providers should work together to ensure the data provided is robust. This is likely to require consideration of various factors and mitigations, for instance, the older the period used the more important it will be to understand what may have changed since and the narrower the period used the more important it will be to understand whether this is representative.
• Deliverable – Providers understand how to populate their information into the cost of care tool/s and how to submit this and any supplementary information (for example, written clarification, insurance renewal quote) to local authorities.
• Practical – No approach will be perfect and all provider returns are likely to contain averages (for example, volume / occupancy), estimates (for example, average travel distance) and a mix of constant costs (for example, staff pay rate) and one-off costs (for example, insurance premium). There will also be situations where a provider cannot submit exactly what is being requested (for example,  full 2021/22 data is requested but the provider began operating in October 2021). Local authorities and providers should find the best way to create the most accurate and representative picture of actual local costs.
• Future – In considering how they deliver FCC exercises in 2022, local authorities and providers should also seek to create ways of working that will help their ongoing work to understand the changing costs of providing care.

The DHSC Policy and Guidance are part of a wider reform agenda that is seeking to improve how the adult social care sector operates. Two common points are being raised about the role and focus of FCC exercises in this wider challenging environment:

1. Partners want to understand how the cost of care work will help address the scale and variety of challenges facing the sector.
2. Some providers have stated they have supressed their costs to create an operating model in line with their income levels and are keen to understand how this will be reflected in the FCC exercises.

In describing the requirement on local authorities to produce a Market Sustainability Plan and the content of these Plans, the DHSC Guidance states that….

"Underpinning these plans is a broad definition of market sustainability as set out in the Care Act 2014, which places a duty on local authorities to assure themselves and have evidence that fee levels are appropriate to provide the agreed quality of care, and also enable providers to effectively support people who draw on care and invest in staff development, innovation and improvement.

"This ambition is in line with the wider, ten-year vision set out in the white paper, People at the Heart of Care. Cost of care exercises and market sustainability plans are some of the first steps on that journey.

"As set out in the white paper, additional funding is being made available for, housing and technology; innovative new models of care; training, recognition and wellbeing for the social care workforce; and sector improvement alongside other reforms”.

Cost of care exercises previously undertaken across the country have created a shared view of costs and wider intelligence that has helped all parties understand how changes in funding, commissioning approaches and provider operating models can lead to a more sustainable care sector. Below are some examples.

• Scenario 1: A local authority uses a cost of care exercise to understand the specific funding and operational challenges of; i) shorter domiciliary care visits and ii) domiciliary care visits in rural areas. The exercise provided evidence of what actual costs are and the local authority increased rates for these specific visits to a level that was commensurate with the actual costs incurred.
• Scenario 2: A local authority and providers were working together to design and implement a reablement focussed model of community-based support. A cost of care exercise had recently been undertaken for ‘time and task’ domiciliary care and the local authority and providers were able to use this evidence, with some adaptations, to inform their thinking on an appropriate payment mechanism and fee rates in the reablement focussed model.  
• Scenario 3: A local authority and domiciliary care providers worked together to understand how the cost of care would change if changes were made to the way care was commissioned that led to providers having; i) reduced travel time or ii) greater volumes of care hours.
• Scenario 4: Within a local authority area, most nursing home buildings were old and not purpose built. The local authority used a cost of care exercise to help them better understand the financial challenges of operating such provision and the costs to build, develop and operate new, purpose-built nursing homes.

COVID-19 has clearly had a huge impact on the social care sector and on provider costs, but other global, national and local factors are also affecting costs and will continue to do so. At different times these various factors are likely to have a greater or lesser impact on costs.

The DHSC Guidance does not place any requirement on local authorities to establish the specific impact of COVID-19 related costs and FCC exercises are not focussed on what is influencing costs, only on understanding what provider’s costs are, which goes beyond the specific impact of COVID-19 (for example, usage of PPE).

Aside from the point made above, there are some practical issues of how to treat specific cost lines affected by COVID-19 when completing a cost of care return and some of these are explained below to provide a steer on how best to approach this issue.

A local authority has asked domiciliary care providers to submit cost information for 2021/22 but during this period providers had access to PPE free of charge. How should providers reflect this in their cost of care submission?

Suggested approach: Providers should populate the CHIP Domiciliary Care Tool with their best understanding of the average amount of PPE they used per visit during 2021/22 period. The Tool will automatically calculate their total PPE usage. The local authority and providers should then work together to understand what PPE would cost had it been purchased or to establish the current unit costs of PPE. If providers are actually purchasing PPE then this actual cost should be used.

During 2021/22, some providers received income or subsidies that reduced the net cost they incurred in certain areas.

Suggested approach: In most cases the best option will be for a provider to include the gross cost (the cost they would have incurred without any subsidy), not the net cost they did incur (as a result of the subsidy). This is especially true if the subsidy was a one-off and the underlying cost pressure will remain in 2022/23. This approach will help all parties understand the current and ongoing cost, rather than focus on a specific and unusual situation at a point in time.

Providers report that sickness levels were higher than usual during 2021/22 due to COVID-19.  

Suggested approach: Each cost of care tool asks providers to state the level of sickness. The tools then automatically calculate the cost the provider incurred as a result of this level of sickness so this cost will be included in full in their return. It is recognised that some costs may be higher or lower in different periods, but as long as the full cost is included in the tool it will give an accurate and complete picture of provider costs.

The DHSC Guidance states that data used as part of the FCC exercise must be from April 2021 onwards. Local authorities that have recently conducted cost of care exercises using data from April 2021 onwards may wish to use these to meet the DHSC grant conditions.

Any local authority that wishes to do this should, if they have not already, email DHSC at [email protected] as soon as possible to discuss whether their previous cost of care exercises and subsequent work meets the DHSC requirements. Local authorities should expect to be asked to provide details of their methodology, levels of provider engagement and data output to DHSC.

DHSC Guidance permits local authorities to use the 2022/23 grant for two purposes.

The DHSC Guidance includes the statement: "Up to 25 per cent of allocated funding in 2022 to 2023 can be used to fund implementation activities associated with meeting the fund purpose”. This DHSC Guidance provides further details of what the “implementation activities associated with meeting the fund purpose” could include, but this is generally any additional support the local authority funds or commissions for the purpose of delivering FCC exercises, producing their Market Sustainability Plan (MSP) and meeting the grant conditions. Primarily, this is to strengthen internal commissioning and contract management capacity, or to procure external resource to undertake the work associated with FCC exercises and DHSC grant conditions. A local authority can choose how much of this 25 per cent to spend on such activities but the unspent balance must be combined with the remaining 75 per cent (see point 2 below). Local authorities should provide details of how they have spent this 25 per cent (or less) in their Cost of Care Report. A local authority must use all of the remaining 75 per cent of their grant (plus any of the 25 per cent that is unspent) on the fee rates they pay to care providers for the (in scope) services they commission. Various elements of the DHSC Guidance can be combined to give further clarity to this.

Type and level of costs: The DHSC Guidance states that “Local authorities are expected to use at least 75 per cent of allocated funding in 2022 to 2023 to increase fee rates paid to providers in scope, where necessary, and beyond pressures funded by the Local Government Finance Settlement 2022 to 2023.” The requirement in the DHSC guidance is that the funding should be over and above what the local authority would have otherwise made available, such as under an existing agreement or recent custom and practice. DHSC’s strong expectation is that local authorities use of grant funding is focussed on areas of provision that the local authority believe present the greatest risk to market sustainability, such as where current provision is not meeting the needs of the local community. It follows that local authorities may spend less (or possibly none) of the grant on some services / provision, as appropriate to their prioritisation and market shaping decisions. All aspects of a local authorities approach should be consistent with, and explained in, their MSP.

Level of financial support: The DHSC Guidance and Policy does not make any reference to the amount or percentage increase that should be applied to any specific service. The only requirement is in relation to the total funding, which must be at least 75 per cent of the grant.

Type of service: The DHSC Guidance states that “Local authorities are required to use all funding to improve sustainability of the 65+ care home and 18+ domiciliary care markets (including domiciliary care providers who operate in extra care settings)”. In relation to extra care housing, this service is out of scope of FCC exercises, but local authorities may use their grant to support domiciliary care provision in these extra care settings.

The DHSC Guidance does not place any requirement on local authorities to create a process that allows providers to share their information anonymously and as already stated, providers may choose not to submit information as part of this FCC exercise.

The DHSC Guidance does place a responsibility on local authorities to undertake some review and verification of the information it receives from providers.

The Guidance states that: "Where possible, local authorities should contact care providers where they identify information which seems to them to constitute an outlier. Local authorities should scrutinise cost outliers, in collaboration with the provider, and consider where they should be removed. The outlier may be a misunderstanding of the cost line and resolving the issue may increase the effective sample size and quality of the report”.

Clearly, local authorities can only meet this condition if they know which provider has submitted what information, so local authorities must have a mechanism to contact all providers directly or through a third party. Any review and verification undertaken by the local authority should be proportionate for all concerned and, as the above extract from the Guidance states, should focus on outliers. If a local authority cannot, despite their reasonable efforts, verify information from a provider then they have the right to exclude this from their FCC exercise.

Where providers want to share information anonymously, it is likely to be due to underlying issues that should be explored and addressed, such as:

Confidentiality: Providers are being asked to share commercially sensitive information and as such they will need to be confident this information will be kept confidential. Data sharing agreements may help address this issue. Trust:  This could take various forms and feedback received from providers indicates that some are concerned that information they submit may be used to make wider judgements about them beyond the scope of the FCC exercise or that a local authority may amend the information they receive to support their own interests. The local authority should make its intentions clear in relation to how information will and won’t be used and what information will be shared with providers throughout the FCC exercise so they can see ongoing progress and results.

Approach 2: A local authority commissioned a third party organisation to support providers complete their return and to receive, verify and aggregate information providers submit. The local authority was satisfied that the third party organisation was able to carry out all necessary validation and so the local authority only received aggregate information.

• The local authority will review this information and reply to each individual provider with any clarification questions and to ask the provider to give an overall ‘sense-check’ to the information presented back to them (as this may be in a different format to how they submitted it).
• Once all providers verified their submissions and addressed any questions of clarification, the local authority sent all providers that participated an aggregated report showing the minimum, maximum and median figure for each cost line.
• This approach created certainty and trust and allowed providers to check that the overall information was an accurate and representative picture of local costs.  

It is for local areas to find a workable solution that balances the shared desire for a high level of provider participation, the reasonable concerns of providers around data protection and the importance of accurate and verified information. As with all aspects of FCC exercises, local approaches are expected to reflect the current circumstances and relationship in that local area. 

Two local approaches being taken 

Approach one: A local authority works with providers to agree a protocol for what information the local authority will share with providers to maintain transparency thorough this process. One local authority that previously completed a cost of care exercise agreed the following:

Providers will submit information to the local authority

The DHSC Guidance requires local authorities to submit information to them, through various reports. It also requires local authorities to publish some outputs of the FCC exercise on their website, but none of these requirements involve the sharing of any information that identifies a provider or that can be linked to an individual provider.

Here is an overview of how the various tools and organisations will operate, from a data sharing and information security point of view, during the FCC exercises:

• PCH Domiciliary Care Cost of Care Tool – This is an Excel tool and so providers are in control of who they share this document, and the information in it, with. The Tool developer has no means of accessing information a provider populates in the Tool.
• PCH Care Home Cost of Care Tool – This is a web-based tool and the contract between PCH and the tool developer requires end-to-end encryption and other security measures to be in place, so provider information in the Tool cannot be accessed or view. The only exception is for a small number of helpdesk employees who will only access a provider return when dealing with a query from that provider and where the provider gives their explicit permission for this.
• Local authority – Where a provider submits a return to a local authority (through any tool), this should only be seen by local authority employees who need to see this information to fulfil their role in this FCC exercise.
• Third parties – Where a local authority commissions a third party to support this work, it is important that everyone involved in the FCC exercise is clear about what access the third party will have to what information. Local authorities should work with providers and third parties to agree this, which may be documented in an ‘Information Sharing Protocol’ document.
• CPA / PCH – These organisations are supporting their members with FCC exercises and will have access to very limited information about the involvement of local authorities and providers. As an example, CPA and PCH can see which local authorities and providers have created an account in the CHIP Care Home Tool and this information is only being seen and used by colleagues directly involved in this work and to understand how best to support local authorities and providers.

The DHSC Guidance describes the scope as: "Care homes for older people (age 65+) excluding local authority in-house care. Some residents in these homes may be aged under 65.” and "Domiciliary care agencies (for those aged 18+) providing long term care, with a regular pattern per week, consisting of relatively short visits to support a person living in their own home with daily living tasks.”

"Exercises should exclude rapid response provision, short term / reablement support, local authority in-house care, live in care, shifts or blocks of care, sitting services, extra care and supported living. (While extra care is in scope for use of the fund, cost of care exercises are not required for this setting.)”

On matters of scope, CHIP, CPA and DHSC encourage local authorities and providers to follow the spirit of the Policy, Guidance and wider charging reform. Specifically, local authorities should invite providers to participate in these FCC exercises regardless of if the local authority currently contracts with the provider or not. Where a provid er delivers some care and support that is in scope and some out of scope, the local authority and that provider should work together to agree a sensible and practical approach.

Scenarios and how they relate to the scope of these FCC exercises:

Example 1: A care home that supports older people and has a resident who is aged 60 – in scope. Example 2: A care home that supports working age adults and has a resident aged 69 – out of scope.

Based on discussions with local authorities and providers there seems to be general agreement on how to practically apply the scope of these exercises. A situation to be avoided is where a provider submits their information only for the local authority to consider them out of scope and both parties should be proactive in trying to pre-empt and avoid this.

• Example 3: A domiciliary care provider based in an extra care housing scheme delivers the majority of their care in that scheme but some in the local community – out of scope.
• Example 4: A domiciliary care provider delivers a range of community-based support (sitting services, live in support, domestic support), but the vast majority of the support they provide is for people aged over 18+ and consists of “long term care, with a regular pattern per week, consisting of relatively short visits” – in scope.  

PCH and the CPA encourages local authorities to make contact with all CQC registered care providers (of domiciliary care for 18+ and care homes for 65+) in their local area to make them aware of these FCC exercises. This aims to ensure all local providers that may be in scope of, or affected by, FCC exercises are aware of what is happening. This communication should include providers that may be out of scope (for example, care homes that support working age adults or non-regulated providers of community-based support) and so it may make reference to the DHSC Guidance on scope and exclusions in order to avoid unnecessary confusion.

The DHSC Guidance defines a cost of care exercise as “A process of engagement between local authorities, commissioners and providers, data collection and analysis by means of which local authorities and care providers can arrive at a shared understanding of the local cost of providing care.” All local authorities and providers should take this as a clear statement of the role DHSC expects them to play in these FCC exercises.

The DHSC Guidance does not explicitly require individual providers to participate in this work or submit information to their host local authority. However, national organisations that represent providers are encouraging their members to participate and the CPA states that they “currently believe that it is a once in a generation opportunity to provide data for government to understand the cost of providing care in England, and that it is critical providers engage in the FCC exercise to ensure the local authority has access to the widest and most reflective data available essential to understand the true cost diversity in each local authority area, to evidence the funding needed to pay the fair cost of care nationally”.

The DHSC Guidance does not place any requirement on local authorities to ‘achieve’ a specific number or proportion of provider participation. 

The DHSC Guidance places the following conditions on local authorities in relation to how they work with providers and their ability to evidence this:

• Under the heading of “Provider Engagement”, the DHSC Guidance states that “Local authorities are required to demonstrate how they have sought to involve all local providers and taken reasonable steps to support a full, complete, robust and representative information return for local providers.”
• Under the heading of ”Partnership”, the DHSC Guidance also states that “Local authorities are required to work in partnership with local providers to support the delivery of the returns. The key question here is have providers been given sufficient opportunity to participate in both cost of care exercises and market sustainability planning?”

The DHSC Guidance does not stipulate any specific actions or activities a local authority should take to facilitate or encourage provider engagement. It is for each local authority to decide what reasonable steps to take as they aim to achieve satisfactory levels of provider engagement. Local authorities are encouraged to keep records of the meetings, events and all communications they have with local providers as part of their efforts to engage with, inform and encourage local providers to participate in the FCC exercise.

Where a local authority becomes aware that there may be a low level of provider engagement, or where providers report challenges that will affect participation rates, local authorities and providers should work together to consider what actions can be taken. The first step should be to involve local care associations and the Care Provider Alliance to establish what support they can offer. If further action is needed, local authorities may choose to take targeted efforts to identify (and support) providers most willing and able to participate.

Below are some approaches local authorities have taken in response to low levels of provider engagement in FCC exercises in their area. The DHSC Guidance does not place any requirement on any local authority to do any of the things described in Table 7 or give providers the right to insist on such actions being taken as a condition of their participation in these FCC exercises. Where local levels of provider participation are sufficient and representative a local authority is unlikely to take any such actions.

• Approach 1: Some providers that have committed to participating are part way through completing their submission and have experienced issues that mean they will miss the agreed deadline. They have worked with the local authority to agree an extended deadline to ensure they can submit accurate and robust information that still gives the local authority sufficient time to meet the DHSC conditions.
• Approach 2: A local authority commissioned support from the local care association. The local care association then contacted all local providers to invite them to be part of a small but representative that would receive additional support to participate in this FCC exercise. The providers that came forward, the local authority and the care association agreed the timescales and support. Once the FCC exercise was completed, the local authority worked with all providers to review the aggregated cost information and agree this was representative of local costs. This return was then used by the local authority in their DHSC return and future fee considerations.
• Approach 3: A local authority has good overall provider participation in the care home FCC exercise, but very few smaller care home providers (those with one or two homes) participated and so the local authority is concerned the overall results will not be representative of the local sector. The local authority worked with these care home providers to establish the reasons for their low participation and identified a need for expertise on some key aspects of completing the CHIP Care Home Tool. It was agreed that the best people to provide this support would be the accountant of each organisation / home and it was also estimated how much time this would take and at what cost to each provider. The local authority agreed to cover the cost of this additional support through a one-off payment to each provider on submission of a completed and verified cost of care return. This worked well and meant that the local authority had an overall return that was representative of the local care home sector.

Clearly, the more providers that participate in this FCC exercise the better, but even where a sufficient number of providers have participated, local authorities should check that the providers and the information they receive are representative of their local area.

Where participation is relatively low, the overall provider submission may still be robust and representative, such as where:

• The providers that participate deliver a high proportion of provision in the local area (for example, a local authority commissions 80 per cent of its domiciliary care from five preferred providers and they all participate in the FCC exercise). 
• The providers that participate include a mix of providers in terms of their size, approach and location, which are deemed representative of the in-scope providers.
• The cost information submitted by the providers that participate shows a very similar picture and there is no reason why other providers would incur different costs.

There will be a variety of circumstances where a local authority commissions from a care home based outside of their area, in relation to the amount of care, the location of the home etc. Therefore, there is no single answer to this question but there are general responsibilities on each party.

There are three elements to this response:

The responsibility on a local authority to understand costs of care of providers The rights, responsibilities and suggested process in relation to what information a provider may share with a local authority. The information a care home will submit in such instances.

On the final point, where a care home supports people whose care is commissioned by more than one local authority and the home participates in this FCC exercise, the CPA advises that they create a single cost of care return that contains all costs and all provision and is agnostic of the commissioner / funder. The situation for domiciliary care may be different and this is dealt with in question 13.

Host local authority: They are responsible for engaging with the care homes in their area and for setting out the process these local care homes are being asked to follow for the FCC exercise. Where a local authority is using the PCH Care Home Tool, only the host local authority is able to validate responses for care homes and their information cannot be made visible to any other local authority until validated by the host local authority. Commissioning local authority:  The DHSC Guidance does not require local authorities to obtain cost information from providers outside of their area. However, there may be situations where this is important, such as where a local authority commissions a large amount of care from a single out of area care home, or where a local authority commissions a large proportion of its care from provider’s based outside their area (the latter situation is expected to apply for many local authorities in London). In such situations, the commissioning local authority should contact the provider as soon as possible to raise this matter and request access to their cost information Provider: It is up to the provider if they agree to share their information with a commissioning local authority and their decision is likely to be influenced by the amount of care they deliver on behalf of the commissioning local authority and the extent to which the 3 parties can agree an approach that is workable for the provider.

On the first point, all local authorities should focus on understanding the costs of the providers in their area (that is, the specific local authority boundary) and agreeing the approach, process with this group of providers.

The DHSC guidance does refer to “Handling of out of area placements” and explains to local authorities that “If you have a significant number of placements out of area, you may consider including those CQC registered providers too”. This gives the option but not the responsibility to do so.

On the second point, the three points below describe an example where a local authority commissions care from a care home based in a neighbouring local authority area. The situation and guidance belowcould equally apply to domiciliary care.

The DHSC Guidance does not differ according to the size of provider or the number of locations it has.

Where a large care home organisation submits a return, there must be a separate return for each care home, or unit, that reflects the unique costs and circumstances of that home or unit. Providers should not submit a single homogenous return for multiple homes / locations / branches and if a local authority believes this has been done, they should seek clarification from the provider.

It is recognised that for larger providers there will be some differences in relation to the process of completion and some specific cost lines, as compared to single unit organisations. These will now be explained:

Process: A large provider may monitor and manage the costs of individual locations / homes / branches at their head office and so they will centrally create the cost of care returns for each home / unit. Local authorities should be aware of this as it may affect who they contact to discuss provider returns. Cost lines: Larger providers will have specific cost lines that smaller providers may not, such as a single cost that covers the head office function. As a simple example, each home in a large organisation may have legal, marketing and stationery costs included in ‘head office recharge / cost’ and so those individual cost lines may be zero. Where this is the case, the provider should make it clear to the local authority what information is included and where.

The response to this question is focussed on care homes but also applies to domiciliary care organisations. For domiciliary care, the responses to questions 13 and 14 should be read together and the provider and local authority should decide what approach will give the most accurate and robust picture of a provider’s costs.

• Homogenous costs: These should be exceptional and only used where a cost cannot be broken down at an individual location level. For example, if a Regional Manager covers 10 homes all with 50 beds, the cost of their role may be disbursed equally over those 10 homes. This approach should only be used where necessary and the provider should make it clear to the local authority what information is included and where.
• Data Submission: The CHIP Care Home Tool has a ‘bulk upload’ function, which allows larger providers to centrally complete and upload different returns for all of their individual locations / homes. The CHIP Domiciliary Care Tool does not have a bulk upload function but as it is an Excel tool, it will be straight forward to create and save multiple returns.

The DHSC Guidance does not state what information could, or should, be requested from providers, or what providers should submit to local authorities. However, the Guidance does require local authorities to "... scrutinise cost outliers, in collaboration with the provider, and consider where they should be removed. The outlier may be a misunderstanding of the cost line and resolving the issue may increase the effective sample size and quality of the report”.

This is likely to be a sensitive and potentially time-consuming aspect of this overall process and to minimise this, local authorities and providers are encouraged to work together to develop:

A shared understanding of how and why costs may differ for different providers A proportionate and reasonable approach to what supplementary information providers should share and in what circumstances

Example 2: As providers submit returns, a local authority notices a care home is a significant outlier for their electricity costs. The local authority contacts the provider and they jointly agree the provider will submit a recent electricity bill and one from 12 months ago, so the local authority can see the consistent usage but large increase in unit price. This additional information helps the local authority and provider arrive at a shared understanding of the changing picture of utility costs.

Example 3: A domiciliary care provider submits a cost for rent that is significantly higher than other local providers. The local authority contacts the provider to ask for their rental agreement. This is shared and it supports the information submitted by the provider, who explains that they wanted a high street presence to maximise visibility and raise their profile and they understand the costs of doing so.  

Example 4: The sector has faced increasing costs of insurance, and difficulties obtaining cover, over the last 12 months. A local authority wants to understand the picture across their local area and so asks providers who have had to renew their insurance in the last 3 months to; i) share their renewal documentation, ii) share any other quotes they received and iii) be part of a small working group to review the information shared and consider what may happen in the insurance market in the future.

OR

A set of principles about when further information should be shared, what this may be and how it may be done. It is up to all parties to work in a way that reflects these principles. 

Examples of what a reasonable verification process may look like

Example 1: A local authority and providers agree: 

A set of supporting commentary and documentation and the circumstances when this will be shared. This includes information to be shared by all providers with their data submission (for example, P&L accounts from relevant period) and anything shared by exception (for example, single week’s staff rota).

This joint working should limit the need for clarification of outliers and for information being requested from providers at short notice. Here are some aspects of the FCC process that a local authority and providers may seek to agree on:

When:  Agreement on the circumstances and situations where further information should be shared by a provider with the local authority. This is likely to fall into two categories; i) information that all providers are asked to share or share if a specific situation applies and ii) information a local authority will request in exceptional circumstances. What:  Agreement on the type of information to be shared / requested. This could include comments (for example, an email to confirm what is in ‘head office’ costs), discussions and explanations (for example, in a meeting discuss outliers) and documentation (for example, P&L accounts, staff rotas, insurance renewal quotes) How:  It is recommended that any verification of data is conducted through open lines of communication with clear, shared and agreed expectations. This may be through a phone call, in a face-to-face, via the PCH Care Home Tool or in a virtual meeting in which providers show the local authority the relevant documents.

The ‘median’ represents the middle value of a set of information when it is ordered by size. The purpose of using median rates is to minimise the impact of outliers, where if a mean was used then all figures (including any that are extremely high or low) would be part of a calculation and likely skew the result.

The DHSC guidance makes it clear that in order to meet the grant conditions, local authorities will need to complete Annex A with the median figure for each cost line (for each service type in scope). The formulas in the Excel document will then automatically calculate the total of these median values.

The DHSC Guidance states that: "For reporting purposes for this fund, and in terms of understanding the cost of care, fair means the median actual operating costs for providing care in the local area (following completion of a cost of care exercise) for a series of care categories. This must include and evidence values for return on capital and return on operations, and also travel time for domiciliary care. Together this is what is described as the ‘fair cost of care’ and is, on average, what local authorities are required to move towards paying providers.”

Local authorities may use individual cost line median values to identify outliers to be verified and validated but will use the overall median to construct the fair cost of care, upper, lower and medial rates.

Worked example of calculating median figure

Results are: 1, 3, 4, 4, 5, 7, 7, 7, 11, 12, 12, 12, 13, 13, 13

• Median – To find the median value, count the number of results (15), ordered lowest to highest), add one and divide by 2. This means the 8th figure is the median and this is 7.
• Lower quartile – This is the figure one quarter of the way along the list. Count how many rates there are (15) in a range, add 1, divide by 4. The lower quartile figure is the 4th figure along, which is 4. 
• Upper quartile – This is the figure three quarters of the way along the list. Use the same process as for the lower quartile but once this has been completed, multiply the value that is one quarter of the way along the list by 3 to give the upper quartile figure. This is the twelfth figure, which is 12.

DHSC expects that when calculating the median, local authorities will:

• List the figures submitted by each provider, starting with the lowest cost figure and moving to the highest amount.
• Treat all submissions the same, regardless of the size of the provider / location or the amount of care that provider delivers on behalf of the local authority
• Take reasonable steps to address gaps in provider returns. For example, a local authority receives 15 submissions from domiciliary care providers and for one cost line eight providers have submitted a figure and seven have left it blank. The local authority shares these eight responses (anonymously and with the provider’s permission) with the other seven providers to check if they feel this cost is accurate and representative. The providers confirm it is and so the local authority calculates the median for that cost line using these eight responses.

Local authorities and providers have a shared responsibility to maximise the quality of cost information. When providers are populating and submitting cost information, they should work with local authorities to identify and clarify any anomalies, mistakes, outliers or potential inaccuracies to ensure all returns are robust, accurate and consistent. This should help maximise the quality of information and avoid situations where returns are submitted that a local authority does not believe are accurate.

The DHSC Guidance places responsibilities on local authorities to review and verify the information they receive from providers. As part of, and as a result of, this process it is expected that local authorities will take some or all of the following actions, as appropriate:

Agree:  The local authority reviews a provider’s return and considers it to be accurate and robust. The local authority does not do any further checks or contact the provider for further clarification. This information is included as part of the completion of Annex A. Follow-up:  The local authority reviews a provider’s return and identifies elements they wish to check with the provider. They contact the provider to seek clarification and may request supporting information. Amend:  As part of further discussions between the local authority and provider, both parties agree to make amendments to the original return. Ideally, these amendments will be made by the provider who then re-submits their return to the local authority, though in exceptional cases it may be agreed that the local authority will make the amendments (this should be supported by a clear audit trail). Exclude:  If a local authority receives a provider return and believes the information is inaccurate AND they; i) are unable to discuss this with the provider despite their reasonable efforts OR ii) have discussed this with the provider and despite their reasonable attempts they still believe the information is inaccurate, they may exclude information from their submission to DHSC. In this situation, the local authority should consider if any part of the return is accurate and be included and also be prepared to explain how and why they made this decision.

CHIP and CPA recognise this is a complex aspect of this FCC exercise and we are engaging DHSC to encourage an approach that balances DHSC’s wish for a consistent national set of cost information with a recognition that local circumstances and cost of care submissions will differ.

It is recognised that depending on which providers participate in the FCC exercise and what their cost base is, there are situations where the approach set out in the DHSC Guidance could lead to a median rate that; i) is not representative of the costs of providers locally and / or those the local authority commissions from or ii) may be inaccurate. These scenarios are explained below:

Example 1: A local authority commissions a large proportion of its domiciliary care from five ‘Lead Providers’. The local authority received cost of care submissions from 15 domiciliary care providers. Three of these are lead providers and deliver 60 per cent of the care commissioned by the local authority, whilst the other 12 providers deliver a combined total of 15 per cent of care commissioned by the local authority. The median figures do reflect the costs of the providers that participate, but this is not representative of the care and support the local authority commissions. Example 2: A local authority receives 20 submissions from a mix of care homes. Some of these 20 homes are part of large groups and so include ‘head office costs’ and show other cost lines as zero (as they are included in the head office cost figure). The remainder are part of smaller organisations without a head office function and these care homes all provide cost figures for all cost lines and zero for ‘head office costs’. The local authority analyses the information, discusses the returns with providers and calculates the median for each cost line. The local authority is concerned that this incurs some double counting, where the same costs are included in the individual cost line medians and also in the head office median cost, so the overall median is incorrectly inflated.

Local authorities should not change the information submitted by providers, unless as part of the steps described above.

The DHSC Guidance requires local authorities to follow a specific approach and formula in calculating the median and completing Annex A. The DHSC Guidance also states local authorities should complete their MSP “Using the cost of care exercise as a key input”. The Guidance does not say anything further about specifically what cost of care information local authorities should use. Nor does it focus on the specific content of Annex A or the median calculations used to complete Annex A.

The DHSC Guidance does make it clear that it is up to each local authority to decide what elements of the cost of care information, and other intelligence, they will use when completing their MSPs and making decisions about their strategic direction and future fee setting.

The section of the DHSC Guidance that deals most comprehensively with this issue is headed ”Defining Market Sustainability” and it states that “To develop the market sustainability plan, local authorities must conduct an assessment of the sustainability of their local care market”. The guidance then goes on to say that:

“The assessment should be informed by a range of relevant data such as CQC returns, capacity tracker and Adult Social Care Finance return (ASC-FR) and Short and Long Term /(SALT) collection, as well as local intelligence. As part of that assessment, local authorities should consider a number of indicators of market sustainability, alongside the cost of care, including:

sufficiency of supply to ensure continuity of care (for example, are there some geographical areas where there are concerns regarding capacity, or over reliance on a small number of providers) levels of diversity in the market (both type of services as well as types of providers)

Local authorities are encouraged to find what they think is the right balance between making use of the FCC information, recognising what cost information is more and less relevant and combining this with other information sources when completing the MSP and making decisions about future fees. This additional information is expected to be wide-ranging and help the local authority understand; the type, level and quality of existing provision, current and future needs and preferences of local citizens, market sustainability issues, over / under-provision, improvements in the sector and the local authorities resource position.

• quality of current services and whether there are concerns about quality in particular areas
• current average fee rates paid and if there is any underpayment compared to the cost of care calculated
• whether the current market conditions support development of the workforce, and whether there are recruitment challenges such as high levels of staff vacancies or staff turnover rates."

Throughout the DHSC Guidance there are references to local authorities “moving towards the fair cost of care” and there is a specific statement in relation to the final MSP completed in February 2023, that the “The key addition at this stage will be the inclusion of a commitment for how the local authority will move towards the cost of care calculated in their exercise as part of their 2023 to 2024 budget setting process”.

The DHSC Guidance does not provide detail about what ‘moving towards’ looks like in practice, nor does it stipulate what rates local authorities should pay for the care and support provision they commission or the date by which a local authority should pay a specific rate. How far local authorities can move towards paying a fair cost of care, how quickly, and the cost of doing so, will vary according to their current situation and the local market circumstances and pressures. The number of self-funders in a local area, the extent of Section 18(3) of the Care Act 2014 take-up in each locality, as well as the extent to which top-ups are used, will also have a bearing on how much fee rates need to increase, and how quickly.  

The responsibility to set the rates they pay providers remains with local authorities and is unchanged by the DHSC Policy or Guidance. The Guidance confirms this by saying “The outcome of the cost of care exercise is not intended to be a replacement for the fee-setting element of local authority commissioning processes or individual contract negotiation”. 

The DHSC Guidance also states that “In practice, and as many local authorities move towards paying the fair cost of care, it is expected that actual fee rates paid may differ due to such factors as rurality, personalisation of care, quality of provision and wider market circumstances”.