Care Home Fees – Local Authority Duties Questioned

Care home providers are often at the mercy of local authorities as to price and price review for residential care. Often in the contracts that are signed there is little or no ability to negotiate and penalties, such as refusal to place residents, unless the price reviews are accepted. This, of course, has income ramifications for care home providers who will, no doubt in the future, look to increase private resident numbers leaving fewer places for local authority funded residents.

The last six months have seen several High Court decisions looking at the way local authorities set care home rates, and in three out of four decisions the challenging care home providers were successful and the court overturned the councils' rate setting policies.

In one of the first recent decisions in this regard, Care North East (an unincorporated association representing care home providers in the Newcastle area) was successful in bringing a claim against Newcastle City Council in connection with its approach to setting fees which it is willing to pay for residential care.1. The Council fixed its rates for 2012-13 and then required the care home providers to sign contracts agreeing to these rates by a specified date and if they did not, no new residents would be placed with them.

The court held that even though the Council had adopted a costing model which was in essence acceptable, it had then populated it in a misleading way using inaccurate inflation figures, deducted efficiency savings which were not justified and taking out any return on equity. The court acknowledged that the Council had to balance fairly its duties in providing statutory services with its fiduciary duty not to waste public money but it found that the Council had:-

failed to inform itself of the actual costs to providers before it set the rates and acted either irrationally or failed to take into account relevant considerations when taking out return on equity and imposing the efficiency saving; failed to consult properly as required under public law; and abused its dominant position by refusing to place new residents with providers who did not accept the rates. The court further made a declaration that the Council may not refuse to place residents with providers if they decline to accept rates which were discounted from the usual rates without agreement and the court ordered the Council to reconsider its rate fixing decision.

Similarly, the High Court overturned the rate setting...