Written evidence submitted by Bob Ferguson [ASC 001]

SUMMARY

I am Bob Ferguson and I worked in the field of adult social care for over 30 years.

The pandemic

The pandemic has served to highlight that the current division between health and social care is not fit for purpose. What is required is a truly integrated, single system, involving a root-and-branch reset of adult social care.

Funding

The current piece-meal funding structure should be replaced by a universal entitlement to free care, funded from taxation, with a statutory duty laid on government to ensure that funding keeps pace with sector-specific costs and inflation.

Market stability

At bottom, market instability is driven by the reluctance of local authorities – inability, they would argue – to reflect in prices providers’ cost pressures (including profit/return on capital invested). In consequence, the market in residential care services for older people is dysfunctional, its sustainability largely resting on the exploitation of private-payers and the relatives who top up the fees of council-funded residents.

Financial regulation

The sector regulator, CQC, should be given responsibility for the oversight of the market in adult social care services – for the avoidance of doubt, an oversight that, in the name of equity, must encompass the prices offered to providers for publicly-funded individuals, the top-up amounts paid by relatives to supplement these prices, and the fees charged to private-payers.

THE FUTURE OF ADULT SOCIAL CARE

Introduction

My name is Bob Ferguson. For 20 years, I owned and operated a residential care home for older people, during which time (and for several years thereafter) I worked for and with a local care homes’ association. My roles, between 1993 and 2005, included dealing with local authority commissioners on prices. I later worked with a national care homes association on a consultancy basis from 2009 to 2016. I offer this contribution as a counterpoint to the many macro models that have already been published, in the hope that my accumulated experience might provide useful context. I should add that, now well into my eighties, my interest in social care services has become more personal than professional.

For too long social care has been treated by central government like an illegitimate offspring: an unwanted embarrassment, kept out of sight in the equivalent of Dotheboys Hall, a meagre remittance reflecting the ambivalent commitment of administrations of all stripes down the years. Everyone – from the PM to the Downing Street cat – has known that to be the case. No-one, however, has been willing to do anything about it. That must change. It has taken a virulent global pandemic for the British population to recognise the value of social care to the community. But memories are notoriously short, especially when it comes to translating fine words into action; there can be no guarantee of either the vision or the necessary resolve to produce a lasting, and equitable, solution.

Lessons from the pandemic

If the pandemic has made one thing clear it is that there must be a single, truly integrated national health and social care system – if you like, a one-stop-shop – removing the gaps through which vulnerable individuals can fall and critical decision-making information can vanish. The adult social care element will itself require comprehensive reform of both funding and delivery, and a reset of the regulatory system to provide necessary oversight. There have already been more than enough quick fixes, all of which failed to make any appreciable difference to fundamentals on the ground.

A funding solution
I believe adult social care reform will require the sort of radical approach that powered the formation of the post-World War II welfare state. As you’ll recall, that was also at a time when the economy had fallen off a cliff. If the New Jerusalem that was built on the rubble of that conflict is to be extended, it’s as well to remember that for all the flowery invocations of Churchill, or Roosevelt, for that matter, it took the modest, pragmatic figure of Attlee to get it done. Make no mistake, this time around it will take an equally bold, progressive act of political will to overcome what might be called the craven political won’t that has sustained the current debilitating political vacuum around adult social care. Anything less will amount to, and will doubtless be seen by a great swathe of the electorate as, a betrayal.

In my view, the optimum solution would be a universal entitlement to free care, funded from taxation, with a statutory duty laid on government to ensure that funding keeps pace with sector-specific costs and inflation. There is evidence that people are willing to pay more to fund free social care[1]. On the same theme, it would hardly be unreasonable were the government, in the name of equity, to crack down on corporations that use overseas jurisdictions to avoid paying their fair share of tax. More than that, fit and proper person vetting for provider registration should be expanded to ensure the care of our most vulnerable citizens is not entrusted to these, and other similarly motivated, opportunists.

As for the costs of accommodation and food within care home fees, if the government decides to restrict the free entitlement to personal care, retaining a means test for these costs, it should be mindful of the risk of exploitation involved in leaving this proportion of the fee open-ended. My own preference would be for all residents to be treated like hospital patients – and, indeed, those who are funded under NHS continuing healthcare – meeting their care home fees in full, albeit subject to regulated maximum prices. Discrimination on the basis of diagnosis (medical or social) or the setting in which care is delivered should no longer be tolerated.

Given the absolute need for the government to obtain value for public money, regulation should provide for accountability and transparency from all parties. A statutory undertaking on the adequacy of the free care entitlement would act as a quid pro quo for the introduction of controls over fees charged to self-funders. Schedules of prices/fee should be based on independent assessment of “fair” prices – a job for the Competition and Markets Authority, perhaps – and informed by open book accounting.

There is also a pressing need for care home operators to act as responsible employers, ensuring their staff are suitably trained and supervised, fairly remunerated and employed on decent terms of employment. These should be minimum requirements for all providers from whom care is commissioned under the aegis of a national care entitlement. We should all reflect on the fact that neither warm words nor applause have ever been known to pay the rent or fill the belly.

Market stability

The market in social care services for older people is dysfunctional; it operates to the detriment of providers and consumers alike, albeit frequently through the agency of the former on the latter. It is important to recognise that although publicly-funded and self-funded care are two recognisable, if undesirable, tiers of provision, they do not constitute separate markets; there is only one market. Currently, responsibility for propping up the residential care market has effectively been devolved to self-funders, and to a lesser extent to third parties (usually relatives) that pay top ups in respect of publicly funded residents. There is no point concentrating exclusively on resolving the problems of publicly-funded care; that would simply be plugging one hole in a leaky bucket. Funding and sustainability must be considered in the round: it is whole system reform that is called for.

We must create a stable environment in which service providers can feel encouraged not only to deliver high-quality social care, but to develop innovative models that are capable of responding to the changing preferences of future generations. Above all, recent experience tells us that we must be confident the sector is prepared to play its part in dealing with the next national emergency, the next pandemic.

Exploitation of self-funders
According to analysts LaingBuisson, one of the characteristics of the social care market for older people is an “Information deficit: the market is not fully transparent, with private-pay cross-subsidies to public-pay usually hidden, and there are poor information flows generally”.[2] They go on to describe: “The information asymmetry which exists between private purchasers and care home providers which facilitates the charging of premium prices to private individuals and supports the system of cross subsidies to public payers which is endemic in the care home sector.”[3]

Fees for self-funders, be they in homes that only accommodate private payers or in mixed funding establishments, have gone through the roof – by any reasonable measure, many are excessive. Where once extra charges tended to be justified on the basis of superior accommodation and/or additional facilities, now the notion of cross-subsidy is openly acknowledged as an economic necessity to maintain an acceptable/sustainable level of overall income. This, despite years of denial by some sector leaders, when they attempted to depict these inflated demands as no more than the true levels of economic fees. It is also believed that national chains may be cross-subsidising geographically; using profits from their private payers in the south to cross-subsidise their care home beds in parts of the north where local authority buyers are typically more dominant in local markets. There is an important point to bear in mind, however: the acknowledgement that cross-subsidies exist is not shared with residents or their relatives.

The question remains: to what extent, if at all, are higher fees for self-funders actually calculated to cross-subsidise local authority prices – the key word being “calculated”? Surely, providers must first determine what total income is required to cover projected costs and provide an acceptable return on capital invested, before setting/adjusting their fees (including self-funder premiums and top ups for publicly-funded residents) to balance out receipts from councils. Fee setting will presumably involve either making a projection of, or placing a limit on, the number of publicly-funded residents that can be accepted. But what evidence is there that providers (of all sizes) actually do behave like rational economic beings and systematically make such calculations to counteract perceived (or anticipated) shortfalls in council funding? Or is it the case that this rationale is no more than a smokescreen. Fees, NAO reported, simply “reflect customers’ willingness to pay”[4]; providers charge as much as the market will bear.

Crucially, should public funding be increased in the near future, what assurance can residents have that there will be a corresponding decrease in their inflated fees/top ups? In 2015, in advance of that year’s spending review, the County Councils Network of the Local Government Association produced a report[5] to support its lobby of central government for increased funding. The report, based on research conducted by LaingBuisson, projected that, as private and public fees converge – what it called “market equalisation” – the cross-subsidy component in self-funder fees would decrease accordingly. Some of the language used in the document suggested that would not come about spontaneously, but would rely on some form of external agency, a form of direction/control.

When the first edition of William Laing’s toolkit, Calculating a fair price for care, was published in 2002, it was seized on by providers as authoritative support for their long-standing campaign to have care home costs accurately and routinely reflected in council prices. It should be noted that ever since funding responsibility for social care was transferred to local authorities in 1993, care home owners had complained, justifiably, that the actual costs of care were not a consideration in council price setting; council officers focused exclusively on their allocated budgets. However, even after the toolkit was in the public domain, councils regarded LaingBuisson’s figures, particularly the allowance for return on capital, with considerable scepticism – not to say cynicism.

Subsequent editions are now widely cited by care home representative bodies in their attempts to benchmark providers’ fees and illustrate shortfalls in council prices. That LaingBuisson’s calculations have also been used by local authorities in their bids to secure additional funding from central government is an irony that has not been lost on the care home sector. However, if these figures constitute the base, there appears to be no ceiling; LaingBuisson's research suggests that some providers are setting self-funders’ fees far in excess of the analysts’ published “care cost benchmarks”, which themselves include a component for ROC.[6]

LaingBuisson maintain that: “A key structural issue in the publicly funded care home market is that investors and providers are exposed to a high risk that local authorities, as monopsony purchasers in their localities, may at any time use their market power to drive prices down to levels which are unsustainably low, in the sense that they are insufficient to maintain investment in existing facilities and to incentivise investment in new capacity”.[7] You should be aware, however, that there is an another view of risk and the appropriate level of return on capital invested.

That alternative was provided in a public interest report from the Centre for Research on Socio-Cultural Change (CRESC)[8], authored by a number of academics, one of whom is also a venture capitalist. The report claims that the figures on which the social care “crisis” narrative is based “should not be believed”. The problem, it says, hinges on LaingBuisson’s measurement of return on capital invested – in its “fair price” toolkit – solely by the expectations of care home purchasers. “There is an element of circularity in the calculation,” the report argues, “which undermines its own pretensions to rationality”. “The fair price institutionalises a … return on capital which is both unjustified and unjustifiable”. “We should regard 12% as a political target not an economic calculation”. The upshot, it concludes, is an “unjustifiably high” return being extracted from what is a low-risk activity.[9]

Although the CRESC report was greeted by the care home sector like a bad smell – where it was acknowledged at all – such is the defining importance of ROC within the fee structure, that I believe the basis of LaingBuisson’s calculation should be re-considered objectively, and thoroughly, in light of the CRESC argument.

The apparent equanimity with which the cross-subsidy of publicly funded residents by private payers has come to be accepted as the norm is disturbing. Having to pay for one’s own care is one thing, paying well over the odds to subsidise the care of others is something else. However righteous the indignation, it will not be enough to generate change. The fundamental question to be addressed is whether we, as a society, should countenance care home residents being routinely abandoned to the vagaries of the market. Is it acceptable for them to be treated as economic actors transacting business in a conventional market environment – as if they were taking a casual shopping stroll around John Lewis or Ikea – without so much as a cautionary "buyer beware"? Does not the state owe its citizens a duty of financial care? Would not some form of regulation/control of care home fee levels (including top ups) be no more than a logical extension of the principle that underlies Dilnot’s original proposals?

As a Conservative peer put it in a House of Lords debate: "I still find it bizarre that we have this subsidy in residential care ... whereby self-funders subsidise those for whom the local authority purchases care. There is never any discussion around this. We do not talk about how fair it is. There is no discussion about the fact that individuals who find they have to self-fund are not paying just their weekly fees, but are also subsidising the person in the next room, or possibly even more than one person. I really think it is time that we exposed how the funding system for care works. It is like having a secret tax that nobody knows about. I find that quite abhorrent."[10]

As a follow-up paper to the 2014 Barker Report has noted, “There has always been an element of cross-subsidy between self-funders and those supported by the public purse. This cross-subsidy, however, is clearly rising so that, rather than taxpayers as a whole supporting those in need of social care who do not have the funds to provide for themselves, a subgroup of the more affluent who, through no fault of their own are unfortunate enough to need longterm care, are now increasingly providing that subsidy. This is profoundly inequitable and a long way from ‘we are all in this together’”.[11]

Testing what people are willing to pay has long been entrenched in market systems, but concealing from self-funders the fact that great chunks of their fees are being siphoned off ostensibly to support their council-funded counterparts is indefensible. That some providers have exploited the “information deficit” to generate “super-profits” – “private payers [are] now paying an average 40% plus premium over public payers for like for like accommodation”[12] – is nothing short of scandalous. As a point of comparison, and food for thought, I understand that in Germany, for example, providers cannot charge differential rates to people receiving the same service.

Care home fees are shrouded by non-disclosure, leaving self-funders to be overcharged often eye-watering amounts, paying the price, it is claimed, for sustainable service provision. These people know nothing of what is being done in their names, with their money. Residents have no organisation to represent their interests in an environment that can often resemble the wild west. Their protector of last resort, the government, has recoiled even from the simple measure of insisting on absolute clarity in care home bills – unlike utility bills, of course. Is it a coincidence that just about everybody pays utility bills while only a tiny minority pays care home bills?

Top ups are the kissing cousins of cross-subsidies; although the amount must be openly declared, you won’t find the underlying calculation accounted for in any agreement of residence. The people who pay them have more chance of seeing the dark side of the moon.

As to the often-cited relationship between price and care quality, Caroline Abrahams, Charity Director at Age UK, told the Telegraph: “This new league table suggests that finding a good care home is a postcode lottery, and tracking down a good and affordable care home harder still. It seems increasingly to be the case that unless you have substantial wealth it is extraordinarily hard to secure really good residential care, but even if you are in that fortunate position this table implies you may not get what you want.”[13]

Interestingly enough, the provider sector does appear to have some appetite for a degree of price regulation; one luminary has already called for a “fair margin” in care home prices to be set by an independent regulator. “I’d be very happy if the government wanted to have a price regulator, like we have in utilities, because this service is a public good, an essential public good … Let’s have somebody tell us the fair margin that you should make in this sector and then see if we can, open-book, confirm that we’re doing that but no more than that.”[14] A variation on that theme has also been explored by analysts LaingBuisson.[15]

The way we were: a perspective from the provider side

Let me give you a glimpse into the conduct of proceedings around the time of annual price reviews during the period that I was active locally. The practice then was – and no doubt still is – for annual discussions on prices to take place only after the council had set the budget for social services; prices were always budget-driven, there was never a question of them responding to cost increases. Incidentally, I use the word “discussions” rather than “negotiations”, since the approach adopted by the councils concerned was not informed by a genuine sense of reciprocity. These discussions tended to be limited to pleas from the various arms of the provider side (broadly representing care at home, residential and nursing home care, but including services for people with mental health conditions and learning disabilities) for recognition of cost pressures.

Council officers would present a schedule of prices on which they invited comments. To the extent that a degree of indexation had been applied, the figure involved would have been set by the council, derived wholly from their own internal criteria, with no regard for recognised national indices of service-specific pressures on providers’ costs. Any flexibility (within the constraints of the budget limit) would reflect the, largely short-term, priorities of council commissioners rather than actual or projected movements in providers’ costs. There was absolutely no appetite in council circles for gaining an understanding of the structure of, and the pressures on, providers’ costs, let alone establishing the “true” costs of care. There was also a marked reluctance to accept the logic of profit/return on capital invested (ROC) being reflected systematically in prices – a reluctance, it must be said, that was shared across all political parties.

This state of affairs prevailed at a time when, remarkably, the three councils in the area – a large county council and two city unitary authorities – funded the local care homes association, under service level agreements, to discharge a wide range of responsibilities related to the promotion of all aspects of quality care, and to deliver the authorised bed vacancy system; a landmark relationship that, at the time, was the only one of its type in the country. It involved the association maintaining regular contact with both HQ and area staff, and with elected members. And yet, even in these, arguably optimum, conditions for enlightened co-operation, the councils steadfastly refused to give a formal undertaking to reflect movement in national indices on costs when setting prices; memorably, they declined on the basis that they could not allow their discretion to be “trammelled” by contractual terms.

All of which begs the question: if this network of formal links could not provide the foundation for a meeting of minds on prices, what chance would there be for others without such apparent advantages? I have no reason to believe any of this has changed.

It needs to be understood that when providers and commissioners discuss prices – where they do actually converse on the subject – it is not a negotiation conducted by equals. As commissioner of social care services, the local authority enjoys monopsony power while the provider’s ability to, for example, combine with their peers with the aim of ensuring acceptable pricing is restricted by legal provisions outlawing cartels (the Enterprise Act 2002, as amended by the Enterprise and Regulatory Reform Act 2013). The council’s default position of ‘take it or leave it’ is thus reinforced by the law, making for anything but a level playing field.

Over the years, governments have produced copious amounts of guidance (some of it statutory) aimed at improving relations between commissioners and providers, a number explicitly encouraging the development of partnerships between the parties. To no avail. Providers have suffered years of frustration during which successive governments have looked on passively as local authorities have all but disregarded message after message, document after document. From my viewpoint, part of the problem appears to be cultural: local authorities are deeply resentful at their humbling dependence on Whitehall’s bestowal of grant funding. They have responded by striking a position that can best be described as truculent supplication, characterised by a scarcely-suppressed derision at the quality of decision making in, as they see it, Whitehall’s ivory towers.

Time and again the health department’s hands-off approach – limited to messaging via written guidance – has failed. It is impossible to overstate how critical it is for any new system of adult social care to be secured by independent oversight, the Care Quality Commission (CQC) being the obvious vehicle. For the avoidance of doubt, to be effective, that oversight should be routinely proactive: identifying, intercepting and defusing any threat posed by either commissioners or providers.

Unless and until council commissioning is made subject to official scrutiny, providers will fear the leopard will never change its spots. In the absence of regulation, providers will be forced to rely on the unsatisfactory, expensive, and in the long run usually futile, fallback of seeking redress through the courts.

Financial regulation and the promotion of quality

To enable the CQC to free up sufficient bandwidth to provide the level of financial regulation highlighted above, it may be necessary for the regulator to be relieved of its current role as assessor of quality in health and care services. Full disclosure: having originally been an enthusiastic proponent of quality ratings, I have now come to the view that they are an irrelevance. The regulator allocates quality ratings using a bureaucratic formula which seeks to combine several discrete judgements into an overall rating, suggesting a coherence that does not exist. So detached from real life is this process that it could well have been the model for the ill-fated algorithm that plunged A-level grades into such turmoil last year.

For example, homes that have been judged to be “requiring improvement”, and even those on the wrong end of the ostensibly mortal blow of an “inadequate” rating, are still trading, still attracting and retaining residents. That suggests either those responsible for making placements are lacking judgement, or, more likely, CQC’s overall ratings are failing to capture what matters most to their target audience. They certainly do not appear to reflect their lived experience.

Significantly, there is evidence that local authority commissioners are equally unconvinced by CQC ratings, a number preferring to rely on their own incentives to promote quality in service delivery and stimulate the provision of the types of care services that are necessary to meet local demand and fulfil local priorities – local decisions for local people. There is no reason why a national funding system cannot be designed with a flexibility that would allow it to be equally effective in encouraging quality in service provision. CQC should focus on its core responsibilities, which I believe should include the added regulatory duties that have been alluded to above.

A final plea: whatever arrangements are finally put in place, please ensure that no vestige of the current defective relationship between providers and service commissioners on price setting is allowed to leach into the new regime. The vast majority of care home owners seek no advantage over commissioners, only a fair crack of the whip.

Although it’s frequently remarked that a society is measured by how it cares for its elderly and most vulnerable citizens, there has been precious little sign of a social care system emerging in this country that can measure up to that inspiring benchmark. There is still time. It will almost certainly require a generational change, so do what needs to be done – because it’s the right thing to do.

March 2021