Hampshire County Council

Buildings, Land and Procurement Panel Item 15

11 July 2006

Corporate Procurement Review Programme - Adult Services

Report of the Director of Property, Business and Regulatory Services

How the conclusion in this report fits with the Corporate Strategy

The procurement review programme will impact on the delivery of the following Corporate Aims:

Aim 3 - achieving economic prosperity: building on the strong relationships with local providers and maximising benefit to the local economy

Aim 5 - improving services: by promoting and developing effective and innovative best practice procurement arrangements and achieving value for money

Aim 6 - developing councillors and staff: improving and developing procurement skills and practice

1

Introduction

1.1

A progress report on corporate procurement initiatives was made to the Panel at its meeting on 6 June 2006, which included an outline of current procurement reviews being undertaken jointly with departments. In light of current financial pressures within Adult Services, it was agreed that further reviews should be progressed within Adult Services.

1.2

This report provides more detail on the scope of the reviews, timescales and priorities. The focus of the procurement reviews is primarily to provide long-term and sustainable reductions in costs and/or increases in service provision or quality for Adult Services, rather than short-term one-off solutions.

1.3

The procurement review programme will run alongside the financial recovery plan being implemented by Adult Services. It will be important to recognise where there will be overlaps and synergies between the various initiatives and to ensure that potential benefits are not double-counted.

2

Scope and Scale of Procurement within Adult Services

2.1

Adult Services procures over £165m of social care services a year from the independent sector and currently has in the region of 900 approved or contracted providers. Table One below summarises the value of the different types of services purchased by client group.

2.2

In addition, the department purchases `common use' goods and services for use in offices and in-house care establishments. Common use commodities, in-house services and other, smaller, areas of procurement are discussed later in this report.

2.3

The majority of the procurement processes for the above social care services have been in place since the transfer of funding responsibilities to local authorities under the Community Care Act in 1993. The current social care procurement strategy is characterised by approved lists of suppliers, from which spot purchases are made in about 90% of cases, with the remainder being block purchased.

2.4

Prices are set by the County Council for residential and nursing care for older people, whilst for other care services, the market rate generally prevails. However, there is also flexibility to pay different rates as part of individualised packages of care, based on needs assessment and other agreed criteria. In addition there is a decentralised approach to local service procurement, particularly in day care and other support and community care services. Whilst these services are usually formally tendered, local operational and commissioning requirements can lead to differential service models, prices and approaches to the market. Providers' prices are largely determined by market forces, due primarily to workforce availability, which inevitably leads to variations in services and prices across the County.

2.5

These procurement approaches are very typical of local authority social care purchasing practices nationally. Whilst the purchasing techniques used have been relatively unchanged for some time, there have been a number of initiatives developed over recent years within Hampshire to exert greater influence over market conditions. For example, the development and use of the costing matrix within learning disability services is helping to actively manage supplier's costs and prices and is estimated to have saved the County Council over £1.6m to date.

2.6

It also appears to be the case that Adult Services has been successful in keeping increases in prices lower than the estimated inflationary pressures in the market, particularly in residential care since 1993. Current processes are also effective in minimising legal challenges and maximising cost avoidance through appropriate application of ordinary residence rules, continuing care responsibilities of the health service and third party payment issues.

2.7

However, in light of the current financial pressures it is recognised that it is timely to review the procurement strategies in a number of areas. Adult Services have periodically reviewed these procurement strategies in recent years and developed alternative suggestions, but real progress has been stifled by lack of capacity and other operational pressures. There is an increasing recognition nationally that newer procurement approaches around supply chain development, block contracts and supplier cost reviews are required to manage increasing demands and costs within the market. There is however no intention to undermine the `partnership' approach to procurement which has been fostered with organisations such as the Hampshire Care Association and Hampshire Domiciliary Care Association which has enabled a successful and effective level of service provision to be maintained for most of the last 13 years nor to remove the appropriate involvement and requirements of local commissioning and care management within the procurement process.

2.8

The following paragraphs provide a high level review of the main areas of spend summarised in Table One above, considers what procurement strategies could be adopted and identifies those procurement issues which should be reviewed. An assessment is also made of the likelihood of benefits being realised, indicative timescales, assessment of risk and priority for each review.

3

Nursing and Residential Care for Older People

3.1

Whilst purchased residential and nursing care for older people combined accounts for the largest proportion of spend (39%) and potentially could provide the greatest benefit from a procurement review, it is known that the rates set by the County Council (the `Hampshire Rate') are lower than other local authorities in the South East. The Hampshire Rate is also over £100 a week lower than the reasonable cost of provision suggested by Laing and Buisson (the leading independent provider of authoritative data, statistics, analysis and market intelligence on social care) and private market rates.

3.2

There are currently 293 homes for older people in Hampshire (there are other homes with multiple registrations which admit older people as well as younger adults under the age of 65) and over 95% of these homes are on the approved list of providers to the County Council. Currently it appears that demand is matching supply (with average occupancy at about 92%), but there is an increasing risk that demand will eventually outstrip supply. The majority (95%) of care is spot purchased against the Hampshire Terms and Conditions, with the remainder being block purchased.

3.3

There are currently considerable upward price pressures and 40% of publicly-funded placements incur a `third party top-up', which means that the actual price is higher than the Hampshire Rate and this additional contribution is being paid by the client's family directly to providers. Although normal practice is to make placements at the appropriate Hampshire Rate, in 16% of placements the County Council is already paying above the Hampshire Rate, which is agreed by local Service Managers within an agreed framework of approved criteria.

3.4

The current level of block contracting is low and is primarily to guarantee market capacity where this is required (either geographically or by need) in order to keep hospital late discharge fines to a minimum. There is no doubt that the potential benefits of an increase in block contracting should be explored, however there are a number of risks which will need to be analysed before such a strategy is agreed. These include the prevalence of third party top-ups, risk of legal challenge on Directions on Choice and third party top-ups and price escalation. Recent tenders for residential care block contracts in Kent and West Sussex have led to prices which are higher than existing rates. There is also evidence that there is a greater financial risk and higher prevalence of adult protection concerns within those homes which have the largest proportion of publicly funded residents and accept the Hampshire Rate (i.e. there are no third party top-ups). This would suggest that the development of a purchasing strategy which gives a high proportion of Hampshire Rate funded residents to specific homes (i.e. via a block contract) could be high risk.

3.5

There could be some opportunities to reduce funding responsibilities within the new continuing care guidance (i.e. clarifying Health responsibilities). In addition it appears that there is a gap in the market for dealing with clients with dementia in both residential and nursing provision. There may be a case for the development of additional rates to meet such requirements which, although they may be higher than existing rates, may help to manage and contain current `exceptional need' payments being agreed locally and on an individual basis and lead to better value for money and greater consistency.

3.6

It is however suggested that further market analysis and demand mapping is undertaken for residential and nursing care for older people to build on the work already undertaken by the Contracts Team in Adult Services to inform a revised procurement strategy. This work would comprise the following key areas:

3.6.1

Review Actual Rates Paid and Analysis of Costs

A more detailed analysis of which rates are paid and in what circumstances, including additional payments and third party top-ups. Further analysis of providers costs using national data and other local data. This would help to inform the scope for price negotiation and block contract arrangements and provide greater understanding of the price pressures in the market, with a view to informing price round consultation for 2007/08, which will commence in January 2007.

Summary of estimated benefit: low (may help to alleviate price pressures)

Timescale for completion: 3 months

Difficulty/Risk: low

Resources: PBRS & Adult Services

Priority: high.

3.6.2

Map Demand to Supply to Assess Block Contracting and Individual Negotiation Opportunities

Whilst average occupancy of private sector homes in Hampshire is 92%, which is relatively high, there is still room to increase this level and a higher guaranteed occupancy may well be an attractive negotiating tool with providers, because the majority of costs are fixed. It would be worthwhile to map demand to supply on a geographical basis and also to map existing authority funded placements to identify any patterns which would enable the development of block contracts with a smaller number of residential and nursing care providers. Account would need to be taken of the Directions on Choice. However, the argument could be that we are reducing, not removing choice, if such an arrangement proves to be of benefit to the County Council. It is likely that this would only provide benefit in specific cases or localised geographical patches. A recent analysis by the Adult Services Contracts Team shows that a number of larger companies are beginning to acquire a portfolio of homes and there could be opportunity to maximise the negotiating power with these organisations. Any work in this area would need to be carefully managed to avoid exacerbating price pressures and other risks in this area. This review would need to include in-house nursing and residential care services as part of the supply market to ensure that maximum occupancy is maintained within our own services, which are already budget funded.

Summary of estimated impact: medium

Timescale for completion: 12-18 months

Difficulty/Risk: high

Resources: PBRS & Adult Services

Priority: low.

3.6.3

Reduce Providers' Costs

Most costs for nursing and residential care are fixed and 60% of costs relate to staffing. It is understood that the HCA already has some framework contracts in place for use by independent sector homes. However, there may be scope to allow nursing and residential care suppliers to access County contracts, particularly for common use items or to allow access to NHS contracts for more specialist items where they provide better value for money. The HCA is already supportive of a review in this area. Legal Practice advice is being obtained on the legality of this approach.

Summary of estimated impact: low (but may help to alleviate price pressures)

Timescale for completion: 3-6 months

Difficulty/Risk: low

Resources: PBRS & Adult Services

Priority: high.

3.6.4

Review Business Case for Rates for Dementia

Reviewing the costs and benefits of introducing rates for clients with dementia in residential and/or nursing care, which may also help to reduce price pressures in the market. This review will need to include demand analysis and forecasting, an agreed commissioning strategy for dementia and maximising use of in-house services through service reconfiguration if required.

Summary of estimated impact: low

Timescale for completion: 12-18 months

Difficulty/Risk: low

Resources: Treasurer's Consultancy/Adult Services

Priority: medium.

4

Residential Care for People with a Learning Disability

4.1

Residential care for people with a learning disability is low volume but high cost and accounts for nearly a quarter of social care purchasing spend. There are already a number of initiatives underway, jointly with neighbouring authorities and the South East Centre of Excellence on the development and use of an assessment matrix to reduce costs and increase quality of outcomes. This is definitely a supplier dominated market and the assessment matrix needs to be developed further and applied effectively to assist in managing the market more effectively. It appears that there are few other options available which will provide substantial benefit in this area and three work streams are identified below.

4.2

Review Use of Assessment Matrix and Market Analysis

4.2.1

An initial review of the progress with using the model in learning disability services and the possibility of applying it to other care groups should be undertaken to assess impact, whether it can be more widely used and whether it is being applied effectively within the resource available. It may also be possible to develop the matrix for use within domiciliary care for people with a learning disability. A related impact of the assessment matrix could be to ensure that continuing care responsibilities are clearly identified, if in fact this is not already the case. This review should be undertaken alongside more detailed market analysis, the work already being undertaken by Adult Services to review all existing placements over £1,000 per week and a review of opportunities to develop in-house provision.

Summary of estimated impact: medium to high

Timescale for completion: 3-6 months

Difficulty/Risk: low/medium

Resources: PBRS & Adult Services

Priority: high.

4.3

Outcome Based Specification

4.3.1

A large proportion of the supply market provides a very `conventional' service which does not effectively meet client needs and appears to do little to develop innovative solutions or maximise the independence of clients. There may be scope to develop outcome based specifications for providers of learning disability services which will provide financial incentives to providers who can reduce care requirements for individuals over time through maximising independence. Whilst this may have an adverse affect on costs in the short term, it could reduce the long term funding commitment substantially. This would also provide more effective outcomes for service users.

4.3.2

For those placements which are assessed to be very long term and where a move to greater independence is unlikely, a different funding model could be negotiated which recognises the long term income stream for the provider, for which we could try to negotiate some price advantage.

Summary of estimated impact: medium

Timescale for completion: 12-18 months

Difficulty/Risk: low/medium

Resources: PBRS & Adult Services

Priority: medium.

4.4

Appointment of Care Brokers

4.4.1

Adult Services have expressed an intention to appoint `care brokers' for adult services, which will increase much needed capacity to deal with this market. A first attempt to recruit was unsuccessful and a revised person specification is being used for the next recruitment attempt. It would appear to be an important `invest to save' initiative to make every effort to appoint to these posts as soon as possible.

Summary of estimated impact: medium to high

Timescale for completion: 3-6 months

Difficulty/Risk: low

Resources: Adult Services

Priority: high.

5

Domiciliary Care for Older People

5.1

Domiciliary Care for Older People is high volume (3.4m hours of care purchased from the independent sector last year), accounts for 13% of spend and is currently where the majority of financial pressures are being experienced. The County Council currently has 178 domiciliary care providers (for all client groups) on its approved list, of which about 65 (including branches) are used regularly.

5.2

85% of domiciliary services are spot purchased at current market rates. Block contracts have been established successfully in some areas for the remaining 15% of provision. There are indications that there is increasing competition in the market due to market capacity, the emergence of larger companies through market consolidation (which is a move away from smaller, locally owned businesses) and use of cheaper labour from Eastern Europe.

5.3

It is likely that much of this increased capacity can be provided at marginal, and not full, cost. Therefore, it would appear that current market conditions would favour some early and comprehensive intervention with suppliers to gain some further price advantage.

5.4

The main potential to reduce costs appears to be to foster increased competition between providers. This could be achieved by tendering the service on a local area or patch basis as a block contract, or at least nomination of a preferred supplier in the specified area (i.e. up to 80% of service is guaranteed to a preferred supplier) or through a series of individual negotiations with suppliers within the existing spot purchasing arrangements. It is important to recognise that domiciliary care is still a very `localised' market and different procurement strategies could apply to different parts of the County. This is demonstrated by the fact that existing and previous block contracting exercises within the County have ranged from being very successful to completely abandoned.

5.5

Market Analysis, Negotiation and Contracting Options Analysis

5.5.1

Carrying out further market analysis of domiciliary care, individual negotiation with suppliers and developing appropriate procurement strategies for all, or parts, of the County would seem to provide the most immediate, but also sustainable and potentially highest benefit, to the County Council. Benchmarking would be carried out with other local authorities and the in-house home care service. This project could also include a review of the administrative processes such as invoice processing and payment and monitoring of actual services provided, because there is a relatively high transaction volume involved in procuring this service.

Summary of estimated impact: high

Timescale for completion: some benefit within 3 months, longer term benefits within up to 18 months

Difficulty/Risk: low

Resources: PBRS & Adult Services

Priority: high.

6

In-House Care Services

6.1

It is not proposed at this stage to undertake a fundamental procurement review of in-house provided care services. The Adults Services department already has a well advanced strategy for realignment of its home care service and the County Council has decided to invest in its own nursing care provision in partnership with Health. There is evidence that in-house provision does help to regulate the market. For example it appears that nursing care prices in the independent sector have stabilised with the opening of the County Council own nursing homes under the Enhance project.

6.2

Currently the in-house home care service accounts for a £14m spend per annum. The service is currently undergoing substantial change to focus on providing a more specialist `short-term assessment and reablement service'. This service helps to reduce the burden on reception and assessment teams and stabilises care packages at an appropriate level to meet clients' long-term requirements before being passed on to the independent sector, thus keeping on-going care package costs at a reasonable level. Last year, the in-house home care service accounted for only 15% of the total number of hours of domiciliary care provided to clients.

6.3

An initial high level review of cost per placement based on delegated budgets and recorded client numbers suggests that costs for in-house and independent sector residential care are comparable, primarily because of the very high levels of occupancy which are successfully maintained in the County Council's residential units. Costs per placement for the in-house nursing beds is high compared to the independent sector for 2005/06 due to the relatively low occupancy levels in the nursing homes. This situation is expected to improve substantially during the current financial year, although is an area which requires regular review.

6.4

Maximise Occupancy in Nursing Care Homes

The cost per client in the in-house nursing care units is very high compared to the independent sector as a result of low occupancy levels. If occupancy were at near capacity, then costs would be comparable with the independent sector. Therefore occupancy in nursing care units needs to be increased. If this cannot be achieved through placements assessed and funded by the County Council in the short to medium term, then consideration should be given to selling the beds privately. The legal and service impacts of this approach will need to be explored further.

Summary of estimated impact: medium

Timescale for completion: 3-6 months

Difficulty/Risk: low

Resources: Adult Services

Priority: high.

6.5

Review Purchasing Arrangements for Non-Pay Expenditure in In-House Services

In order to ensure that the costs of in-house services are as low as possible, we should undertake a co-ordinated review of procurement practice and cost-effectiveness of existing arrangements for non-pay expenditure within the County Council's own establishments and home care service. This project would involve checking compliance with existing contracts, benchmarking against other contracts available nationally for goods and services, exploration of collaborative purchasing opportunities with the Health Service and the organisation of purchasing arrangements. This could provide some `quick wins' but is not unlikely to generate a high level of cost reduction.

Summary of estimated impact: low

Timescale for completion: 3 months

Difficulty/Risk: low

Resources: PBRS & Adult Services

Priority: high.

7

Supporting People (Adult Services)

7.1

PBRS is already working with the Supporting People Team on their strategic review. Due to the nature of the service, the procurement strategy within Supporting People focuses more specifically on supply-side management, compared to Adult Services which is more individualised. However, there are some service and strategic overlaps and joint work is already being undertaken between Adult Services and Supporting People on providers' unit costs. We will aim to exploit further synergies between Supporting People and other Adult Services care purchasing where they exist, for the benefit of the County Council.

8

Organisation of Procurement/Business Process Review

8.1

The independent review of procurement undertaken by Qualitar last year stated that: `Given its current level of resource, the Contracts Unit is doing a very good job. In a similar way to the recognition the council's prowess at procuring construction related goods and services gets, the Contracts Unit is well recognised nationally as an effective purchaser of care services.' The contracts team has 10.5 ftes responsible for the preferred lists, over 340 contracts, procurement strategy and a wide range and number of services from price negotiation to system and database management.

8.2

Some advantages may be gained from a review of business processes, requirements and responsibilities, particularly between locally based staff such as care managers and service managers, the new `care brokers' referred to in paragraph 4.4 above and the contracts team. This project would also review appropriate resourcing levels in comparison with other local authorities.

8.3

There may be some advantage to be gained from reviewing the scheme of delegation of procurement which may also help to refocus resources within a more co-ordinated approach. There is evidence that local negotiation has resulted in different prices and variable service delivery with the same or similar providers and that the current structure does not facilitate effective aggregation of requirements nor does it fully exploit the principles of leverage. It is recognised that local care assessment and provision of packages of care appropriate to need are fundamental requirements for successful outcomes for service users. However, there is no reason to believe that this could not continue within a more co-ordinated and consistent approach to service procurement.

Summary of estimated impact: high

Timescale for completion: 8-12 months

Difficulty/Risk: medium

Resources: Treasurer's Consultancy

Priority: high

9

Other Areas

9.1

Meals on Wheels - currently c. £400k net is spent on supporting a variety of meals on wheels provision across the County. The full costs of the service are not easy to identify. Some initial research into alternative service provision models in other authorities would suggest there is scope for a fundamental review of the structure of service delivery. A potential full cost recovery business model may substantially reduce the County Council's contribution to the service, although this would entail substantial changes to current arrangements.

9.2

Transport - PBRS is already working with the Passenger Transport Group in Environment and Children's Services to pilot alternative approaches to transport (particularly taxi) procurement for home to school and social care (where it has already been transferred to PTG management). It is suggested that in order to benefit from the review work in PTG, Adult Services should complete the transfer of appropriate transport provision to PTG as soon as possible.

9.3

Equipment Services - very little analysis has been undertaken in this initial scoping exercise on the procurement of equipment services. Extensive use is already made of Central Buying Consortium contracts and the potential scale of additional benefits in this area have not yet been explored.

9.4

Children's Services - there are some synergies with Children's Services and potential pressures on both procurement resources and social care budgets within Children's Services which are currently being explored jointly with PBRS. A further report will be bought to the next meeting of the Panel on potential reviews in Children's social care and progress on the home to school and social care transport review.

10

Conclusion

10.1

The procurement of social care services within Adult Services provides considerable challenges to the County Council and appears to have been generally been well managed within the staffing resource available. There are however opportunities to more actively engage with the supply market to leverage the County Council's purchasing power and manage the supply chain.

10.2

The challenge for procurement reviews in social care is the effective management of change within such a large scale of operations. Such projects also require appropriate resources and reasonable lead-in times to ensure decisions are based on accurate research and well-planned procurement strategies and that risks are well managed. It is recommended therefore that of the eleven potential reviews outlined in this report, eight are considered to be high priority for work to commence within the next twelve months. Further planning of the scope and resource requirements for these projects is required over the coming months. These reviews, showing the lead departments, are:

· Analysis of Residential Rates and Costs (lead: PBRS/Adult Services)

· Independent Sector Residential Care Non-Pay Costs (lead: PBRS/Adult Services)

· Use of Assessment Matrix in Learning Disability (lead: PBRS/Adult Services)

· Appointment of Care Brokers (lead: Adult Services)

· Domiciliary Care Market Analysis and Negotiation (lead: PBRS/Adult Services)

· Maximise Occupancy in In-House Nursing Care (lead: Adult Services)

· In-House Care Services Non-Pay Costs (lead: PBRS/Adult Services)

· Organisation of Procurement and Business Process Review (Lead: Treasurer's Consultancy).

10.3

Immediate priority will be given to four projects which are expected to have the highest probability of realising some benefit in the short-term, but will also provide longer-term solutions. These projects are expected to begin within a matter of weeks and will be jointly undertaken by PBRS and Adult Services:

· Analysis of Residential Rates and Costs

· Independent Sector Residential Care Non-Pay Costs

· Use of Assessment Matrix in Learning Disability

· Domiciliary Care Market Analysis and Negotiation

10.4

Further reports will be bought to Panel on the progress and outcomes from these initial reviews, prior to work commencing on the remaining reviews.

Recommendations

That the Buildings, Land and Procurement Panel advise the Executive Member for Policy and Resources that approval be given to:

1. Undertake as a priority four procurement reviews in Adult Services relating to:

· Analysis of Residential Rates and Costs

· Independent Sector Residential Care Non-Pay Costs

· Use of Assessment Matrix in Learning Disability

· Domiciliary Care Market Analysis and Negotiation.

2. Report progress and outcomes on these high priority reviews to the Panel on a regular basis.

3. Develop more detailed plans and resource requirements for additional procurement reviews in Adult Services over the next twelve months.