Council ordered to retake care home provider fees decision – for second time

A county council has warned that “alarms bells should be ringing across local government” after a High Court judge ordered it to retake – for a second time – a decision on the level of fees paid to care home providers.

Pembrokeshire County Council’s original decision to pay £390 a week per resident in 2010/11 was quashed by Mr Justice Hickinbottom in the Forest Care Homes case in December 2010. The local authority subsequently raised its payment per resident to £464 per week.

But in Mavalon Care Ltd & Ors, R v Pembrokeshire County Council [2011] EWHC 3371, the claimants – seven care home providers that deliver 22.4% of all beds in the area – sought a judicial review of that new decision as well.

The principal challenge was to Pembrokeshire’s conclusion that the appropriate rate of return on capital was 6% rather than the 12% used since 2008.

The claimants argued that the council was in breach of its statutory duty under section 21 of the National Assistance Act 1948. It was submitted on their behalf that the methodology the local authority adopted in arriving at the 6% rate for return on capital, which resulted in a fee of some £52 per resident per week lower than it would otherwise be, “lacked any rational foundation, failed to take account of its legitimate current and future costs, did not consider what they needed in order to be viable, and gave no incentive for care home providers in Pembrokeshire to improve their facilities”.

An important part of the council's reasoning was said to proceed on its error (also identified in the Forest Care Homes case) in considering that the rate of return to be allowed in cases where the aim was to maintain the sector differed from the rate to be allowed where the aim was to encourage new building.

The new decision was also challenged on three further grounds. These were that:

• Pembrokeshire failed to consider and to take into account whether, in particular in the light of Mr Justice Hickinbottom’s judgment, underpayment of fees by the council in the past had left an accumulated deficit in the claimants' capital reserves which needed to be addressed because of its impact on the sustainability of their homes
• The council failed to consider the interests of residents and the impact of the lower rate on them
• The council failed to take account of relevant guidance by the UK government and the Welsh Ministers.

Pembrokeshire did not defend claims that its director of social services (Mr Skone) had either lost sight of or had insufficient regard to guidance given by Mr Justice Hickinbottom in the Forest Care Homes case. However, it argued that, on the basis of his considerable experience in the sector, the conclusion he reached on the rate of return was a lawful one.

Counsel for Pembrokeshire said that it did not necessarily follow from the fact that the methodology may have been flawed that the fee level that was set was wrong. It was also argued that the director had addressed the key issues of quality and sustainability of a service that achieved at least the minimum standards.

But Mr Justice Beatson found in favour of the claimant, concluding that Pembrokeshire was effectively asking the court to put aside the process and consider the merits of its decision.

“Since the court is not the primary decision-maker, the approach urged on it…. is to infer the legality of what was done from the size of the percentage increase in the rate and Mr Skone's expertise,” the judge said.

“However, notwithstanding the size of that increase and the undoubted considerable expertise and bona fides of Mr Skone, it is not possible to ignore the fact that the reasoning in the decision letter contains two errors.”

These errors were:

• Treating the fact that the council did not want to incentivise new building as a reason for paying less by way of capital return, even though Mr Justice Hickinbottom had expressly stated that this was wrong.
• It appeared that Pembrokeshire considered that the 25% fall in the market value of care homes identified by Christie & Co (a specialist care home agent) justified lowering the rate of return, “although there was no inquiry by PwC or anyone else as to whether there is a link between the fall in market value and the rate of return. This could have been done…”.

Mr Justice Beatson backed the claimants' contention that an important part of Mr Justice Hickinbottom’s judgment in Forest Care Homes had been lost sight of.

“Also, as far as the link between the fall in market value and the rate of return, Mr Skone, or probably the consultants who were advising the council, failed to take reasonable steps to acquaint themselves with the relevant information as to the significance of the fall in market value,” he added. “In that sense, the council fell into public law error.”

The judge said these errors could be analysed in one of two ways: that it failed to ask itself the right questions; or that its decision was based on irrelevant factors.

“It is, in this context, also to be noted that there is no positive external support; either contemporaneous to the decision….or subsequent to it...., for the adoption of 6% as the appropriate rate of return of capital,” he added.

Mr Justice Beatson suggested that the clear message from Mr Justice Hickinbottom’s judgment was that “a decision-maker who agrees to use a model, but then wishes to depart from it, needs to take great care lest the departure is an inappropriate one”.

The judge said it was not possible to assume that, if Mr Skone and the council had properly understood that the return on capital should be the same whether or not the council was seeking to incentivise new buildings, his decision as to the appropriate fee would have been the same.

He therefore concluded that the decision must be set aside and remitted to the council for the redetermination of the rate for 2010/11.

However, the judge also ruled that the council was not obliged to deal with the issue of the providers’ accumulated deficit.

A spokesman for Pembrokeshire said: “Obviously the council is disappointed with the judgment and we need to reflect upon the detail in it. The matter will be considered by members in the New Year.

“The position in which Pembrokeshire County Council finds itself will set alarm bells ringing throughout local government. Across the whole of the UK, adult care is already a service in financial crisis.”

The spokesman claimed that Pembrokeshire – among the 22 local authorities in Wales – already paid one of the highest rates to care homes.

However, the council welcomed the fact that the judgment had ruled out retrospective payments. These would have meant an estimated cost to the local authority of £6m.

She added: “There may well have to be a political solution as to where the money comes from – which may involve some very difficult decisions being taken – and providers must undoubtedly expect to be scrutinised closely about exactly what they have done with the money.  What is no longer acceptable is to expect either commissioners or providers somehow to achieve what has been described as 'financial alchemy' – the production and sustaining of gold standard services out of base metal resources."

Philip Hoult