‘Limit profit-making from children’s services or risk cartel’, directors urge

ADCS ‘disappointed’ Competition and Markets Authority did not back limit on profits, despite it finding councils’ ‘weak’ position enabled large providers to make more money than expected

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Profits in children’s services should be banned or limited to tackle a market ripe for a “cartel” of providers, the Association of Directors of Children’s Services (ADCS) has warned.

ADCS made the call in its response to the Competition and Markets Authority’s (CMA) interim report from its study of the children’s social care market, issued last month.

The report found that profits for large children’s home and fostering providers were higher than would be expected for a well-functioning market because the lack of placements left councils in a weak position, particularly when finding placements in a hurry.

ADCS backed the CMA’s diagnosis, saying “little competition between an ever-shrinking group of providers tightly controlling supply, [creates] ideal conditions for a cartel”.

The directors’ body pointed to one authority where the average cost for a children’s residential placement for a 16-year-old was about £5,000 per week compared to around £1,200 per week for  a younger adult with learning disabilities.

It said differences in legislation and some allowances paid for children could not account for the difference in cost between the two markets alone.

‘No evidence profit-making reduces quality’

ADCS said it was disappointed the CMA was unclear on the benefits of limit to for-profit provision or on prices or profits.

The CMA reported that individual authorities were responsible for too few children to shape the market and suggested moving towards regional or national procurement or commissioning of looked-after children’s placements.

But it raised concerns about calls to restrict providers’ profits and prices due to fears this could further restrict a lack of supply in the children’s social care sector.

ADCS said profit limits would improve value for taxpayers and enable councils to invest in early help services and only work with providers “focused on delivering positive outcomes for children and young people, rather than significant levels of profit”.

The directors’ body also urged the CMA to investigate why voluntary sector providers were under-represented in the children’s social care market.

‘Prices based on cost’

However, the Independent Children’s Homes Association (ICHA) said prices “can normally be related to [children’s] needs and the actual cost of provision”, rather than an imbalanced market.

“Whilst there is clearly profit being made by some providers the cost of placements across the sector does not vary widely,” it said in its response.

“Solo occupancy of a three-place home commissioned through a need for intensive staffing and no other children, will clearly be moving the cost towards treble the norm.”

Meanwhile, the Nationwide Association of Fostering Providers (NAFP) said there was no “credible, robust evidence” that profit-making makes foster care services worse or more expensive.

“CMA recognises that independent fostering agencies (IFAs) are efficient and effective with a tighter, focused business model, not as a result of reducing service,” it said.

“We would welcome further explanation of the measures of profit chosen by the CMA.”

Private equity concerns

CMA also raised concerns about the impact of private equity ownership of providers, particularly among children’s homes, because of the high and increasing levels of debt they were carrying.

The watchdog suggested creating a financial oversight regime – similar to that in adults’ services – to manage the risk of providers failing and disrupting children’s lives.

ADCS said there were “clear benefits” to considering such a regime to reduce these risks, including limits on borrowing and provider risk-taking.

The ICHA said it accepted the “current disquiet about levels of debt” held by children’s homes providers and that this should be monitored, suggesting this be added to Ofsted’s remit.

Ofsted recently suggested its powers could be expanded to scrutinise children’s homes groups, but said that it would have to recruit staff with more financial expertise in order to investigate their boards.

Directors warn against regional commissioning

ADCS raised concerns about the CMA’s suggestion of a shift towards regional or national commissioning of placements to give commissioners more clout with providers.

It said individual councils were well-placed to commission care because of their oversight of wider children’s services and role in bringing together providers and other partners to help meet children’s needs.

It admitted there were barriers to councils collaborating with each other and urged the CMA to explore solutions to this further.

But it argued against the creation of regional or national bodies to oversee commissioning, warning that “structural reform has a legacy of over promising and under delivering”.

“With appropriate investment in capacity, local authorities are best placed to undertake strategic commissioning activity, the knowledge and expertise is within the local government family,” it said.

ADCS said that if CMA were to propose any collaborative arrangements, they should enable councils to work together in some situations “while maintaining their own autonomy and acting as single entities”.

‘Councils and providers should share risk’

The ICHA was similarly sceptical about regional commissioning, saying “attempts over the years have not always been successful due to individual authorities having different outlooks and needs”.

Instead, it called for local authorities to share “risk” with the providers they commission, and said they needed to have greater understanding of children’s homes’ capabilities and restrictions.

However, NAFP said the current system of commissioning services based on local authority boundaries “has not been proven to be effective over many years”.

“Our view is that national governments may need to take a greater lead, though not necessarily a substantial role, than they have traditionally been willing to.”

“For instance, development of consistent contracting terms or monitoring of impact would remove duplication and bureaucracy.”

‘Regulatory reform needed’

The CMA also called for a review of the children’s services regulatory regime to enable providers to increase supply, saying some regulations were “unwittingly creating barriers” to meeting children’s needs.

ADCS agreed that the regulatory regime needed reform, saying homes were increasingly reluctant to accept children with complex needs, particularly in a crisis, for fear of jeopardising their Ofsted rating.

It suggested registering providers once rather than for each setting could allow councils to tailor the support around children’s needs, particularly those with complex requirements, and would reduce the burden on providers when setting up new provision.

ICHA meanwhile said the current regulatory system had led to smaller children’s homes, which made matching children more difficult.

“A significant number of providers choose to leave beds empty rather than risk destabilising other placements or attracting a lower grade, and whilst Ofsted insist that they do not influence placement choices, many providers have reported different experiences,” it said.

“There is no easy solution to this but sharing risk when placements are rocky, and local authority support for providers challenging Ofsted decisions may be a step in the right direction.”

Distinction between large and small providers

ICHA and NAFP both said the report did not specifically address their members as it focused only on the largest 15 care providers.

“It does not adequately represent the smaller ones who currently make up around half of the sector,” said ICHA.

“We accept and share concerns regarding leverage and look forward to your findings in the final report. However, small to medium providers are equally fragile but in a different way.”

NAFP similarly agreed that the review was not representative of the whole sector and said it could “feed the notion that all IFAs are ‘profit driven’ and ‘bad’”.

It also criticised the CMA’s interim report for considering fostering and residential care providers simultaneously.

“The report tries to cover both in one narrative which does not give an accurate or clear picture of each sector’s different roles or challenges,” it said.

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