What can we learn from the proposed NHS Standard Contract for 2021/22?
NHS England has published a consultation on its proposed changes to the NHS Standard Contract for the financial year ahead. The final document will be used by Clinical Commissioning Groups and NHS England to contract for all healthcare services bar primary care. The focus of any changes often provides important insight into system priorities for the coming year and the strength of conviction behind them.
With 2021/22 set to be another uniquely testing year for the NHS, one might expect measures to mitigate the impact of COVID-19 to dominate the contract. Instead, there is a sense of defiant ambition, with clear signals for providers to push on with other key NHS and government priorities.
With this year’s consultation now live, here are four key takeaways for the year ahead:
1. Don’t get left behind as the NHS pushes on with system transformation
The Contract for 2021/22 shows that NHS England is not letting up in its push for system transformation. It includes several steps to establish more collaborative relationships between commissioners and providers, the most symbolic of which is the removal of financial sanctions for providers that fail to achieve national standards.
This is a significant step towards reversing the transactional, almost adversarial relationship that has proliferated between commissioners and providers over recent years, instead encouraging more collaborative system-level action to identify and address the causes of poor provider performance.
The cogs of system transformation are well and truly turning again so engagement with NHS leaders will need to focus on how to support the achievement of their newly framed outcomes in the most direct way. Additionally, the prospect of major health legislation is looming large for the first time in almost a decade, providing an important opportunity to think bigger picture.
2. Get serious about delivering ‘Net Zero’
In October, NHS England published its report on Delivering a ‘Net Zero’ National Health Service, which set out the interventions required to achieve just that, ‘Net Zero’. Yet, the report itself had no legal standing on which to enforce its recommendations or incentivise action.
The inclusion of stronger targets on the reduction of harmful greenhouses gases and air pollution in the proposed Standard Contract for 2021/22, and a requirement for providers to identify board-level officers accountable for delivering ‘Net Zero’ commitments, is a clear indication that NHS England is serious about driving this agenda forwards.
The NHS will increasingly expect everyone who works alongside it to demonstrate that they are also serious about reducing their environmental impact. Medicines, medical devices, services and care pathways can all be made more sustainable. Clearly communicating what you are doing in this space could start to deliver a commercial advantage as pressure builds on providers and health systems to make rapid progress.
3. Offer a helping hand on health inequalities
Commitments to reducing health inequalities have been somewhat of a stalwart in NHS policy over recent years. The delivery of coordinated programmes at a local level that actually move the needle have not been so common. This was brought into stark relief by the disproportionate impact of COVID-19 on people of Black, Asian and Minority Ethnic backgrounds.
To create greater accountability at a local level, it is proposed that the Contract include a requirement for each provider to identify a board-level executive responsible for overseeing their actions to address and reduce health inequalities. With broader government and public focus on health inequalities brought on by COVID-19, the pressure on these individuals to demonstrate progress will be palpable.
Those working alongside the NHS should place increasing focus on how they support providers and health systems to address health inequalities. At a time when resources are stretched, we may find that some are actually more open to industry support in delivering staff training programmes, new capacity or improvements to patient pathways, but they’ll have to be able to justify the time investment. Demonstrating how you can contribute to reducing health inequalities could help to secure support for your joint working projects.
4. Communicate the benefits of remote consultations and management
Following the rapid up take of video and telephone outpatient appointments during COVID-19, the NHS is now trying to cement their use into everyday clinical practice by requiring all providers to offer patients (where appropriate) a choice between remote and face-to-face consultations. The hope is that this choice will be maintained in primary care too, where uptake of remote consultations has also rocketed.
However, to truly support clinicians and patients to select remote consultations in the long-term, the NHS will need to place additional value on health technologies that support effective remote monitoring and management.
Before some slip back into old habits, the wider health sector can play a role in crystallising broad clinical support for this new way of working. Arming your field force and spokespeople with clear, real-world evidence of how your technology is reducing the need for labour intensive, face-to-face clinical interventions could provide clinicians with the confidence to continue their transformation.
As the UK continues to struggle with the effects of the coronavirus pandemic, the frailty of our social care system has been confirmed, weakened by decades of underfunding and delayed reform. The government is now beginning to lay the groundwork of finding solutions to the complex problems the sector faces. However, the scale of the challenge involved – and the daunting political risks – mean the sector will have a long way to go before it can benefit from the pressure of the media spotlight government is under.
The social care sector is often seen as the poor relation of the NHS in the UK, fragmented and without the long-term funding solution pledged by successive governments. The social care green paper promised by then Prime Minister Theresa May in 2017 never materialised, and her successor Boris Johnson has yet to set out his vision for dealing with the system, beyond saying that he would be seeking a ‘cross party consensus’ on the way forward. There has been little evidence of this cross party approach in practice, but No10 and the Department for Health and Social Care are now assessing whether a social care tax for over-40s is a viable option.
With the issues the sector has grappled with for more than a decade becoming more pressing with every passing day, the government will struggle to put off reform for much longer.
Legacy issues have been compounded by the covid crisis
Even before the coronavirus pandemic, the UK’s social care sector was under serious strain. A June 2019 survey published by The Association of Directors of Adult Social Services (ADASS) found that in the previous six months, 80 councils had experienced a home care provider failing and 38 experienced providers handing back contracts.
Despite rising demand for care across the UK, investors drawn to the sector are struggling to find ways to translate demand into a strong business model. Now, rising PPE and staff costs, and falling resident numbers mean that care homes are under even greater financial strain. The government has allocated £3.2 billion to councils in the past two months to help them respond to coronavirus outbreaks, but to date, the additional funding – in the form of an increase in the fees they pay care homes – has failed to reach some providers. An example of this was in Sheffield, where on 19 May care homes wrote to the council to ask for additional support, arguing the forms they were required to fill in to access the funding were overly complex and made the system too slow.
The government is continuing to seek solutions to the additional pressures coronavirus has put on the social care system. On 8 June Health Secretary Matt Hancock announced the formation of a new coronavirus social care support taskforce led by David Pearson. The task force is responsible for the delivery of practical advice and support for the care sector, but no additional funding is available through initiatives it manages.
Many privately owned care businesses are also holding high levels of debt. Accounts for HC-One, Four Seasons Health Care, Barchester Healthcare, and Care UK, which combined run about 900 care homes and look after 55,000 residents, show they are paying an overall average rate of almost 12% interest on total debts of £2.2 billion, according to Opus Restructuring. To pay debts as well as meet staffing and care costs, as well as the increasing cost of PPE, an estimated occupancy of at least 80% is required – a figure increasingly difficult to maintain as the pandemic continues. The Knight Frank care home index found an average occupancy rate of 88.9% in 2019, but the sector has reported a decline in occupancy of between 4%-8% in April 2020, potentially putting remaining residents at risk of their care provider becoming insolvent.
Issues with quality, while improving, also remain more common in for-profit care homes. 84% of care homes run by local authorities were rated good or outstanding in 2018-19, compared with 77% of for-profit homes, according to LaingBuisson analysis in August 2019. This could be in part a funding issue. Analysis by Care UK has found evidence of local authorities providing preferential funding to their own care homes, at the expense of for-profit providers. One council, for example, was found to be paying £650 per person per week for its own care home versus less than £500 to an independent provider. LaingBuisson estimates costs for a well run home will be between £623 to £726 a week per person, meaning some for-profit providers will be struggling to make fees cover the cost of care.
Coronavirus has once again brought the issue of quality of provision in care homes back to the top of the political agenda. After the media drew attention to the 10 coronavirus related deaths in a single HC-One owned care home on Skye in May 2020, the regulator carried out an inspection and raised “serious and significant concerns” about its management.
The whole sector should expect more scrutiny of the services it is providing, from the media and parliament, particularly as the coronavirus inquiries begin. Care homes, particularly larger chains with complex management structures, will see enhanced, sustained scrutiny as a result of the coronavirus crisis, with politicians and the media alike keen to assess how businesses have managed the crisis, and where mistakes were made. Care homes, with their tragic death toll and specific vulnerability to the disease, will be an area of focus as the government looks to learn lessons from the pandemic.
A significant issue for the sector, and one that has been repeatedly highlighted by politicians and the media during the coronavirus pandemic, is the comparatively low pay of care workers. All supermarkets now offer higher minimum hourly pay than the average social care worker hourly rate. Unlike other sectors, opportunities for promotion and pay increases are often hard to find, leading to an average annual staff turnover of over 30%. Although care workers will benefit from increases to the National Living Wage pledged by the government, if other sectors continue to go above and beyond the minimum standard, the sector will continue to struggle to find enough staff. Care England, the representative body for independent care providers, has warned that without an increase in the fees local authorities pay care providers, increases to the Living Wage will be unsustainable for the sector. Without an increase in funding levels, the government risks further destabilising the sector through the NLW increase, but without higher pay, the sector is unlikely to find the long term staffing solution it needs. Finding a solution that works for the sector, its employees and the government will be key to any long term settlement.
What is the future of the sector?
Social care will certainly face some difficult days ahead, and business failures are likely. However, the coronavirus crisis could be the wakeup call the government needs to enact real change in the sector and to give it the stability it needs. Media scrutiny has never been higher, and the oncoming onslaught of parliamentary and independent inquiries into the response to coronavirus will inevitably lead to focus on how the government should rectify the problems in the sector. A continuation of the status quo is likely to become impossible as pressure grows.
Large care providers, particularly those owned by private equity investors, will face more pressure than ever to demonstrate their value to the sector and the quality of their services. This will require a concerted communications effort with government, regulators and, in some cases, the media. If the sector is to ask the government for additional support, it will need to demonstrate why additional funding is necessary and to assure the government that businesses receiving additional funds are responsible employers and care providers. The affairs of care providers, like the wages they pay to staff, the amount of tax they pay, and the fee structure they use for residents, will soon be under much closer scrutiny.
This will be a particular challenge for private equity owned businesses, where perceptions of highly paid executives using profits to fund bonuses, rather than improvements in care, continue to persist. Without addressing the perceptions of policymakers head on, for-profit care homes will struggle to make an impact on government policy and will find offers of financial support thin on the ground. P
The government’s response to Covid-19 has also demonstrated that Private equity as an industry will itself face this challenge. Government reticence to provide financial support to private equity backed businesses during the crisis has laid bare how reputational challenges translate into real world business problems. The private equity industry will have to tackle negative perceptions of the sector head on to ensure the government understands its needs, and the needs of its portfolio companies.
Investors willing to look at the longer-term picture for the sector could be rewarded with a new, more stable financial settlement, if the government is prepared to make hard choices on how it will be paid for.
Polls show there is public consensus on how to pay for social care – a system that is free at the point of use, funded by general taxation in a way that is similar to the NHS. However, the additional funding required for social care is substantial, and very many people will have less disposable income as a result of the lockdown and likely economic downturn. How government chooses to balance this trade-off will say a lot about its longer-term priorities. Recent reports indicate that the government is considering taking advantage of the public polling to introduce a new system of taxation for over 40s to help pay for elderly care.
Before the coronavirus pandemic, the government was revisiting the recommendations of the 2011 Commission on Funding of Care and Support and held talks with the Commission Chair Sir Andrew Dilnot. The main principles of the Commission’s recommendations were a more generous means test for government funding, combined with a lifetime cap on care costs. Versions of Dilnot’s model were proposed and subsequently dropped by both David Cameron and Theresa May, who both saw the electoral pitfalls of tackling the social care crisis head-on.
Now, the government appears to have advanced its thinking in response to the clear urgent need for reform displayed during the pandemic. Health Secretary Matt Hancock in particular advocates taking inspiration from countries thought to have successfully found solutions to funding social care, while encouraging the development of a well functioning competitive market for providers.
Two sources of inspiration are Germany and Japan, where the ageing population led the two countries to reform their respective elderly care systems far earlier than in the UK. In Germany, reforms introduced in 1995 introduced a social care insurance system, with employees paying around 3% of their income annually and the amount being matched by their employers. This insurance system covers the cost of a minimum standard of care for individuals regardless of their age and is not intended to cover the full cost of an individuals needs. For providers, the system combines the nationally set benefits with local commissioning which combines financial certainty for providers with local flexibility, allowing them to negotiate with local authorities for funding that reflects the needs of the area.
The system in Japan, introduced in 2000, is relatively similar to that of Germany. Long term care insurance provides universal care to those over 65, covering an unusually wide care remit that includes wellness and prevention. Insurance payments are compulsory for over 40s, with the rest of social care funding being collected from general taxation. In addition to paying premiums, service users must pay a co-payment when accessing services, although those on very low incomes are exempt. Most people pay 10% of their care costs, although this rises to 30% for those on high incomes. The care provider market is an incredibly competitive one, primarily consisting of small care providers and which are a mix of for-profit and not-for profit companies, social enterprises and charities.
Both of these systems have significant attractions for the UK government and show that creating a care system that satisfies the population while limiting government expenditure is possible. Issues with both systems still remain. The cost of care, particularly in Germany, has risen in recent years, increasing the amount of care people must self-fund and both Germany and Japan suffer from the same workforce shortage issues faced in the UK. However, with the UK’s social care system untenable in its current form, social care providers can look to the examples of both Germany and Japan and see a way forward that includes high quality of care and financial stability for the market.
The road ahead for social care is certainly difficult and there are no easy choices. Yet the sector needs change, and pressure will continue to grow for meaningful sector reform. Johnson has promised this reform, but with everything else the government has to deal with at the moment, we may be waiting a while longer for the difficult decisions to be made.
This article was originally posted on 9 June and amended on 28 July.
It’s no secret that the UK’s population is aging, with one in seven people predicated to be over 75 by 2040. Retirees are now thinking about the care they will need in old age earlier and are becoming more discerning in their choices. Some providers are taking inspiration from America, where the variety and scale of retirement care options are far greater, and establishing community style retirement villages in the UK. However, plans for increased regulation of the sector will require investors to consider the practices of individual operators, and whether their business models will be compatible with additional scrutiny of the fees charged to residents and their families.
Often less reliant on local authority funding than standard retirement homes, investors are already swooping in to provide retirement communities with much needed capital to expand and keep pace with rising standards (and demand for beds). AXA Investment Managers, L&G Capital and Goldman Sachs have all entered the retirement living market in the UK in recent years, taking advantage of the scale of the potential opportunities presented by the sector. Retirement villages have captured the ‘luxury’ end of retirement care, offering older people an alternative to conventional care homes or sheltered accommodation. This model is certainly attracting attention, with estate agent Knight Frank predicting that the value of the retirement living private market will increase by over 50 per cent by 2022 to £44 billion.
The model is proving so popular that some of the larger retirement village operators, such as Audley, are now expanding their business to include a ‘mid-range’ offering – the same model of care but with a lower price tag. Their first community of this type is due to open in late 2020. Despite demand, the UK still lags behind other countries. According to Michael Ball, Professor of Urban and Property Economics at Henley Business School, owner-occupied retirement housing represents just two per cent of Britain’s total housing stock, compared to 17 per cent in the US, and 13 per cent in Australia and New Zealand.
Though the risks are lower than conventional retirement homes, this newly emerging style of retirement living is likely to attract regulatory scrutiny in the coming years due to a series of media stories relating to poor practice. Often, residents will buy their own home as a leasehold, then pay an annual service charge to the operators to cover the cost of additional care they require. This model has run into difficulties when occupants or their relatives look to sell the property, with the “exit fee” payable each time the property is sold often being at least 12.5 per cent of the sale price, with some companies charging up to 30 per cent.
The Law Society published the results of a consultation on these exit fees in 2017, finding that there are “major problems” with the fees and recommended that retirement villages be regulated to protect residents from agreeing to pay fees they are not fully aware of. The government has provided an interim response to the consultation, pledging to “align these recommendations and help ensure that they can be fully implemented.” Some in the industry, including estate agent Savills, have said that the delays to introducing regulation are hampering the growth of the sector, as investors and businesses face ongoing regulatory uncertainty.
The details of how the sector will be regulated have not yet been announced and are likely to face delays in the face of pressure caused by Brexit. However, it is likely that a code of practice, potentially accompanied by additional inspection powers, will be introduced to assess the financial responsibility of retirement village operators. While this will affect the way some operators do business, particularly in terms of the contracts offered to potential residents, a clear statement of intent from the government is likely to be positive for the industry as a whole, and in particular for those businesses that operate with residents’ interests at heart. Investors looking to take advantage of this lucrative sector will have to consider whether potential investments will be compliant with likely regulatory requirements, or if they are willing to take on the additional costs of transforming businesses that are set to be subject to regulatory scrutiny.
The NHS Long Term Plan, published in January 2019, identifies newly established primary care networks (PCNs) as important drivers of NHS reform. By June 2019, PCNs will bring local GP practices together into geographical networks, covering populations of between 30,000-50,0000 patients. GP practices have worked collaboratively for years, but the new GP contract, taking effect in April 2019, and the NHS Long Term Plan, have created the more formal PCN structure. According to The King’s Fund, the thinking behind PCNs is that they will allow general practices to benefit from economies of scale through increased collaboration: staff can be shared between practices, estates can be managed more efficiently, and practices will find it easier to work with the wider health system.
PCNs will be expected to provide a wide range of primary care services to deliver the NHS national service specification, and this will be a level of service beyond what individual practices can provide. These services will include access to: a pharmacist, physiotherapy, extended GP services and social prescribing link workers (non-clinical services, e.g. healthy eating advice). From April 2020, PCNs will be required to deliver services including structured medication reviews, personalised care and supporting early cancer diagnosis. By 2021 PCNs will be charged with discovering cardiovascular disease in patients and addressing health inequalities in the local population.
The funding for PCNs is in the form of a directed enhanced services (DES) payment. This payment will be worth £1.8 billion by 2023/24 and includes money to support the working of the network, and up to £891 million to support the hiring of additional staff. As part of the new GP contract, the funding from NHS England for primary care and community care will put the total increased investment into general practice at £4.5 billion by 2023. GP practices will not have to join a PCN; but if they choose not to, they will miss out on the extra funding provided by NHS England.
The creation of PCNs, while providing the foundation for a more efficient and better-integrated system of primary care, brings with it both challenges and opportunities. One particular challenge concerns how PCNs can take advantage of the efficiencies that could be realised through reform of NHS estates. Greater collaboration between GP practices raises the possibility of consolidating existing property assets to achieve efficiency savings. By grouping key services in one location, PCNs will be able to cuts costs by reducing the replication of facilities and enjoy economies of scale related to administrative savings. However, in many instances, to achieve these savings PCNs will need new purpose-built centres that can provide a host of primary and community care services. This represents an opportunity for private firms that specialise in the provision and management of healthcare facilities. As PCNs become more established, there is likely to be increased demand for facilities that can improve outcomes for patients and help the NHS work more efficiently.
PCNs require GP practices to work more closely with each other, as well as with other primary and community care providers. To ensure this communication occurs effectively, there will need to be significant investment in digital technology to facilitate record sharing and appointment booking. Also, it is a key element of the NHS Long Term Plan that, over the next five years, PCNs will have to offer patients telephone or online consultations. NHS England is also planning to use digital technologies to expand the GP workforce by offering more flexible working conditions to part-time GPs. It was announced in the Long Term Plan that NHS England would “create a new framework for digital suppliers to offer their platforms to primary care networks.” There is a clear need for increased use of enhanced digital technology to help administer the new network of PCNs, and it is a need that many firms will be looking to fulfil.
However, there are some risks to the private-sector from the reforms in the new GP contract. Under the new contract, GPs will not be allowed to advertise private healthcare services in their surgeries, nor will they be allowed to permit private GPs to offer services in their practice. These rule changes mean that practices will not be able to charge patients to see a doctor more quickly and patients will not be able to be charged for services that are offered for free on the NHS. The aim is to create a stricter divide between NHS GP care and the private sector. There is the suggestion that this is the first step by NHS Chief Executive Simon Stevens towards reducing the privatisation of NHS services, as NHS bosses are concerned that privatisation undermines the ability of the NHS to provide ‘joined-up’ care.
The NHS is undergoing significant reform, and with this reform the NHS is taking on a Janus-faced approach to the private sector. In many areas, the NHS will not be able to move forward without working closely with the private sector, yet stricter rules could be on the horizon that will limit the involvement of private firms in the supply of NHS services. There is certainly room for the private sector to thrive working with, and alongside, the NHS, but there could be some twists in the road ahead.