The Challenges that Local Authorities Face When it Comes to Home Help
I recently worked with a London borough council to help their programmes team to better understand the domiciliary care market place and the factors that affect the provision of these services in terms of availability and cost.
Currently councils spend millions on the provision of these services, which include supporting adults to continue to live independently in their own home and can include getting users ready in the morning, meal preparation and medication supervision. These services are a UK statutory function and therefore must be provided or commissioned by the council.
The challenge of providing these services within the budgets set is one facing almost all local authorities across the UK. There are also doubts that the commercial model for many providers is sustainable. Only recently a major UK home care provider, Allied Healthcare, who provides support to 13,000 older and disabled people, sought to transfer or sell all its contracts to other providers. Allied Healthcare was warned by the care regulator about its financial sustainability. Insiders are saying that if there is not a radical rethink in terms of funding, then the whole system may crash.
Porter’s 5 forces model [Link] is framed around three forces from 'horizontal' competition: the threat of substitute products or services, the threat of established rivals, and the threat of new entrants. The other two from 'vertical' competition are the bargaining power of suppliers and the bargaining power of customers.
We first researched the power of the suppliers, which was significant given that current demand often outstrips supply and providers can ask for more as ceiling rates allow for negotiation. The impact of Brexit on the supplier’s workforce is not yet fully known but is sure to have a bearing on the future cost to deliver the services. The current provider base in the UK made up of small local organisations. So far, they have not embraced the range of new technologies that many larger providers use as standard, which is an effective tool to control the flow of information about what services they can supply.
Next, we reviewed the issues of risk of new entrants, who might weaken the bargaining position of these locally powerful providers. The domiciliary care sector is relatively easy to enter. However, it is highly regulated, and lack of labour does restrict new entrants to some degree. The more lucrative private sector makes the publicly-funded market less attractive to new entrants. Low profit margins and return on capital employed are also significant inhibiters.
The issue of buyer power was the next factor to be examined. Local councils are the main buyer of these services. As the major customer, the council has significant power in shaping the home care delivery model and the local market, but there are also other buyers on the scene, for example neighbouring local authorities or individuals who are self-funding. These tend to weaken the power of the buyer. Although the councils can set a realistic pricing framework and can stop using providers if the level of quality falls below the required standard, the very high demand and the inability of the local market to meet that demand, means it is very much a sellers’ market.
The supply of substitute services is also a key factor in Porter’s Model and this can either strengthen or weaken both the buyers and suppliers bargaining position. The main substitute for council provision of these services is the direct payments option and the employment of personal assistants. In this option, the individual claims an allowance from the council and is then responsible for organising their own care, such as employing relatives or neighbours to provide these services.
The last factor in the model is that of the inherent rivalry between the providers and the extent to which they are prepared to compete aggressively for market share. Overall, we found relatively low levels of rivalry between the service providers; this is not surprising given the imbalance between supply and demand. Geographical dominance by some providers also limits the sense of rivalry and the providers have no real sense of brand or brand differentiation which is key to developing a more robust and competitive market place.
This research and subsequent analysis indicated that the suppliers of these services often perceive councils as being unattractive clients and coupled with the low rates leads to them being categorised as a “nuisance” client. This has led to a realisation that councils need to change the negative perception to that of core client. This could be considered by an increase in the volume of work via leverage with one two larger suppliers. The use of new technology to improve the efficiency of the service provided could help to improve the profit margins of providers. This could include setting up a single database on which all local providers would indicate their availability and using logistics software when arranging a care provider to reduce travel time. The team also felt that there is a real opportunity for a small number of larger suppliers to enter the local market and thus gain the economies of scale and the improvements via the use of new technology. Encouraging more people to take up the direct payment option could also help to create more competition.
A project is already underway reaching out to service users and providers to explain how this option works and provide support in the form of guides and templates to assist users in setting up these support services and the administrative and financial systems required.
Having identified that the current domiciliary care market would be classified as a “bottleneck” with low relative value to the big number of suppliers it will be important for councils to use future opportunities to redesign the model. They might consider packaging other elements of the Adult Social Care portfolio to increase the attractiveness of the offer to the market and to address the challenges that the suppliers face in order to leverage the market to reduce its risks around budget pressures and increase demands on services. Other considerations to stabilise the market and secure sustainability for supplier growth could include fewer, larger suppliers operating in zones or smaller patches and a shift from the rigid ‘time and task’ approach to a more self-monitoring, outcome-based approach.
Radically examining the best route to market for its services is often quite new for local councils, but evidence from this exercise suggests that taking a more innovative approach could change the dynamic between the authority and the suppliers to the long-term benefit of both service users and council tax payers.
By Dr Ray Carter
Renew Potential Parliamentary Candidate