Southampton City Council Fair Cost of Care Report – Care Homes October 2022
Market engagement and response
Southampton City Council has worked closely with Hampshire Care Association (HCA), the local representative body for care providers throughout this exercise as well as sharing information with providers about the national support offer from Care England.
The council began raising local awareness about the exercise via three separate webinars held in early May 2022. All local home care and care homes were invited to attend to hear a presentation about the exercise, which included an independent view from HCA and an opportunity to ask questions. Representatives from four care homes attended these sessions. The presentation was also subsequently sent out to all local care home providers.
The exercise for care homes began on 13 June 2022 with 29 homes (8 nursing, 21 residential) asked to take part and submit a response. The iESE online tool was used for the exercise. Weekly drop-in sessions were made available for providers to ask questions of commissioners and a dedicated email address was also provided. In common with home care providers, the complexity of the exercise particularly for homes not part of larger organisations meant that an extension until the end of July was given. During this time weekly individual contact was made with all homes to offer support.
Commissioners were also in the process of visiting all older person’s care homes so in person support was offered where appropriate. The outcome of the exercise was that 15 out of 29 homes (52%) submitted a response however only nine of the responses could be fully validated with six being partially complete and validated.
Analysis of the 15 homes which responded compared to the whole Southampton 65+ care home market shows that the sample is representative in terms of the profile of home sizes in the city, occupancy levels and proportion of beds commissioned by the council. It is less representative in terms of the size of company (the 15 homes include a greater proportion of national companies and a lesser proportion of smaller companies than the overall local market) and the proportion of homes which are purpose built (which are over-represented).
Statistical analysis and data quality considerations
The council conducted an initial validation of the responses to sense check against data already held, for example capacity tracker data on occupancy levels. Alongside this, LaingBuisson were commissioned to support the council with a more detailed analysis and validation of the data. This involved checking the returns for sense and consistency before attempting direct contact with each provider to resolve ambiguities, particularly around the time period for which the data was applicable (2021/22 or April 2022). Their analysis also involved identifying data outliers and requesting clarification or evidence where necessary.
The council’s approach to analysis of the fair cost of care provider returns and instructions to LaingBuisson has been to include as much data as possible. Providers spent considerable time and effort in calculating and submitting responses, so it is only reasonable for them to expect that we utilise the maximum amount of valid data possible. This approach means that there have not been significant amendments to the data submitted and the council considers the fair cost of care figures are reflective of the data submitted.
The following statistical analysis and approaches have been used:
- The council has calculated the fair cost of care figure by summing the median of each individual cost line. This approach was taken (as opposed to taking the median of the sub- totals or the overall totals) because it is felt that 15 responses is sufficient to enable calculation of representative line by line medians. This approach also means that the minimum amount of data has been excluded (see below description of the outliers analysis)
- The council worked with LaingBuisson to agree an appropriate statistical approach to identifying and excluding data outliers. This approach was to calculate the Double Median Absolute Deviation (DMAD) for each cost line. Please see the end of this report for a detailed explanation of this approach.
- The analysis excluded zero cost lines except where it is reasonable to expect that a provider could have zero cost on a particular line and still operate safely and effectively. For example, a zero line for CQC registration costs cannot be correct as every care home must be CQC registered so in this case any zero lines were excluded from the median calculations. The cost lines in which zero figures were included were:
| Cost Line | Reason for including zero costs |
|---|---|
| Other care home staff | This is a catch-all category for any care home staff costs not accounted for elsewhere. Homes don’t necessarily have to have any costs in this line to be viable. |
| Other care home (part of the supplies and services sub-total) | Similar to the above, this is a catch-all category for supplies or services which are not accounted for elsewhere. Homes don’t necessarily have to have any costs in this line to be viable. |
| Central / regional management | For smaller homes without any central or regional management structure these types of costs would not be incurred |
| Other head office costs | For smaller providers without a head office these types of costs would not be incurred |
The fair cost of care data was collected in 2022/23 financial year and providers were asked to ensure it was from this current year. Providers were asked to do this by either giving 22/23 actual costs or uplifting 21/22 data by an amount which could be evidenced and justified. For all 15 responses, these instructions were followed and it was not necessary for the council to apply any of its own uplift calculations or to adapt those from providers.
For nursing homes, there was no difference in the median rates for standard and enhanced services hence why they are all the same figures.
For residential homes, when calculated separately the rate for standard care was higher than enhanced care. This obviously does not match the reality of the market where enhanced care costs more than standard care. The main reason for this discrepancy is that the standard care rate was calculated from a relatively small sample size. Therefore to arrive at a more representative figure, the data for standard and enhanced residential care have been collated together and presented as just one rate hence why the standard and enhanced figures are the same.
Costs which do not relate to direct nursing or care staff have been amalgamated together across residential and nursing homes. This is considered a reasonable approach as it means there is a larger sample size from which to calculate the medians, and there should be no significant difference in non-direct staffing costs between the two types of home.
The average occupancy level from care home responses was 90.2%. Given that this very closely matches the 90% figure advised by LaingBuisson as a benchmark of an efficient market, no adjustment has been made to change this occupancy level.
Although all of the above efforts have enabled a more representative figure to be calculated, the council has not been able to fully verify each cost line, nor to validate that the overall figures from providers represent actual costs incurred. As part of the exercise, homes specified how many beds were occupied by individuals who self-fund their care. There was a correlation between a provider having more self-funders and submitting a higher rate however in most cases self-funder numbers and estimates for the rates they pay were not enough to explain how the FCC rate was so much higher than is currently paid by the council.
This is particularly the case for residential homes without nursing and it was not possible to obtain a satisfiable explanation for the discrepancy. There are likely to be a range of reasons for this and it is not necessarily the case that providers have made any deliberate attempt to artificially increase the figures. This uncertainty means that the council has concerns about the validity of the overall figures and is minded to put less weight on them than other contextual factors considered when setting fees. These other factors include the rates currently paid, the resultant impact on service quality and market ability to meet current levels of demand for care homes provision.
Return on Capital
The council’s approach to a fair Return on Capital is to apply a 6% yield against the average freehold property valuation per bed. A 90% occupancy rate will be used as this is considered to be representative of an efficient market.
The 6% figure is based on evidence obtained by LaingBuisson that a care home operator with a moderate covenant would expect to pay around 6% yield to a property investor to lease a turnkey care home. This can be equated to the cost to a care home of providing accommodation.
For care homes the average freehold property valuation per bed from completed fair cost of care responses was £65,000. This therefore gives a Return on Capital figure of £83.11 per bed per week. The specific calculation to arrive at these figures is:
Return on Operations
The council’s approach to deciding on a fair Return on Operations is to use the median average of 9.0% from the exercise. This is considered to be a fair figure given that it is based on the actual returns from local providers and is very close to the 10% estimate from LaingBuisson.
Fair cost of care summary tables
The full line by line breakdown of the fair cost of care figures, including 1st/3rd quartiles and count of observations can be found at the end of this report.
The summary figures for care homes are:
| Rate | Residential care (without nursing) | Residential care with nursing |
|---|---|---|
| FCC Rate (per week) | £960.29 | £1,184.34 (inclusive of FNC) |
Accounting for inflation
These Fair Cost of Care figures will be uplifted to account for inflation each April by considering a range of factors including the percentage increase from National Living Wage as well as the rate of inflation. Other factors which will be taken into account include affordability, approvals in line with the council’s budget setting process and any other factors which might have a material effect on the cost of care (both inflationary or deflationary).
Template format of exercise
For care homes, providers were asked to complete the online iESE tool to submit their response.
Explanation of Double Median Absolute Deviation (DMAD) – outlier statistical analysis
Median Absolute Deviation (MAD) is calculated by finding the absolute difference between each validated data point and the validated sample median, and then calculating the median of these absolute differences.
Statistical analysis showed that the data suffered from a highly asymmetric distribution across all categories therefore using a singular Median Absolute Deviation value would mean disregarding the asymmetry in the distribution and produce unreliable results. For this reason, we opted for an enhanced method called “Double MAD”.
The premises underlying this method are similar to the classic version, with the only difference being the calculation of two Median Absolute Deviations: (1) the median absolute deviation from the median of all points less than or equal to the median and (2) the median absolute deviation from the median of all points greater than or equal to the median. This allows us to set pertinent outlier thresholds taking into account skewness in the data sample. Finally, for each cost line, we have defined as an outlier any data point which is more than 2 X DMAD above or below the median. All such outliers have been excluded from the calculation of median costs.
Full Table from Annex A, section 3, including first quartile, third quartile and count of observations
| Cost of care exercise results | 65+ care home places without nursing (standard & enhanced needs) | |||
|---|---|---|---|---|
| - | Median | 1st Quartile | 3rd Quartile | Count of observations |
| Total care home staffing | £561.66 | £504.86 | £704.07 | - |
| Nursing staff | £0.00 | £0.00 | £0.00 | 0 |
| Care staff | £387.83 | £364.46 | £487.85 | 6 |
| Therapy staff (occupational and physio) | £0.00 | £0.00 | £0.00 | 9 |
| Activity co-ordinators | £11.26 | £5.12 | £12.25 | 8 |
| Service management (registered manager/deputy) | £62.76 | £44.79 | £85.65 | 12 |
| Reception and admin staff at the home | £14.20 | £11.03 | £17.44 | 9 |
| Chefs / cooks | £39.96 | £37.21 | £45.65 | 9 |
| Domestic staff (cleaning, laundry and kitchen) | £33.38 | £32.01 | £41.57 | 7 |
| Maintenance and gardening | £12.27 | £10.24 | £12.99 | 8 |
| Other care home staffing | £0.00 | £0.00 | £0.67 | 8 |
| Total care home premises | £47.23 | £36.59 | £110.75 | - |
| Fixtures and fittings | £8.86 | £4.94 | £15.05 | 7 |
| Repairs and maintenance | £25.65 | £21.69 | £32.65 | 11 |
| Furniture, furnishings and equipment | £6.36 | £5.36 | £7.73 | 10 |
| Other care home premises costs | £6.36 | £4.60 | £55.32 | 8 |
| Total care home supplies and services | £127.23 | £93.54 | £151.89 | - |
| Food supplies | £37.13 | £35.78 | £40.16 | 8 |
| Domestic and cleaning supplies | £7.36 | £3.88 | £10.44 | 13 |
| Medical supplies (excluding PPE) | £7.92 | £3.46 | £10.39 | 10 |
| PPE | £0.56 | £0.53 | £0.57 | 5 |
| Office supplies (home specific) | £3.33 | £2.08 | £4.34 | 11 |
| Insurance (all risks) | £6.48 | £4.87 | £7.14 | 11 |
| Registration fees | £3.55 | £3.26 | £4.59 | 11 |
| Telephone and internet | £2.36 | £1.50 | £3.05 | 11 |
| Council Tax / rates | £1.44 | £0.66 | £1.92 | 11 |
| Electricity, gas and water | £38.33 | £31.69 | £44.11 | 10 |
| Trade and clinical waste | £4.39 | £3.57 | £5.37 | 13 |
| Transport and activities | £5.03 | £1.38 | £5.77 | 10 |
| Other care home supplies and services costs | £9.35 | £0.88 | £14.04 | 14 |
| Total head office | £70.28 | £11.66 | £106.31 | - |
| Central / regional management | £41.29 | £4.98 | £50.77 | 14 |
| Support services (finance / HR / legal / marketing etc) | £26.55 | £5.10 | £27.80 | 11 |
| Recruitment, training and vetting (including DBS checks) | £2.44 | £1.58 | £8.81 | 11 |
| Other head office costs (please specify) | £0.00 | £0.00 | £18.93 | 8 |
| Total Return on Operations | £72.58 | £58.20 | £96.57 | - |
| Total Return on Capital | £81.31 | £81.31 | £81.31 | - |
| TOTAL | £960.29 | £786.15 | £1,250.90 | - |
| Cost of care exercise results | 65+ care home places with nursing (standard & enhanced needs) | |||
|---|---|---|---|---|
| - | Median | 1st Quartile | 3rd quartile | Count of observations |
| Total care home staffing | £767.21 | £711.41 | £816.80 | - |
| Nursing staff | £191.51 | £178.69 | £197.04 | 3 |
| Care staff | £401.87 | £392.32 | £403.54 | 3 |
| Therapy staff (occupational and physio) | £0.00 | £0.00 | £0.00 | 9 |
| Activity co-ordinators | £11.26 | £5.12 | £12.25 | 8 |
| Service management (registered manager/deputy) | £62.76 | £44.79 | £85.65 | 12 |
| Reception and admin staff at the home | £14.20 | £11.03 | £17.44 | 9 |
| Chefs / cooks | £39.96 | £37.21 | £45.65 | 9 |
| Domestic staff (cleaning, laundry and kitchen) | £33.38 | £32.01 | £41.57 | 7 |
| Maintenance and gardening | £12.27 | £10.24 | £12.99 | 8 |
| Other care home staffing | £0.00 | £0.00 | £0.67 | 8 |
| Total care home premises | £47.23 | £36.59 | £110.75 | - |
| Fixtures and fittings | £8.86 | £4.94 | £15.05 | 7 |
| Repairs and maintenance | £25.65 | £21.69 | £32.65 | 11 |
| Furniture, furnishings and equipment | £6.36 | £5.36 | £7.73 | 10 |
| Other care home premises costs | £6.36 | £4.60 | £55.32 | 8 |
| Total care home supplies and services | £127.23 | £93.54 | £151.89 | - |
| Food supplies | £37.13 | £35.78 | £40.16 | 8 |
| Domestic and cleaning supplies | £7.36 | £3.88 | £10.44 | 13 |
| Medical supplies (excluding PPE) | £7.92 | £3.46 | £10.39 | 10 |
| PPE | £0.56 | £0.53 | £0.57 | 5 |
| Office supplies (home specific) | £3.33 | £2.08 | £4.34 | 11 |
| Insurance (all risks) | £6.48 | £4.87 | £7.14 | 11 |
| Registration fees | £3.55 | £3.26 | £4.59 | 11 |
| Telephone and internet | £2.36 | £1.50 | £3.05 | 11 |
| Council Tax / rates | £1.44 | £0.66 | £1.92 | 11 |
| Electricity, gas and water | £38.33 | £31.69 | £44.11 | 10 |
| Trade and clinical waste | £4.39 | £3.57 | £5.37 | 13 |
| Transport and activities | £5.03 | £1.38 | £5.77 | 10 |
| Other care home supplies and services costs | £9.35 | £0.88 | £14.04 | 14 |
| Total head office | £70.28 | £11.66 | £106.31 | - |
| Central / regional management | £41.29 | £4.98 | £50.77 | 14 |
| Support services (finance / HR / legal / marketing etc) | £26.55 | £5.10 | £27.80 | 11 |
| Recruitment, training and vetting (including DBS checks) | £2.44 | £1.58 | £8.81 | 11 |
| Other head office costs (please specify) | £0.00 | £0.00 | £18.93 | 8 |
| Total Return on Operations | £91.08 | £76.79 | £106.72 | - |
| Total Return on Capital | £81.31 | £81.31 | £81.31 | - |
| TOTAL | £1,184.34 | £1,011.30 | £1,373.78 | - |
