This case study shows how Norfolk County Council has improved the value for money of its home care services over the last 15 years in three phases. It shows how the Council: expanded supply by engaging with the market; stabilised supply by introducing new contract arrangements; and reconfigured supply through a process of strategic outsourcing. These changes have led to better targeting, improved service quality and lower unit costs.
The Council and its area
Norfolk is a largely rural authority, with the exception of its capital city Norwich. It has a relatively low wage economy and some severe pockets of deprivation, but is not among the regions of highest unemployment. It has a higher than average older population. The number of people age 75 years and over has risen by 7 per cent since 2001.
The Council has an excellent reputation across most of its services. It received a four star rating in its most recent Comprehensive Performance Assessment (CPA). The CPA noted that adult social care services are improving strongly. It has Beacon status in three service areas. The Council is among the top performing counties in terms of customer satisfaction.
The national picture
Home care service provision has changed rapidly in the last decade under the demographic pressure of an ageing population. The independent (private and voluntary) sector delivered just 2 per cent of the total hours of care in 1992; in 2005 it delivered more than 73 per cent. This shift has been driven by rapidly expanding demand and the fact that the independent sector has been able to provide the same standards of care at lower cost.
The problems associated with comparing like for like services and variations in recording practice mean it is difficult to make completely accurate cost comparisons of social care provision between sectors. However, home care provided by the independent sector is consistently and significantly less expensive. In its recent Time to Care report, the Commission for Social Care Inspection (CSCI) states:
'The average price for a weekday, daytime hour of home care in the independent sector was £11.45 in 2004. Prices paid by local authorities to the agencies that took part in the UKHCA [United Kingdom Homecare Association] survey in the same year ranged from £5 to £14. The unit cost of councils' in-house provision has always been higher. For 2005-06 councils have reported their unit costs to be in the range of £13-£16.50, with an England average of £14.80.' (Ref. 1)
Part of this cost differential is likely to be because a disproportionate amount of the home care provided by councils involves more highly dependent users. However, the CSCI analysis suggests that there remains some scope for councils to use competition and contestability to reduce costs without reducing service quality.
Norfolk's experience
Norfolk County Council's experience generally mirrors the national picture, although the issues are possibly more acute because it has a higher than average elderly population. Demand is growing rapidly, and users require increasingly intensive support. Services need to be well targeted and of sufficient quality to reduce the need for more intensive options such as regular day care and residential care.
Since 1994 the Council has taken three major steps to shape the way home care services are provided.
- In 1994/95 the independent sector became a significant component of the service provision for the first time.
- In 2001/02 the Council established block contracts for the first time.
- In 2003 a best value review challenged the service quality and the way it was targeted. In the light of the review, the Council decided to progressively focus its in-house provision entirely on emergency and high dependency services (approximately 20 per cent of total provision). The independent sector will eventually provide all the ongoing and less intensive service (the remaining 80 per cent of provision). This transition was expected to take place between 2004/05 and 2007/08.
This final phase is an extension of an existing trend. Services have been progressively targeted more tightly since 1994/95. The number of clients served has fallen by about 30 per cent, despite the ageing population. But the number of hours provided has increased year on year. It is now almost 60 per cent higher than it was in 1993/94.
Phase 1: Expanding supply
By the early 1990s the Council was finding it increasingly difficult to recruit home care staff. The service was not keeping pace with growing demand and a policy of expansion. Over 90 per cent of the care at that time was provided in-house. The Council decided to increase provision by commissioning the independent sector on a large scale for the first time.
Between 1993/94 and 1994/95 the number of hours of home care provided by the independent sector increased five-fold. In a single year the proportion of care provided by the sector rose from less than 5 per cent to 13 per cent; a considerable increase in a single year.
There is little information on the impact of this change on service quality. However, the much later best value review indicates that the quality of the in-house service at the time was not particularly high. And the Council achieved its primary objective, as the total number of hours of care delivered increased by over a third in the single year. Most of this increase was delivered by the independent sector. There was also a unit cost saving. The hourly cost of independent provision in 1994/95 was £7.09, while the in-house hourly cost was estimated at £8.06. Thus the increase in independent provision represented an overall reduction in unit cost.
Value for money in phase 1
The Council greatly increased the supply of home care in the first year and continued to increase supply thereafter in response to demand. The increase was achieved at lower unit cost and there is no reason to assume that quality deteriorated.
Phase 2: Stabilising supply
The Council established block contracts in 2001/02 to give external service providers greater predictability. Both sides gained. The independent sector could recruit and retain staff with greater assurance; the Council could develop and manage the market more effectively; and both sides could reduce their administration costs.
The County has steadily increased the number of service users covered by block contracts; they now represent more than three-quarters of the total served by the independent sector.
Value for money in phase 2
The unit cost of block contracts is no lower than that of spot contracts, but this initiative was not designed primarily to reduce costs. Contract management costs have fallen for both sides, though it is not clear to what extent. Providers may have invested savings in better management and improved training. Again, the extent to which this has happened is unclear, but client satisfaction with the service has increased. And the most recent CSCI report indicates continuing improvement in the service as a whole. Although it is difficult to prove a causal link, this initiative appears to have made a major contribution to recorded improvements.
Phase 3: Reconfiguring supply for a better targeted service
A 2003 best value review challenged the quality of the service and advocated, among other things, a more professional and better trained workforce. It was also apparent that, though the in-house service provided a declining proportion of the service, its costs continued to rise in absolute terms. In 2004/05 the Council decided that it would cease to provide standard home care services in-house. This represented 80 per cent of the total home care provided. It wanted the independent sector to provide the whole of this service within three years.
At the same time it decided to re-engineer the in-house service. A highly trained workforce would focus entirely on providing emergency and high dependency services (the remaining 20 per cent of care provided). This process is still at a relatively early stage, but independent sector provision has continued to rise. It is now within 10 per cent of the 80 per cent goal. The independent sector has shown that it can provide a reliable and improving service at a lower unit cost than the previous in-house provider. The sector now has a clearer mandate and there is every reason to assume that it will build successfully on the earlier phases.
Value for money in phase 3
In-house costs have continued to rise relative to the independent sector. In 1993/94, 94 per cent of care (by hours) was provided in-house, and the inhouse unit cost (per hour) was about 10 per cent higher than the unit cost of the independent sector. By 2000/01 around 40 per cent of care was provided in house, and the in-house unit cost was 40 per cent higher than the unit cost of the independent sector. In the last financial year the unit cost of in-house provision was more than twice that of independent provision. The in-house and outsourced services have become increasingly distinct since the mid-1990s. This will explain much of the difference between the inhouse and independent sector unit costs. It might also explain why the threat of competition does not appear to have improved the efficiency of the inhouse service. The threat of competition from external providers should, in theory, improve the efficiency of the in-house provider. But this assumes the external and in-house providers are providing the same service. Further work would be needed to determine what effect, if any, competition has on the efficiency of an in-house provider when its service is not directly comparable to that of an external provider.
The lessons
Value for money is not simply or necessarily about cost saving. Norfolk County Council sought to increase, then to stabilise and finally to improve its service by actively engaging with the market.
In this case, the Council achieved its aims through a strategic approach to outsourcing. There are good reasons to expect that the recent decision to outsource all standard home care service will prove successful. But it is important to note that the Council has laid the foundations for its approach by carefully managing the market. This has allowed it to progressively outsource a larger proportion of its home care over a long period, thereby reducing the disruption that can lead to a drop in service quality when services are initially outsourced. This approach will be more difficult where barriers to market entry are high, or where councils do not take active steps to manage the market. Block contracting for this service seems to offer benefits for both commissioner and supplier. It offers the commissioner predictability of supply and an opportunity to manage the market by signalling future needs. It offers providers greater predictability of demand, allowing them to undertake recruitment, training, financial management and marketing with lower risk. This stability should reduce costs on both sides and support continued service improvement.
Reference
1 Commission for Social Care Inspection, Time to Care: An Overview of Home Care Services for Older People, 2006