Guidance

Market Sustainability and Fair Cost of Care Fund 2022 to 2023: guidance

Updated 18 December 2023

Applies to England

Following an announcement in the government’s Autumn Statement 2022, the planned adult social care charging reforms are now delayed until October 2025.

About this guidance

This guidance is intended to support local authorities in administering the Market Sustainability and Fair Cost of Care Fund (“the fund”). This guidance applies to England only.

The intended audience of this guidance is local authority directors of adult social services, commissioners and any other staff who are involved in the commissioning and managing of adult social care services and budgets. Adult social care providers are also encouraged to read this guidance as provider engagement is critical to the activities described.

If you have any questions about the fund, contact the department using marketsreform@dhsc.gov.uk.

Glossary

Key definitions are provided below to help local authorities and providers have a shared understanding of the objectives for a cost of care exercise. This is not intended as a complete dictionary, but to support a consistent starting point for local conversations between local authorities and providers.

Cost of care

Cost of care best describes the actual costs a care provider incurs in delivering care at the point in time that the exercise is undertaken. It is typically presented as a unit cost for an hour of domiciliary care or a bed per week in a care home.

‘Fee for care’, ‘rate for care’ or ‘fee rate for care’ 

These terms are often used interchangeably but most commonly refer to the figure a local authority sets and/or agrees to pay a provider for a particular service. Local authorities will have different commissioning frameworks and approaches to rates for care. In some situations, a local authority will set a fixed rate that it will pay for a type of service and this may be referred to as the ‘local authority’s set or usual rate for a care home bed’.

Cost of care exercise

A process of engagement between local authorities, commissioners and providers, data collection and analysis by means of which local authorities and care providers can arrive at a shared understanding of the local cost of providing care. The cost of care exercise will help local authorities identify the lower quartile, median and upper quartile costs in the local area for a series of care categories.

Fair

For reporting purposes for this fund, and in terms of understanding the cost of care, fair means the median actual operating costs for providing care in the local area (following completion of a cost of care exercise) for a series of care categories. This must include and evidence values for return on capital and return on operations, and also travel time for domiciliary care. Together this is what is described as the ‘fair cost of care’ and is, on average, what local authorities are required to move towards paying providers.

In the context of specific rates for care paid, fair means what is sustainable for the local market.

For providers, this means they will be able to cover the cost of care delivery and be able to make a reasonable profit (including re-investment in their business), surplus or meet their charitable objectives.

For local authorities, it recognises the responsibility they have in stewarding public money, including securing best value for the taxpayer.

Data collection tool

This is a spreadsheet or web-based system for use by each care location participating in the cost of care exercise to work out their breakdown of costs (per resident per week or per contact hour) for submission in the cost of care exercise. The spreadsheet or web-based system will contain pre-programmed formulas to help providers calculate these costs in a consistent way.

Cost of care data table

A breakdown of the results of the cost of care exercise for each cost line as set out in Annex A, Section 3, for submission to DHSC.

Cost of care report

A PDF or Microsoft Word document explaining how the results in the cost of care data table were arrived at, including but not limited to, the contents described in Annex B. Separate reports should be produced for 65+ care homes and 18+ domiciliary care due to their very different cost bases. Local authorities are required to submit these reports to DHSC and publish them on their GOV.UK website.

Average

Averages (properly called ‘means’) cover the whole distribution, though have the disadvantage of being skewed by high outlier values.

Local authority fee rates in collections such as the Adult Social Care Finance Return and the Improved Better Care Fund collection are required to be reported as averages. For reporting purposes in this fund, fee rates paid are required to be reported as averages in line with wider fee rate reporting.

Median

Medians represent the middle value when a distribution (for example of fee rates) is ordered by size (for example by the amount of the fee rate). The advantage of medians compared to averages is that they are less skewed by high outlier values.

Data collected through the cost of care exercise are required to be reported as medians to account for outliers in the distributions that are being analysed (such as staffing ratios or staff costs per resident at location level).

Sustainable market

A sustainable market is one which has a sufficient supply of services but with provider entry and exit, investment, innovation, choice for people who draw on care, and sufficient workforce supply. It also refers to a market which operates in an efficient and effective way, linked to the market shaping duty placed on local authorities under section 5 of the Care Act 2014. Further detail on this can be found in the market sustainability plans section of the guidance.

Data return

This is the return which will enable local authorities to record and submit:

• full cost of care results tables for both 65+ care homes and 18+ domiciliary care
• how the cost of care exercise outcome compares with average fee rates (Improved Better Care Fund (iBCF) definitions)
• a breakdown of how spend has been allocated (in line with the fund purpose)
• key strategic risk for both 65+ care homes and 18+ domiciliary care

Require(d)

A compulsory activity to satisfy the conditions of the fund. Where a compulsory activity has not been completed, this will be considered a breach of the fund.

Expect(ed)

Activities that should be completed as set out in guidance to satisfy the conditions of the fund. Where expectations are not met, local authorities will need to report to the Department of Health and Social Care (DHSC) the reason why. If the reason is not provided, or DHSC is not satisfied with the reasoning, this will be considered as a breach of the fund conditions.

Introduction

As set out in section 5 of the Care Act 2014, local authorities have a duty to promote the efficient and effective operation of a market in services for meeting care and support needs, with a view to ensuring services are diverse, sustainable and high quality for the local population, including those who pay for their own care. Section 4.31 of the Care and Support Statutory Guidance states the following:

When commissioning services, local authorities should assure themselves and have evidence that contract terms, conditions and fee levels for care and support services are appropriate to provide the delivery of the agreed care packages with agreed quality of care. This should support and promote the wellbeing of people who receive care and support, and allow for the service provider’s ability to meet statutory obligations to pay at least the minimum wage and provide effective training and development of staff.

It should also allow retention of staff commensurate with delivering services to the agreed quality, and encourage innovation and improvement. Local authorities should have regard to guidance on minimum fee levels necessary to provide this assurance, taking account of the local economic environment. This assurance should understand that reasonable fee levels allow for a reasonable rate of return by independent providers that is sufficient to allow the overall pool of efficient providers to remain sustainable in the long term.

Many local authorities have cultivated strong relationships with providers, working in partnership to deliver good quality care despite ongoing financial, workforce and broader pressures, in a challenging environment exacerbated by the COVID-19 pandemic. However, a significant number of local authorities are estimated to pay below the cost of providing care^{[footnote 1]}. This risks undermining local markets, creating unfairness, affecting sustainability and, at times, leading to poorer quality outcomes for those who draw on care and support services. A fair and sustainable care market is fundamental to the government’s wide-ranging and ambitious reforms to adult social care. It is therefore critical that local authorities continue to work closely with providers so that they can prepare their markets for reform, and develop a shared understanding of evidence around the local costs of care to better understand where fee rates need to increase.

Market Sustainability and Fair Cost of Care Fund (‘the fund’)

The government is implementing wide-ranging and ambitious reform of adult social care. In December 2021 we published a white paper, People at the Heart of Care, that outlined a 10-year vision that puts personalised care and support at the heart of adult social care, ensuring that people:

• have the choice, control and support they need to live independent lives
• can access outstanding quality and tailored care and support
• find adult social care fair and accessible

It is vital that we have the right architecture in place to underpin and support the implementation of this 10-year vision. Implementation of the Market Sustainability and Fair Cost of Care Fund is one of the first steps in the journey to achieve this.

The fund was announced on 16 December 2021. The primary purpose of the fund is to support local authorities to prepare their markets for reform, including the further commencement of Section 18(3) of the Care Act 2014 in October 2023, and to support local authorities to move towards paying providers a fair cost of care.

In total the fund amounts to £1.36 billion (of the £3.6 billion to deliver the charging reform programme). In 2022 to 2023, £162 million will be allocated. A further £600 million will be made available in each of 2023 to 2024 and 2024 to 2025. This funding profile allows for staged implementation that is deliverable, while also reflecting the timelines for charging reform.

In 2022 to 2023 funding will be distributed using the adult social care relative needs formula, as is used for the Social Care Grant and iBCF. See the local authority allocations.

The government requires local authorities to start building strong foundations and prepare markets for wider charging reform and thereby increase market sustainability.

As a condition of receiving future funding, local authorities will need to evidence the work they are doing to prepare their markets and submit the following to DHSC by 14 October 2022:

• cost of care exercises for 65+ care homes and 18+ domiciliary care
• a provisional market sustainability plan, using the cost of care exercise as a key input to identify risks in the local market, with particular consideration given to the further commencement of Section 18(3) of the Care Act 2014 (which is currently in force only for domiciliary care) – a final plan will be submitted by 27 March 2023
• a spend report detailing how funding allocated for 2022 to 2023 is being spent in line with the fund’s purpose

Further detail on the conditions and the returns required to meet these conditions can be found below.

In 2022 to 2023 local authorities are also expected to start making genuine progress towards more sustainable fee rates, where they are not already doing so. This means increasing fee rates paid to providers (in respect of 65+ care homes and 18+ domiciliary care, including those who operate in extra care settings). The Local Government Finance Settlement 2022 to 2023 included additional funding for local authorities to cover the demographic graphic and unit cost pressures facing social care. The fund is additional to those pressures and will help local authorities to increase fees further.

As part of the gradual implementation, the government will review the fund distribution and conditions ahead of allocating money for 2023 to 2024 to ensure they remain appropriate to meet the objective of making local markets more sustainable.

The government will also work closely with local government and care providers to monitor changes in the market as this fund is implemented, providing as much support and oversight to local authorities as is appropriate for central government, while respecting their statutory duty under section 5 of the Care Act 2014 to facilitate the efficient and effective operation of local care markets.

Local authority returns

Table 1: an overview of the returns required to meet the conditions of the fund, 2022 to 2023

	Condition	Returns required to meet condition
Condition 1	Submit cost of care exercises for 65+ care homes and 18+ domiciliary care. Exercises will need to accurately reflect local costs such as staff pay and travel time. They will also need to provide and evidence an appropriate return on capital in care homes, and return on operations in both care homes and domiciliary care.	Part 1: a cost of care report explaining: how the cost of care exercises were carried out; how providers were engaged; the lower quartile, median and upper quartile for costs collected; how the resulting cost of care for the local area has been determined, including the approach taken for return on capital and return on operations. Separate reports should be produced for 65+ care homes and 18+ domiciliary care due to their very different cost bases. Local authorities are also required to publish these reports on their GOV.UK website. Part 2: a fully completed cost of care data table as found in Annex A, Section 3. Local authorities are required to provide a breakdown of the median operating cost for providers in the local area (from those who participated in the survey) for each of the cost lines, plus lines for return on operations and return on capital. How to undertake a cost of care exercise can be found in the section below ‘Cost of care exercises – understanding the cost of providing care services’. The required cost lines for the cost of care data table can be found in the data return template (see Annex A, Section 3). Key content for a cost of care report can be found in Annex B. Possible approaches to return on capital can be found in Annex E. Analytical principles for completion of the cost of care results tables can be found in Annex F.
Condition 2	Submit a provisional market sustainability plan. Using the cost of care exercise as a key input, this plan will assess the impact current fee rates are having on the market and the potential future risks, particularly in the context of adult social care reform and with consideration given to the further commencement of section 18(3) of the Care Act 2014 (which is currently in force only for domiciliary care). It will outline mitigating actions, including the pace at which the local authority intends to move towards the fair cost of care (where it is not being paid already) between 2022 to 2025, in order to ensure improved market sustainability. We expect a final market sustainability plan, outlining how funds will be spent in line with key actions set out, by 27 March 2023, after local government budgets have been finalised for 2023 to 2024	A provisional market sustainability plan, which should not exceed 5 pages and is required to cover: Section 1: assessment of the current sustainability of the care market for 65+ care homes and 18+ domiciliary care; Section 2: quantification of the expected impact of market changes over the next 3 years, including changes due to the introduction of charging reforms for each of the service markets; Section 3: plans for each service market to address the sustainability issues identified. A final market sustainability plan, which sets out how the local authority will move towards the fair cost of care calculated in their exercise as part of their 2023 to 2024 budget setting process, is to be submitted by 27 March 2023. Local authorities are also required to publish the final market sustainability plan (with commercially sensitive information redacted) on their GOV.UK website. See the section market sustainability plans below for further details on the requirements. A template for the market sustainability plan can be found in Annex C.
Condition 3	Submit a spend return detailing how funding allocated for 2022 to 2023 is being spent in line with the stated purpose.	A full breakdown of how funding has been allocated to support 65+ care home and 18+ domiciliary care markets (including domiciliary care providers who operate in extra care settings). This must specify whether, and how much funding, has been used for implementation activities and how much funding has been allocated towards fee increases beyond pressures funded by the Local Government Finance Settlement 2022 to 2023. The reporting requirements for the spend return can be met using the data return template (see Annex A, Section 5).

Returns should be submitted by 14 October 2022.

Each local authority will receive an email from PA Consulting with a unique link to access the submission website.

If you’ve not received your unique access link by 5pm on Monday 10 October, email readyforreform@paconsulting.com to get the link sent to the appropriate person in your authority. You should also email readyforreform@paconsulting.com if you have any other queries relating to the online submission.

Please only contact the DHSC Markets Reform Team (marketsreformteam@dhsc.gov.uk) for non-submission related queries.

DHSC reserves the right to update the means by which returns are submitted, and may provide alternatives in future.

Appropriate use of funding

This section sets out the appropriate use of 2022 to 2023 allocations.

Eligible services

Local authorities are required to use the fund to support the sustainability of the 65+ care home market and the 18+ domiciliary care market (including domiciliary care providers who operate in extra care settings).

While services outside of the above are out of scope for the fund, local authorities may choose to carry out similar exercises for a wider range of care services separately to the returns required by DHSC as a condition for this funding, and the government is aware that many already do so for the entirety, or segments, of their local market.

Beyond these conditions, a key determinant of how funding will be spent will be one of location. The government recognises that the care market of local authorities across the country will vary depending on geography, demography and wealth. This means the exact use of the fund will vary between areas depending on factors such as how local authority rates compare with rates determined by the cost of care exercise outcomes and how many self-funders are in the local authority area.

Eligible spend

Local authorities are required to use all funding to improve sustainability of the 65+ care home and 18+ domiciliary care markets (including domiciliary care providers who operate in extra care settings), and not just cover existing pressures.

Local authorities are expected to use at least 75% of allocated funding in 2022 to 2023 to increase fee rates paid to providers in scope, where necessary, and beyond pressures funded by the Local Government Finance Settlement 2022 to 2023.

Up to 25% of allocated funding in 2022 to 2023 can be used to fund implementation activities associated with meeting the fund purpose, including:

• strengthening internal commissioning and contract management capacity or procuring external resource to undertake the work associated with these grant conditions, and to respond to the opportunity for greater market oversight as a result of increased section 18(3) of the Care Act 2014 commissioning (this does not include the cost of undertaking additional assessments) and/or to increase provider oversight to ensure poor market practices are being addressed
• conducting cost of care exercises for 65+ care homes, and 18+ domiciliary care
• engaging with providers for the purpose of both the cost of care exercise and market sustainability plan to better understand the potential impact of reform on the local market. This may include working with local provider associations or third sector organisations to financially support local capacity, where appropriate
• developing and executing a market sustainability plan

The list set out above is not intended to be exhaustive but is intended to guide recipient authorities as to the types of activities government considers they should prioritise in order to meet the grant conditions. Local authorities should determine for themselves whether particular activities not listed are broadly similar in nature to those above.

A financial amount may be made available to support with implementation activities in future years.

Eligibility for future funding

DHSC reserves the right to withhold future payments from the fund in the following circumstances:

• inappropriate use of funding, or no evidence of funding having been spent on the fund objectives.

• failure to submit one or more of the returns required for delivery of the fund and/or submission of incomplete returns.

• non-engagement with the support made available or requests for further information as set out in the review section chapter.

• a provisional market sustainability plan, and data return that does not demonstrate a considered analysis of the local authority’s market

• a part 2 data return and final market sustainability plan that does not demonstrate how funding will be used to move towards the fair cost of care as identified in a recipient authority’s cost of care exercise.

• a provisional or final market sustainability plan that does not include a clear strategy to prepare the local market for upcoming reforms to the adult social care market, thereby not using the funding for its intended purpose

The remainder of this guidance provides:

• best practice for cost of care exercises and market sustainability plans
• an overview of further support available to local authorities
• information on how local authority returns will be reviewed

Cost of care exercises – understanding the cost of providing care services

Introduction

The completion and reporting of local cost of care exercises for 65+ care homes and 18+ domiciliary care is a requirement of the fund.

Local authorities are required to survey a range of providers (representative of the local market) as part of the cost of care exercise, to improve their understanding of the actual costs of delivering care in their area. Local authorities are required to use the exercise to determine and report the median actual operating costs for the following categories, plus evidence and values for return on capital and return on operations. Together these make up the fair cost of care. The categories are:

• 65+ care homes
  • standard residential care
  • residential care for enhanced needs
  • standard nursing care
  • nursing care for enhanced needs
• 18+ domiciliary care

In addition to the median cost, the cost of care report is required to capture the lower quartile and upper quartile costs. This reflects that there are a range of local costs. The median figure will enable transparency and assurance that fee rates are moving towards the fair cost of care.

The government recognises that this may oversimplify what is a complex picture of care and support needs. But for data collection purposes it is necessary to find a way of standardising cost reporting.

The outcome of the cost of care exercise is not intended to be a replacement for the fee-setting element of local authority commissioning processes or individual contract negotiation.

In practice, and as many local authorities move towards paying the fair cost of care, it is expected that actual fee rates paid may differ due to such factors as rurality, personalisation of care, quality of provision and wider market circumstances.

Purpose of the cost of care exercise

The cost of care exercise is an opportunity for local authority commissioners and local care providers to work together to arrive at a shared understanding of what it costs to run quality and sustainable care provision in the local area and that is reflective of local circumstances. It is also a vital way for commissioners and providers to work together to shape and improve the local social care sector and identify improvements in relation to workforce, quality of care delivered, and choice available for people who draw on care.

Many local authorities have previously conducted cost of care exercises, using different approaches. The fund aims to encourage a consistent approach to cost of care exercises, based on existing good practice, and thereby ensure quality exercises based on high levels of provider engagement. Where a local authority completed an exercise in April 2021 or later, they may be eligible to use this for the cost of care report and data return. See table 2 below for more information.

Basic parameters of the cost of care exercise

Table 2: summary of the basic requirements of the cost of care exercise. Further detail is provided later in this document.

Exercise parameter	Approach to be taken
Objective of the exercise	Identify median actual operating costs of local authority contracted care in the local area, alongside justifiable approaches to return on operations and return on capital. The exercise will also identify the lower quartile and upper quartile costs.
Date of data collection	During or after April 2021. This means that exercises which have very recently been conducted, and use data collected during or after April 2021, may be acceptable (more information can be found in the Review chapter).
Price year of results and approach to inflation	Actual costs as of April 2022, reflecting the impact of the April 2022 National Living Wage and National Minimum Wage rise. If data relates to 2021 to 2022, the approach to inflating costs to 2022 to 2023 prices should be made clear.
Care locations to be invited to participate in the exercise	Local authority contracted care homes for older people (age 65+)[footnote 2] excluding local authority in-house care. Some residents in these homes may be aged under 65. Local authority contracted domiciliary care agencies (for those aged 18+) providing long term care, with a regular pattern per week, consisting of relatively short visits to support a person living in their own home with daily living tasks. Exercises should exclude rapid response provision, short term / reablement support, local authority in-house care, live in care, shifts or blocks of care, sitting services, extra care and supported living. (While extra care is in scope for use of the fund, cost of care exercises are not required for this setting.)
Geography of data collection	Local authorities may join together in gathering data, but exercise results need to be reported separately for each local authority. Some cost lines (such as return on capital) are more likely to vary by local authority than other cost lines.
Data collection tool	LGA and the Association of Directors of Adult Social Services (ADASS) have made available a domiciliary care tool and a care home cost of care tool which includes both an LA registration and a provider registration.
Cost to be covered by the exercise	Operating costs excluding Interest, Tax, Depreciation, Amortisation and Rent (ITDAR). Returns on capital and operations should be set out separately.
Handling of out of area placements	If you have a significant number of placements out of area, you may consider including those CQC registered providers too.
Care home service user categories	Care home results should be split into 4 categories: care home service without nursing, care home service without nursing (enhanced needs), care home service with nursing, and care home service with nursing (enhanced needs). “Enhanced needs” is intended to denote people who draw on care with significantly higher acuity of need (but not at the level of NHS Continuing Health Care).
Domiciliary care service types and categories	Councils may choose to collect and present costs per contact hour for different domiciliary care service types and categories relevant to their area (for example urban and rural). But only weighted average costs need to be reported in Annex A Section 3.
Treatment of care home occupancy	Costs should be calculated per resident per week, which takes account of average occupancy in 2021 to 2022. Local authorities may also collect current occupancy and mathematically adjust the median costs per resident per week accordingly.
Exercise outputs to be provided to DHSC	1. Cost of care data table, using the breakdowns in Annex A, Section 3. 2. Cost of care exercise report (this must also be published). Outline of key content (non-exhaustive) can be found in Annex B. A degree of approximation/mapping of results to this breakdown for exercises that were conducted before the breakdowns were made available, will be accepted.

Step one: set-up

Local authorities are required to complete a cost of care data table (see Annex A, Section 3) to meet the conditions of the fund.

This section sets out the suggested methodology for setting up a cost of care exercise to enable compliant completion of the cost of care data table.

Of key consideration will be the recommended functionality for the data collection tool.

Tools which follow our recommended functionality (as set out below), such as the LGA and ADASS tool, will enable easier completion of the mandatory data return.

Provider engagement

Local authorities are required to demonstrate how they have sought to involve all local providers and taken reasonable steps to support a full, complete, robust and representative information return for local providers. This should include non-contracted providers where appropriate.

Where local provider response rates are low, local authorities will be required to evidence steps they have taken to encourage participation.

Local authorities are expected to work with local providers and local and national provider associations to design a process they feel is efficient and effective for their local area. This may include working with local provider associations or third sector organisations to financially support local capacity, where appropriate. This is acceptable use of the implementation funding in 2022 to 2023.

Data collection and data collection tools for care homes and domiciliary care

Local authorities are required to collect consistent data from local providers on actual costs in order to make subsequent analysis feasible. A data collection tool (for example a spreadsheet or web-based tool) is an important means of supporting providers to achieve this consistency, undertake the exercise well and meet the fund requirements.

Local authorities should review the cost of care data table and use a tool they believe will provide the information that is required to populate this. Annex D provides an overview of the suggested functionality for the data collection tool.

Data collection tools meeting DHSC’s suggested functionality will be published by the LGA or ADASS which will be free to use for local authorities. This is the preferred approach by DHSC and care providers and their representative bodies to ensure consistency for providers spanning more than one authority.

Approach to outliers during the data collection stage

Where possible, local authorities should contact care providers where they identify information which seems to them to constitute an outlier. Local authorities should scrutinise cost outliers, in collaboration with the provider, and consider where they should be removed. The outlier may be a misunderstanding of the cost line, and resolving the issue may increase the effective sample size and quality of the report.

In house exercises versus external contractors

Local authorities may either use and recruit internal expertise or choose to work with an external contractor to conduct their exercise. This is an acceptable use of funding as part of the 25% allocation for implementation costs in 2022 to 2023.

Step 2: data analysis

Once data collection is complete, local authorities will be required to calculate the median costs of providing care in the local market for each of the cost lines in the cost of care data table.

Local authorities will also be required to determine a transparent approach for calculating a return on capital and return on operations appropriate for a sustainable local market.

A suggested approach for some of the remaining analysis and good practice can be found in Annex E and F.

Return on operations and return on capital

The cost of care exercises are required to report monetary amounts per resident per week and per contact hour for return on capital and return on operations.

Returns on capital and operations are based on judgement of what is needed in a sustainable market, informed by returns received and engagement with providers. While the cost of care template is expected to collect some relevant information, such as the freehold value of a care home (to which a percentage net rental yield can be applied), some judgement remains.

It is important for a local authority to undertake the necessary market analysis to understand what constitutes a reasonable profit (including re-investment in the business), or surplus, to maintain a sustainable local market in their area. Possible approaches to determining return on capital can be found in Annex E.

Step 3: preparing cost of care exercise outputs

Following the completion of the data collection and analysis, local authorities will be required to prepare 2 cost of care returns for each of the care settings, to evidence the exercises:

• cost of care data table: data tables demonstrating the median costs, broken down by the categories in Annex A, Section 3

• a cost of care report: transparently setting out the approach taken to data collection, analysis and reported results. An outline of key content (non-exhaustive) for the cost of care report can be found in Annex B

Required data tables for submission to DHSC

Completion of the cost of care data return with median costs resulting from the exercise, for each of:

• standard residential care
• residential care for enhanced needs
• standard nursing care
• nursing care for enhanced needs

For 18+ domiciliary care, the cost of care data return breakdown for overall cost per contact hour, plus any chosen specific service types such as night visits.

Required contents of a cost of care report

An outline of key content (non-exhaustive) required for the cost of care report can be found in Annex B. The purpose of the cost of care report is to help the local authority to demonstrate the process undertaken and that the cost of care identified is evidence based. The cost of care report must be published as this is important to ensure transparency.

Step 4: submitting the cost of care report and data table; publishing the cost of care report

The completed cost of care reports and data tables will need to be submitted to DHSC by 14 October 2022.

Local authorities are required to publish their cost of care reports once the DHSC review process is complete (see more information in the section ‘Review of cost of care reports’).

Following notification from DHSC, local authorities are required to publish the reports on their GOV.UK webpage, clearly labelled, searchable and in an easy to find location.

Market sustainability plans

Introduction

Alongside Cost of Care exercises, local authorities will be required to develop and submit a provisional market sustainability plan, which will be followed by a final market sustainability plan when local government budgets for 2023 to 2024 have been confirmed.

Underpinning these plans is a broad definition of market sustainability as set out in the Care Act 2014, which places a duty on local authorities to assure themselves and have evidence that fee levels are appropriate to provide the agreed quality of care, and also enable providers to effectively support people who draw on care and invest in staff development, innovation and improvement.

This ambition is in line with the wider, ten-year vision set out in the white paper, People at the Heart of Care. Cost of care exercises and market sustainability plans are some of the first steps on that journey.

As set out in the white paper, additional funding is being made available for, housing and technology; innovative new models of care; training, recognition and wellbeing for the social care workforce; and sector improvement alongside other reforms.

Purpose of the Market sustainability plan

The purpose of the market sustainability plan is for local authorities to assess and demonstrate how they will ensure local care markets are sustainable, as they move towards implementing reform.

The plan will assess the impact current fee rates are having on the market and the potential future risks (particularly in the context of adult social care reform). This assessment will enable local authorities to inform the development of mitigating actions, including how much they will need to increase fee rates over the three-year Spending Review period. Particular consideration should be given to the impact of further commencement of Section 18(3) of the Care Act 2014 (which is currently in force for domiciliary care only) and how sustainability of the 65+ care home and 18+ domiciliary care market can be improved.

Local authorities should also demonstrate in their market sustainability plans how its content complements other strategic documents, such as, but not limited to their Market Position Statements and demonstrate how they have worked with local providers to develop the plan.

Completion of the market sustainability plan is a condition of receiving future funding from the fund and the plan is to be submitted in 2 parts:

1. A provisional market sustainability plan is required to be submitted by 14 October 2022, outlining a local authority’s assessment of the sustainability of their local care market in relation to 65+ care home services and for 18+ domiciliary care services, which:

• takes into account the results from the cost of care exercises
• considers the impact of future market changes over the next three years, particularly in the context of adult social care reform
• sets out an outline action plan for addressing the issues identified and the priorities for market sustainability investment

2. A final market sustainability plan is required to be submitted by 27 March 2023, once budgets are agreed, following the publication of the Local Government Finance Settlement 2023 to 2024. The key addition at this stage will be the inclusion of a commitment for how the local authority will move towards the cost of care calculated in their exercise as part of their 2023 to 2024 budget setting process.

Local authorities are required to publish their final market sustainability plans (with commercially sensitive information redacted) once they are finalised and following notification from DHSC that the review process is complete (see more information in the ‘Review’ section). The confirmed deadline for local authorities to submit and publish their final market sustainability plans is 27 March 2023.

The document is required to be published on the local authority GOV.UK webpage, in a way that is clearly labelled, searchable and in an easy to find location.

Defining ‘market sustainability’

For the purposes of the market sustainability plans, a sustainable care market is defined as one which operates in an efficient and effective way, indicated by:

• sufficient supply of services to ensure continuity of care with minimal disruption in the event of providers exiting from the market

• there being a range of high-quality services for people to choose from

• sufficient investment in its workforce to enable the attraction and retention of high-quality care staff

• evidence of innovation and service diversity in order to evolve and meet changing user needs

• being attractive to new market entrants and able to manage and offset the impact of future market changes

This definition is linked to the market shaping duty placed on local authorities under section 5 of the Care Act 2014, with the outcome that people have a range of high-quality services to choose from, provided by a diverse range of providers.

It is important to note that market sustainability does not necessarily mean that providers do not ever exit the market (either due to business failure, a decision to close the business, or managed exits by local authorities), as it is normal in a healthy market for businesses to both enter and exit. However, a sustainable market will have the capacity and capability to ensure that there are sufficient care services so that continuity of care can be maintained for people who draw on care and support services^{[footnote 3]}. A sustainable market will also attract new entrants.

To develop the market sustainability plan, local authorities must conduct an assessment of the sustainability of their local care market. The assessment should be informed by a range of relevant data such as CQC returns, capacity tracker and Adult Social Care Finance return (ASC-FR) and Short and Long Term (SALT) collection, as well as local intelligence. As part of that assessment, local authorities should consider a number of indicators of market sustainability, alongside the cost of care, including:

• sufficiency of supply to ensure continuity of care (for example, are there some geographical areas where there are concerns regarding capacity, or over reliance on a small number of providers)

• levels of diversity in the market (both type of services as well as types of providers)

• quality of current services and whether there are concerns about quality in particular areas

• current average fee rates paid and if there is any underpayment compared to the cost of care calculated

• whether the current market conditions support development of the workforce, and whether there are recruitment challenges such as high levels of staff vacancies or staff turnover rates

Local authorities should use the above indicators to assess both current market sustainability and future sustainability, particularly in the context of adult social care reform and the further commencement of Section 18(3) of the Care Act 2014.

What the market sustainability plan should cover

The market sustainability plan has 3 sections, as follows:

• Section 1 – Local authorities should set out their assessment of the current sustainability of the 65+ care home market and the 18+ domiciliary care market. This assessment should draw on a range of information (for example cost information, trend information, provider feedback) to give a comprehensive and representative picture of the current situation.

• Section 2 – Assessment of (including quantification of) the expected impact of market changes over the next three years, including changes due to the further commencement of section 18(3) of the Care Act 2014, for each of the service markets.

• Section 3 - Plans for each sub-market to address the sustainability issues identified, including:

  • how the fund will be used to move towards a fair cost of care and help address the sustainability issues identified over the next 1 to 3 years
  • any further actions the local authority plans to take to support market sustainability (for example, improvement support to tackle quality issues or strategic planning for changes in types of provision in response to local need, taking into consideration the role of alternative models of care such as extra care)
  • how the plan complements other strategic documents or plans, such as, but not limited to Market Position Statements (for example, reference to wider plans to invest in alternative models of care)
  • how the local authority has engaged providers in the development of these plans

A template to complete the market sustainability plan has been developed and is attached at Annex C. The template contains further guidance on what local authorities, in consultation with their local provider market, should consider when completing each section of the plan. Use of this template is mandatory.

In addition to completing the market sustainability plan template, local authorities should also indicate in the data return (attached at Annex A, Section 5) what they consider to be the key strategic risk for the 65+ care home; nursing care market; and 18+ domiciliary care market. This should be based on the assessment of risks to sustainability as set out in the market sustainability plan.

The final section of this guidance outlines further resources which may be helpful to local authorities in developing their plans.

Improving contract management and commissioning

Alongside moving towards paying providers a Fair Cost of Care, the commencement of section 18(3) of the Care Act 2014, presents an opportunity for local authorities to achieve greater oversight of their local care markets, improving information about people who fund their own care. To maximise the benefits of these changes, local authorities should consider how they could best utilise the implementation funding to strengthen commissioning, contract, and quality management capability and capacity, in line with their market sustainability plans. This will help ensure that the fund leads to improved outcomes in the areas identified by local authorities as a priority for investment. For example, where a local authority has highlighted levels of quality in the domiciliary care market as a primary concern, implementation funding may be used to bolster contract monitoring and quality improvement capacity to ensure that implementation of sustainable fee levels delivers the desired outcome of driving up quality in the local domiciliary care market.

There are many examples of good practice in this area that can be drawn upon, including in the recent ASC white paper ‘People at the Heart of Care’. Examples include:

• working collaboratively at a regional level to develop outcome-based care standards, providing greater consistency for care providers
• embedding a strengths-based approach to the commissioning of domiciliary care services
• working collaboratively with the local care market to develop an approach to the commissioning of domiciliary care services which supports long-term sustainability of providers, helping to improve quality, innovation and delivering better outcomes for people

Reporting spend

Local authorities must use funding in line with the purpose of the fund as set out in the grant determination letter.

Government expects the amount of the fund that is spent on the different categories below to vary between areas depending on factors such as existing resourcing, capacity and capability to deliver the requirements of this fund, how local authority rates compare with cost of care exercise outcomes, and how many self-funders are in the local authority area.

Fund spending should be broken down into the following categories:

• spending associated with fee increases for 18+ domiciliary care (including domiciliary care providers who operate in extra care settings)
• spending associated with fee increases for 65+ care home places without nursing
• spending associated with fee increases for 65+ care home places with nursing
• spending associated with internal resourcing for implementation activities (plus number for full time FTEs)
• spending associated with external resourcing for implementation activities (plus short description of spend)
• other spend not accounted for above (plus short description of spend)

In addition, based on the local authority assessment of the key strategic challenges to the markets for 65+ care homes, care homes with nursing care and 18+ domiciliary care services, outlined in the market sustainability plan, indicate the key sustainability challenge for each market from the following:

• workforce supply and turnover
• quality of care locally
• further commencement of Section 18(3) of the Care Act 2014
• undersupply of care
• diversity of provision
• fee rate gap to cost of care

An example of this return can be found in Annex A, Section 5. This return must be submitted by 14 October 2022, alongside the cost of care exercise and market sustainability plan.

Support for local authorities

It is important that all local authorities in England have the support and tools they need to submit thorough, evidence-based cost of care exercises and market sustainability plans by the deadline of 14 October 2022.

DHSC is working with ADASS and the Care and Health Improvement Programme (CHIP) to ensure appropriate support is in place. Further details will be communicated through ADASS and CHIP and this is expected to be in early April. This support offer will function in a way that is consistent with the ongoing CHIP and ADASS regional sector-led improvement approach.

Review of cost of care reports, market sustainability plans and data returns

As set out in the policy statement published in December, DHSC will be formally reviewing local authority returns.

Below are the key principles for review of both cost of care exercises and market sustainability plans.

Detail on breaches of the conditions of the fund and withholding future funding, will be published in the grant determination letter.

Key principles for review of cost of care exercises and market sustainability plans

To support DHSC to understand whether a local authority has taken a robust approach to calculating the cost of care, three key principles will be considered: consistency, transparency and partnership approach. The types of questions set out below will be asked to underpin each of these key principles. DHSC will apply these principles to both stage one and two of the market sustainability plan submission.

Consistency

All returns must be consistent with requirements set out in guidance.

The key questions here are:

• are cost of care data returns, cost of care reports and the market sustainability plan submitted consistent with DHSC templates and core requirements, as set out in Annex A, B and C?

• does the spend data return meet the requirements and expectations set out in the grant determination letter [to be published shortly] for spend, and planning?

• are reports internally consistent – that is, does planned spend as set out in the data return align to the key sustainability challenges identified in the market sustainability plan, as set out in Annex C?

• are local authority cost of care data returns, reports and market sustainability plans, consistent with those of other similar local authorities? For example do any spend lines appear high or low, for market sustainability plans, is analysis of local market challenges consistent with national data, such as CQC provider ratings locally or ONS self-funder publication?

Transparency

Local authorities are required to present a transparent approach to all returns. The key questions here are:

• is the cost of care exercise evidence based?

• has the local authority set out how they have approached key cost lines, including return on capital, and return on operations in care homes, and return on operations and travel time in domiciliary care?

• does the market sustainability plan transparently demonstrate a considered analysis of local sustainability challenges, and clear strategy to address these, in line with the fund objectives?

• are market analyses undertaken at an appropriate level of detail, to drive robust local action? That is, have the key questions set out in the market sustainability plan template been addressed?

Partnership

Local authorities are required to work in partnership with local providers to support the delivery of the returns. The key question here is:

• have providers been given sufficient opportunity to participate in both cost of care exercises and market sustainability planning?

Where there does not appear to be sufficient evidence of the above in the initial returns submitted by local authorities, DHSC will lead a challenge session, including participation from peer reviewers, with local authorities.

DHSC may then ask for:

• more data or supporting evidence from the local authority
• further explanation of the approach taken
• for the local authority to undertake additional data collection

Where there is insufficient engagement, over a period of time, and/or DHSC is unsatisfied with the information or data provided then DHSC may withhold funding in future years.

Spend return (Annex A, Section 5)

Spend returns will be reviewed to understand whether or not spend has been allocated in line with the appropriate use of funding (see the section above on Appropriate use of funding).

Where DHSC has concerns, it will raise them with the local authority and identify key areas of concern. Where concerns are not addressed, DHSC will consider withholding funding in future years.

Time-period of review

All returns will be reviewed as quickly as possible over the autumn in order to use evidence returned by local government to inform design of year 2 of the fund; it is planned that further detail on year 2 of the fund will be announced at the Local Government Finance Settlement 2023 to 2024.

How DHSC uses the information provided

The primary use of this data is for local authorities to improve understanding of the cost of delivering care in the local area and to help prepare for reform.

Data provided to DHSC will be used to enhance insight into the delivery of sustainable markets and the delivery of charging reform locally. We will use it to develop an improved understanding of the readiness of the provider market for charging reform.

Information provided will also be used to help inform the design of year 2 of the fund, and the associated funding conditions.

If you have recently undertaken a cost of care exercise

Some local authorities will have recently undertaken a cost of care exercise.

Where a cost of care exercise has been undertaken during or after April 2021 this may be considered an acceptable return for this exercise.

Where an exercise was completed during or after April 2021 local authorities will need to consider:

• whether this accurately reflects current costs
• how they have adjusted for inflation since the exercise was carried out
• whether their approach to future inflation, return on capital and travel time remain relevant in future years

Where a local authority believes their exercise is still robust, and relevant, they should consider whether or not it is sufficiently detailed to fill in the template provided alongside this guidance.

A local authority should also contact marketsreform@dhsc.gov.uk at the first available opportunity in order to discuss the exercise they undertook with DHSC.

DHSC will expect to hear from any local authorities in this position by the end of May 2022.

DHSC will look to support local authorities in this position to meet the grant conditions as set out.

Cost of care exercises that have been undertaken prior to April 2021 will not be considered.

Appendix: useful links and resources

• CIPFA (2017), Working with Care Providers to Understand Costs
• LGA/ADASS cost of care templates
• Annex A, Section 3, cost breakdowns for use in cost of care exercise tools and reporting to DHSC
• Market Shaping
• Should Cost Modelling
• Social care market sustainability toolkit (Cordis Bright)
• Market sustainability and contingency planning guidance (LGA)
• People at the Heart of Care: adult social care reform white paper

1. Based on impact assessment modelling for fair cost of care. Impact Assessment template (publishing.service.gov.uk). ↩

2. See the CQC database of CQC-registered locations by service type and user band by area. ↩

3. See the social care market sustainability toolkit. ↩