Approach to Surplus / Profit
Within the home care returns, providers have submitted surplus/profit as part of the total cost per hour. Some providers do not separate profit into a single percentage or figure. Instead, this is absorbed on unspecified cost lines, and it is hard therefore to separate out the costs. Typically, this is not on every line, so it is difficult for Hounslow to determine the profit on some of the submissions where they have stated this as 0%.
The range submitted by providers was from 0% to 10%, with the average at 4.8% and the median at 5%.
The LGA has stated the below:
“The HCA have long used a surplus or profit margin of 3%. It is clear that to maintain a working market providers need a reasonable rate of return on operations. The public sector should not be rewarding care home operators with excess profits but recognize that providers need to make a return to remain in the market and maintain provision. The value of 5% has been used in a number of fee setting processes and been tested with providers, whilst not necessarily accepted by providers the rationale is understood.”
The range across four other Peopletoo NW London Local Authorities is 4.5-6.7% average profit, 4.2-5% median profit. The Median profit for these four London Local Authorities is 4.4%. Hounslow have not made any changes to the submissions.
Given that a decision needs to be made on a reasonable level of profit which will enable the sustainability of the market moving forward and as this reflects the provider returns, Hounslow have decided that the average value of 4.8%, median value of 5% coming through from provider returns is deemed reasonable.