Hampshire County Council

Buildings, Land and Procurement Panel Item

3 October 2006

Corporate Procurement Review Programme - Update on Adult Services

Report of the Director of Property, Business and Regulatory Services

1

Introduction

1.1

The Executive Member for Policy and Resources at his meeting on 19 July 2006, approved the priorities for a series of procurement reviews in Adult Services. The report confirmed that the procurement reviews were primarily intended to provide long-term and sustainable reductions in costs and/or increases in service provision, rather than short-term one-off solutions. The priority reviews were agreed as:

· 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.

1.2

This report provides an update on progress with these four priority reviews. Most progress has been made on analysis of domiciliary care purchasing (primarily focused on older people), which has been treated as the highest priority review because procurement developments in this area are likely to provide some short-term benefit as well as longer-term efficiencies when compared to the other three review areas.

1.3

In addition to the four priority areas it has been identified that it would be beneficial to bring forward the `business process review of the organisation of procurement' project.

1.4

The completion of procurement reviews in Adult Services is intended to provide long term and sustainable reductions in costs and/or an increase in service provision which will contribute to the wellbeing of users.

2

Domiciliary Care for Older People

2.1

The main purpose of the review is to examine what opportunities now arise to reduce costs in the expanding, fluid and buoyant domiciliary care market through market analysis, negotiations and contracting options analysis.

2.2

The review of domiciliary care is the most advanced of the reviews. Priority has been given because of the scale of the procurement and current market conditions, which may enable some credible and earlier benefits to be realised. The current focus has been to analyse current provision, suppliers, market conditions and prices. Currently, Adult Services formulate an annual list of providers in price order. Preference for making referrals for new business will be given to those providers who are the lowest priced, subject to quality criteria being met (e.g. timely, reliable, no adult protection issues).

2.3

In three Adult Services Areas, care is sourced using a Care Broker, which aids efficiency in that the Broker is aware of locality issues, supply, demand and market conditions. One of the initial views being formed from the review is that care brokers are integral to smart purchasing, market management and market intelligence and ensuring that best price is obtained at the required quality. It is likely to be a recommendation of the review that this role should be expanded. The role focuses on maximising efficient purchasing and should include more active supplier engagement to support care managers and service managers in effective procurement arrangements.

2.4

An issue which has been identified, and it may be more appropriate for care brokers to undertake, is the ability to identify more closely the opportunities to consolidate care requirements into geographic clusters. This could potentially reduce non productive time for suppliers and carers and allow consolidation of individual client visits (quarter hour and half hour durations) into longer time blocks. This has been tested as a desktop exercise in a small sample area in Alton. By identifying the most appropriate supplier based on existing patterns of visits and adjusting visiting times to fit with required visits to other local clients (so that a smaller number of carers could be used) a cost saving might be possible. However, this scenario assumes that there is flexibility in assessed care times, but for some clients this flexibility will be constrained by family and other commitments. Obviously investment would be required by both the County Council and suppliers in a more managed approach to both choice of supplier and staff rostering. The cost-benefit of this approach will be explored further when larger sample sizes have been analysed over the next few months.

2.5

In the past few years, Adult Services have also moved towards creating an `Area price tariff range'. It seems reasonable to expect that due to geographical differences in pay rates and labour market conditions, the average price, or price range per Area, will be variable across Areas. The issue, which is currently being explored, is how justifiable these variances are between geographical areas.

2.6

There are definite signs that there are opportunities to maximise the benefit to the County Council of reducing price pressures within the domiciliary care market. The labour market is the catalyst for allowing greater flexibility in pursuing purchasing options, with a view to achieving improved efficiency and lower costs. The Panel will be aware that Hampshire has been an area of full employment for many years which has lead to difficulties in providers of social care services recruiting and retaining staff. However, in the last twelve months there has been a definite increase in the availability of labour and therefore a reduction in price pressures. There are four main reasons for this:

· expansion of the European Community and consequent influx of workers from Eastern Europe in particular.

· market consolidation (i.e. takeovers) is beginning to influence market prices. The domiciliary care industry is still a young one and it is envisaged this trend will continue as the industry develops. There is also a longer-term price risk in this situation if the national providers become dominant and competition reduces. Hampshire's strength hitherto has been the small and medium sized companies, with a local presence and community identity.

· expanding providers, because of the Council's spend, already have their overhead costs covered, so there should be scope to provide some additional service at marginal cost.

· providers are feeling more secure following the introduction of regulation by the Commission for Social Care Inspection, upon the introduction of the Care Standards Act. This initiative created some uncertain initially and therefore inhibited growth and investment at that time.

2.7

In the current year, Area teams have been able to manipulate the spot market price far more than has been the case previously. They have been able to give preference to providers in the lower price range in their respective Areas and have been transferring business from higher-priced providers to lower-priced providers. This situation has led to an overall price reduction of an average of 1.5% in 2006/07 compared to 2005/06. This is, in turn, fostering even greater price competition and some even lower prices are being offered either to recover lost business, or retain new business. However, this requires very careful market management and there is an increasing risk that providers could severely compromise the quality and reliability of service and the viability of the business. Overall though, these market conditions provide an opportunity for the very effective use of care brokers to manage the market and maximise benefits whilst minimising risks to services.

2.8

This market situation also creates a better environment to consider more block contracts or `preferred suppliers by locality' than previously has been the case. This could create some price advantage, although much more analysis is required on such models before any conclusions can be reached, because historical experience of block contracts has been mixed both within and outside Hampshire. In formulating any block contracts arrangements consideration will need to be given to potential difficulties in forecasting demand for accurate block contracting volumes due to the following current factors:

· development of the new in-house Home Care "core business" (intensive packages upon hospital discharge) prior to "right-sizing" of packages for handing over to the independent sector

· demand management and review of care packages as part of the financial recovery programme

· amendments to the non-residential charging policy which has the potential to screen out more people from being eligible for public funding

· proposal to raise eligibility criteria from critical and substantial to critical; this is currently subject to a 3-month consultation starting on 1 September

· increased take up of direct payments and individualised budgets.

2.9

Areas currently have a number of block contracts for sitting services and some are being considered for tendering with personal domiciliary care services. This is intended to reduce the on-cost being paid for non-productive time. The impact of this development will be analysed and monitored in order to assess the impact on, and suitability for, other domiciliary care services.

2.10

Some initial work has also been undertaken to review the range of prices, provider cost structures, premiums for shorter visits and `acceptable' levels of on-costs. Further work is required before any recommendations can be made in this area. A realistic cost model for this type of service is being developed but is yet to be finalised. The County Council is also paying very variable `premiums' for the purchase of shorter visits (i.e. half hour and quarter hour visits). An example of this is given below:

Hourly Rate

45 minute rate

Equates to hourly equivalent of

Premium charge of

Equivalent minutes *

£14.00

£12.02

£ 16.03

£2.03

9 minutes

* Calculated as additional charge divided by hourly rate multiplied by 60 minutes

In real terms this means that service providers are penalising purchasers for contracting shorter durations by charging at an enhanced hourly equivalent rate, which, presumably, recovers potential lost overhead contribution and profit from the reduction in available chargeable time. However the current level of charges do not appear to reflect the true level of costs involved, because the current understanding of the market is that the majority of care workers are paid only for hours worked at the client's house. More detailed research and discussions with providers are required to understand the cost implications of this scenario more fully.

2.11

In summary, further work is required to confirm some assumptions and undertake further detailed research, but it is likely that a number of recommendations on the procurement of domiciliary care will be made in the areas of:

· increasing the level of price negotiation and price management of domiciliary care within geographical localities (recognising differing price pressures locally) to maximise the exploitation of current market conditions and more accurate cost structures

· maximising the use of care brokers to identify the most appropriate provider to meet a client's assessed care package

· working in partnership with providers to maximise economies from effective rostering of carers

· exploring the scope to create greater flexibility in care assessments to enable care brokers and suppliers to provide care at more efficient times (e.g. helping two near neighbours out of bed at 8 a.m. and 8.30 a.m. respectively and using the same carer, rather than sending two carers to assist both clients at 8.30 a.m.)

· increasing the proportion of `preferred providers' by locality or possibly block contracts, although the limitations of this approach needs to be considered further.

2.12

Further work will be undertaken over the coming months to:

· establish a realistic domiciliary care cost model

· review spend profiles of top providers to understand what percentage of turnover is accounted for by the County Council's purchasing

· identify providers' levels of dependency on the County Council's purchasing and the scope to exploit this position

· investigate differences in `overhead' and `on-cost' rates and half hour and quarter hour `premiums'

· continue with supply and demand analysis and mapping

· carry out price benchmarking with other authorities.

3

Nursing and Residential Care for Older People

3.1

As the focus of effort has been on domiciliary care as outlined above, only some initial data analysis has been undertaken for purchased residential and nursing care for older people. The intention of the detailed analysis is to validate the assumptions and outline scope in the initial report to Panel on 11 July in the following areas:

· comparison with rates set by other local authorities

· the scale and amount of third party top-ups being paid by relatives

· the number of placements which are assessed as `exceptional' and are being paid above the `Hampshire Rate'

· assessing the impact and risks involved in the `Directions on Choice', Third Party top-ups, and higher proportions of publicly funded residents.

3.2

Comparison with other authorities has historically been based on published set rates and this work is currently being updated for 2006/07 and should be completed within a matter of weeks. In addition work has been undertaken to establish the proportion of placements made at each fee level within the Hampshire Rate. It is intended to benchmark on this basis with some other local authorities to assess whether the proportion of clients on each fee level is comparable, and to compare average rates actually paid rather than the standard rates set. The analysis for Hampshire is in its early stages, but based on a snapshot of placements in August this year, the proportion of clients by fee level is given in Table One below. Trends over time will also be identified where this is possible, but it is known that the proportion of residents in the `very dependent dementia category' have increased steadily over the last three years. `Exceptional special needs' are being paid in a total of 15% of cases, but it is important to recognise that this is spread across all fee levels. No substantial conclusions can be reached on this analysis until comparable benchmarking has been undertaken with other local authorities.

Table One:

Summary of Residential Placements for Older People as at August 2006

(excludes placements at the Nursing Care Rate and all short stays)

Funding Level

Rate per week

£

Number of Clients

%

Residential

265.72

23

1.4

exceptional needs

266 to 327

19

1.2

Res. Very Dependent/Blind

327.04

605

37.7

exceptional needs

328 to 385

77

4.8

Res. Very Dependent Dementia Premium

385.21

734

45.8

exceptional needs

>386

145

9.0

TOTAL

1,603

100.0

Total Exceptional Needs

241

15.0

4

4.1

4.2

Whilst it is recognised that there are immediate financial pressures within this service, the procurement review is unlikely to be able to contribute any short-term benefit, due to the long-term and specialist nature of both the supply market and the clients receiving care.

5

Independent Sector Residential Care Non-Pay Costs

5.1

The fourth project is to examine the scope for independent sector use of the County Council's contracts for common-use goods and services with a view to reducing providers' costs. Discussions have been held with Legal Practice on the legality of such arrangements and there are some potential models which may be relatively easy to put in place to facilitate this joint working.

5.2

The next stage of the project is to discuss the potential collaborative purchasing approaches with the Hampshire Care Association and undertake price benchmarking on some key commodities. Joint purchasing opportunities with the Health Service will also be explored where this may provide additional benefit to the residential and nursing care industry.

6

Organisation of Procurement/Business Process Review

6.1

Through more detailed planning on the four procurement reviews outlined above, it is proposed to bring forward the plans to carry out a business process review of the organisation and roles of staff involved in the procurement process. Early work on this project may identify where overall procurement processes need strengthening or where responsibilities lack clarity. This may provide additional recommendations for improvements within the other procurement reviews.

6.2

The County Treasurer's consultancy team will lead on this review and the detailed project brief is currently being developed. The review will take place in the third quarter of this year.

7

Conclusion

7.1

The Panel will be aware that the scale and scope of procurement in Adult Services is substantial which means that a considerable amount of data and market analysis needs to be undertaken before any reasonable conclusions and recommendations can be formed. Good progress is being made on a detailed review of domiciliary care for older people, which has been given the highest priority. Planning is also well advanced in the other four key reviews, but more analysis is required before any findings can be usefully summarised. Further reports will be bought to Panel on the progress and outcomes from these priority reviews.

Recommendation

That the Buildings, Land and Procurement Panel advises the Executive Member for Policy and Resources that the progress on the procurement reviews in Adult Services be approved.

LINK(S) TO CORPORATE STRATEGY

Yes

No

Hampshire safer and more secure for all

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Maximising well-being

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Enhancing our quality of place

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