What can a local authority take into account in determining payment to care homes?

The Court of Appeal has reached the (perhaps surprising) conclusion that a local authority can lawfully reduce the amount that it pays to a care home for a social care resident by assuming that the care home will charge more to privately paying residents and thus can afford to cross-subsidise publicly funded care home places.

In principle, this decision seems wrong but it’s the law and will remain the law unless changed the case proceeds to the Supreme Court.

The case is Torbay Council v Torbay Quality Care Forum Ltd[2017] EWCA Civ 1605. 

Torbay Quality Care Forum Ltd is an association representing independent care homes in Torbay. Some of the homes’ residents were funded by the local authority. They were placed because of the LA’s duty to make arrangements for “residential accommodation for persons…who by reason of age, illness, disability or any other circumstances are in need of care and attention which is not otherwise available to them” (section 21 of the National Assistance Act 1948). Subject to means testing, there was also a duty to fund the provision of accommodation and personal care.

However, the LA only had to pay for a resident’s preferred choice of home if “the cost of making arrangements for him at his preferred accommodation would not require the authority to pay more than they would usually expect to pay having regard to his assessed needs…” (see National Assistance Act 1948 (Choice of Accommodation) Directions 1992 and Local Authority Circular (2004) 20). This became known as the “usual cost”. Any extra would have to be funded from elsewhere.

The “usual cost” was generally set by LAs at the start of a financial year. In setting the usual cost, the Circular stated “Councils should have due regard to the actual costs of providing care and other local factors. Councils should also have due regard to best value requirements under the Local Government Act 1972.”

Torbay set rates for “usual cost” with four bands. In setting the usual cost, the first stage was to ascertain the weekly “actual costs” of providing care to residents in each band. Second, in determining how much the Council would pay, it considered income from (1) residents placed by the LA, (2) privately funded residents paying higher rates, (3) any “top ups”, i.e. resident or third party contributions, and (4) sums paid by the NHS in the Continuing Health Care Scheme.  In other words, the Council took account of higher sums paid by other residents and thus concluded that the care home operators could afford to take Council funded residents at a lower rate.

TQCF argued taking these considerations into account was unlawful. It argued that the LA could not lawfully take additional income streams into account (paragraph 67). Beatson LJ (dissenting) agreed. This was on the basis of his interpretation of the relevant law. He was concerned that using Torbay’s methodology, in many cases the usual cost would be insufficient to cover the assessed care needs (paragraph 52).

However the majority (Sir Ian Burnett LCJ and King LJ) decided that the Council was permitted to take into account all of a care home’s return on capital when calculating the “usual cost”, including the income from private residents. The mix of LA and privately funded residents was relevant – for example, the greater proportion of LA funded places, the more directly responsible it is for the health of the sector within its locality. Where there are privately paying residents paying well in excess of the actual cost, then the LA may be able to pay less without jeopardising the sector (paragraph 102). There was protection because where an LA sets a usual cost that is too low and accommodation was unavailable, then the LA will be responsible for paying the difference.  (paragraph 103).

Whilst the legal regime for payment no longer applies, having been overtaken by the Care Act 2014 regime, LAs still have a responsibility for market shaping (see particularly the Care and Support statutory guidance) and this judgment remains relevant.