North East council to appeal after High Court blow over care home fees

A council in the North East has vowed to appeal after losing a High Court battle over the rates it proposed paying care home providers, claiming it was time to "draw a line in the sand".

In Care North East Newcastle, R (on the application of) v Newcastle City Council [2012] EWHC 2655, the claimants sought to challenge the local authority’s decision on 26 March 2012 to fix the rates payable for 2012/13 and require them to sign a contract agreeing to the rates by 30 April 2012 in default of which no new placements would be placed with them.

Four grounds were advanced on behalf of the claimants, who represent 15 of the 21 care homes currently recognised as Grade 1 quality (the highest of the four grades). They were that Newcastle:

1. failed to inform itself of the costs to care home providers of providing services before setting its rates and so acted contrary to the relevant guidance;
2. acted irrationally and/or failed to take into account relevant considerations in reaching its decision;
3. failed to comply with its duties of consultation; and
4. imposed contractual discounts on providers at lower than the "usual rate" and refused to place residents with any provider who refused to agree the discount and in doing so acted unlawfully.

Judge Gosnell found in favour of the claimants on all four grounds. He said: “Where the local authority has asked itself the right question, has used an evidence-based system to ascertain the actual cost of care and has then made a difficult decision about the allocation of resources the court will support it."

But the judge said the council had used a report prepared by PriceWaterhouseCoopers “as the means to ascertain the actual cost of care but has populated it in a misleading way, by using figures for inflation which are inaccurate, by making a deduction for efficiency savings which was not justified and by completely stripping out or almost stripping out return on equity which would be bound to have implications for the sustainability of the care homes market.

“By doing this the defendant has given its decision makers the impression that the rates being proposed will be acceptable to the market and will enable a sustainable and reasonably profitable market to continue. Had the model been populated with statistics in accordance with its author's likely views it would have revealed a very substantial difference between the author's view of the actual cost of care and the rates the defendant was proposing to pay.”

Judge Gosnell said the council had either acted irrationally or failed to take into account relevant considerations in both stripping out return on equity and imposing a 2% efficiency saving.

The judge also concluded that the views of the consultees were not accurately reported to the decision makers, they were only asked a limited number of questions and the reasoning behind the council’s decision making was not disclosed to them until after the decision was finally made.

On the fourth ground, Judge Gosnell said: “What I think must be unlawful is the defendant refusing to place new residents with any care home who have not agreed to the discount the defendant is seeking.”

He also accused the council of abusing its dominant position in the market to drive down fees.

The judge quashed the 26 March decision to fix the usual rates to care home providers for 2012/13. He said the claimants were also entitled to a declaration that Newcastle may not refuse to place residents with providers if they decline to accept placements at rates discounted from the usual rates without agreement.

The council was therefore ordered to reconsider its decision fixing rates.

In a statement, Newcastle’s director of commissioning Rachel Baillie said: “Newcastle City Council is pleased we have been granted a stay, allowing us to apply to the Court of Appeal. At the heart of this issue is an important point of principle. We believe that whilst the council has a moral and legal duty to look after our most vulnerable people, we have no duty to guarantee healthy profits to the companies that do it on our behalf.

“We cannot continue to spend a large proportion of our social care budget – which will come under increasing strain over the years ahead - on what we believe is an unsustainable industry which suffers from chronic over-capacity sustained by unrealistically high profit margins.”

Baillie said the PWC model assumed a 15% return on equity, a figure the council did not believe was sustainable in the current climate. “In setting a fair price we believe we are required to consider the actual costs of care - not the actual costs plus an unrealistic level of profit,” she argued.

Newcastle’s director of commissiong said: “We believe that by appealing we can draw a line in the sand and hopefully lead the way for other councils across the country that prioritise good quality, value for money care based on real costs, not inflated profits for the private sector. At the same time we will continue to lobby Government to address the overall funding gap in social care.”

Baillie added that, “win or lose”, Newcastle wanted its appeal to give clarity to negotiations that in the past had been “protracted and unfocused”. She said: “We hope the courts can give councils the guidance they need to reach agreement with care providers which are both reasonable and affordable in the current financial climate.”

The council will agree an interim arrangement ensuring that providers will continue to be paid.

The Newcastle case is the latest in a series of judicial reviews brought by care home providers over local authorities’ fee-setting. Judgment in a recent case involving Devon County Council – which saw the intervention of the Equality and Human Rights Commission – has been reserved but is expected to be published shortly.

Philip Hoult