Direct Payments Cost-Effective Implementation Commissioned for the Department

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Direct Payments: Cost-Effective Implementation Commissioned for the Department of Health by the Care Services Efficiency Delivery Programme (CSED) May 2007 Copyright © 2007 Alastor Ltd, All Rights Reserved

Background and Context • There is a strong political drive towards self-directed support for social care, • • with individual budgets (IBs) due to become the norm Direct payments (DPs) are a recognised mechanism for getting money to individual clients to access social care services and personal assistance as an adjunct/alternative to those services provided by the Local Authority (LA) Although DPs have been available to LAs as a means of distributing funds after assessment for ten years, uptake of DP has been variable DPs are expected increasingly to become the norm. LAs that have promoted DPs have demonstrated that it is a cost-effective approach as well as one that supports better outcomes for the client in terms of a better and more flexible way of life: “independence, social inclusion and enhanced self-esteem” According to the “Choosing Well” report by the Audit Commission, May 2006: – “Benefits for local authorities include lower administration costs…. and lower overall costs of provision”. But there is a “perception that LAs and the public would incur additional costs that made introducing choice less desirable” • This paper focuses on: – A “best practice” process model based on LAs that have made DP work effectively – Key best practice elements to support the success – Evidence that the adoption of DP can deliver financial as well as social benefit 3 Copyright © 2007 Alastor Ltd, All Rights Reserved

Approach • Development of the case for DP has applied a Backcast Planning approach, • • • working back from the implementation of DP to define what needs to be in place, in terms of policy, organisation structure and processes to deliver DP efficiently and effectively Backcast Planning is therefore based on the future state, where DP and IB are the norm, and where any redundant costs associated with reduced direct provision of services have been eliminated The economic case is therefore based on the IB and DP future state, not on a series of incremental steps The benefit of the Backcast Planning approach is that it focuses on the desired outcome (rather than the incremental steps) 4 Copyright © 2007 Alastor Ltd, All Rights Reserved

Summary • The study has produced a validated DP process, in terms of what needs to • • be done – leaving free the option of how (in-house or outsourced, and, if in -house, by which operational function) it is done The study, both top-down and at the detail level, demonstrates that a properly-implemented DP payment process should be at least cost neutral, and be potentially beneficial in terms of cost A critical component in achieving a cost neutral implementation of DP is recognition by the LA that DP is not an exception or incremental process, but is a core component of the care process 6 Copyright © 2007 Alastor Ltd, All Rights Reserved

The Economic Case (DP Processes) • Setting up the Direct Payments • • Support Service (DPSS) is an incremental cost Once the DPSS and DP have been implemented, this will be offset by significant savings in the payment process and by elimination of redundant costs in the direct provision functions The detailed process model is available separately 8 Copyright © 2007 Alastor Ltd, All Rights Reserved

The Economic Case (DP Payments) • Current (Direct Provision) Funder (the LA) Variable monthly payment Based on PO, timesheet & invoice Service Provider (a PA? ) • Future (Direct Payments) Funder (the LA) Buyer Fixed monthly (or one-off) payment (the client) Service Provider (a PA? ) • The only incremental cost is related to any additional BACS payments to clients (over and above those paid to service providers), offset by savings in the PO/timesheet/invoice reconciliation and payment processes 9 Copyright © 2007 Alastor Ltd, All Rights Reserved

The Economic Case (Transition to DP and IB) • The way in which costs and • • savings accrue to the LA will depend on the migration sequence to a new operating system Prioritising IB (a) will set up the appropriate infrastructure for managing DP payments Prioritising DP (b) will, by implication, set up a significant component for future IB provision IB Implementation a b DP Implementation 10 Copyright © 2007 Alastor Ltd, All Rights Reserved

The Economic Case (Transition to DP) • It is recognised that in the transition process to DP there may be a period • when DP costs are incurred without commensurate savings in direct provision It is critical that, once DP is established, redundant costs are taken out of direct provision Total Costs Total cost (of payments) Cost of direct payments Cost of direct provision DP Implementation Timescale 11 Copyright © 2007 Alastor Ltd, All Rights Reserved

Policy Prerequisites for Best Practice • Recognise that DPs and IBs are the way of the future and support the initiative: – “Choosing Well” by the Audit Commission May 2006: “Benefits for local authorities include lower administration costs…. and lower overall costs of provision” • Consequently, treat DPs as the norm rather than as an exception. Exception management will always generate additional costs: – “Choosing Well” by the Audit Commission May 2006: “DP users bear a higher proportion of fixed and overhead costs compared with the much larger number of domiciliary social care clients” • Actively seek to change the hearts and minds of practitioners and – administrators, and provide effective training to support DP as “business as usual”. Recognise that: The change to DPs does not change the provision of care and accountability for it – Many of the activities carried out under a DP regime (e. g. interviewing and recruitment of PAs, requisition of services etc. ) would also be carried out or paid for in a direct provision environment – The focus on outcomes means that more is available than “care hour £” • Develop a pragmatic policy to simplify administration (contracts etc. ) and • financial risk management processes (adopting new lighter touch CIPFA guidelines) As the proportion of DPs and IBs increases, actively seek to redeploy administrative effort away from redundant procedures and processes 13 Copyright © 2007 Alastor Ltd, All Rights Reserved

Planning to Deliver Best Practice • Create a Direct Payments Support Service (DPSS) function that helps clients • • • (and, where appropriate, their PAs) to set up and administer funds under a DP regime Make an initial investment to ensure that DPs are the norm Provide effective training for relevant LA staff and practitioners Help clients to fulfil their statutory obligation to use a discrete bank account (or accepted alternative financial arrangement) to manage DPs when there are multiple payments Set up simplified and easily-understandable contracts for individual clients to use with service providers Where clients are less likely to be able to provide accurate information for regular reviews, help them to use payroll services to guarantee that provision During assessment and implementation, focus on outcomes, not care hour £ equivalents • There is an upfront cost, but applying best practice is worth the investment. As identified by the Audit Commission in “Choosing Well”, however, “when choice is introduced inefficiently, it can add to costs and reduce value for money” 14 Copyright © 2007 Alastor Ltd, All Rights Reserved

Delivering Best Practice • The rest of this presentation sets out best practice guidance for handling • • • DPs, based on components of DP processes already implemented by a number of LAs Implementing “best practice” guidance as set out in this presentation will limit additional DP implementation costs incurred by LAs The model represents “what” needs to be done rather than “how”. It is not proscriptive: LAs are free to implement alternative processes for managing DP payments, including the use of in-house and external resources If the LA proposed (alternative) method of payment for DP imposes significant cost increases, particularly when compared to the “best practice” guidance, the proposed DP payment method is inappropriate 15 Copyright © 2007 Alastor Ltd, All Rights Reserved

Provide DP Support Service • The DP Support Service is a key element of effective service provision. It • drives and champions DP across the LA, with practitioners and with clients It offers, where appropriate: – Support to clients to set up bank accounts and payroll services – Support to clients to procure services and recruit PAs – Brokerage of information on service suppliers • As part of its core function, the DPSS also: – – Sets up contracts with individual clients Manages payment to clients Manages financial reviews and (where appropriate) risk reviews Offers training to practitioners and administrators • The LA may manage all of these in-house, but may also outsource service • provision to a third party or set up a separate organisation internally and treat it as a third party The DPSS represents a management cost to the LA for the DP advocacy role, but all other incremental costs are offset by: – Improved/reduced processes and effort elsewhere – Transition of effort from redundant activities 16 Copyright © 2007 Alastor Ltd, All Rights Reserved

Key Process Differences Traditional Direct Provision Direct Payments / IBs May not always account for individual client funding (though many have reference) Funding is allocated to individual client Client does not manage finance or need bank account Client needs bank account (or alternative) Provision of care controlled and prescriptive Multiple options for service provision Where PAs are used, the HR element of PA recruitment handled internally or by outsourced supplier Where the client recruits a PA and the client so requests, DP Support Service (DPSS) will help to advertise, interview, CRB check etc. Monthly, variable supplier payment by LA Standard monthly BACS transfer to client based on match of purchase order, supplier once the budget and financial arrangement timesheet and invoice have been set up Review linked to payment matching Annual review (or sample) No (client) risk-based financial review Review after initial three months, additional reviews in line with (client) risk profile Copyright © 2007 Alastor Ltd, All Rights Reserved

Significant Savings • Implemented as a supplier payment process in Accounts Payable, DP payments by the LA should incur only additional BACS transaction costs… Traditional Direct Provision Direct Payment Set up payee Set up budget Process requisition Produce purchase order Receive/process timesheet Process invoice Match PO, timesheet & invoice Authorise payment Make (variable) payment Set up payee Set up support plan/funding Set up monthly payment Make (fixed) payment • …while generating significant savings from the simplification of the payment process 19 Copyright © 2007 Alastor Ltd, All Rights Reserved

Main DPSS Process Elements Initiate DP Process for Individual Provide DP Support Service Delivery (meet Outcomes) Payment Management Risk Management Subsequent pages show direct payments are not only cost-neutral for LAs in comparison to direct provision, but can also demonstrate real savings Copyright © 2007 Alastor Ltd, All Rights Reserved

Initiate DP Process for Individual What is Involved • • Set up client details and budgets Complete contract for DP Make initial payment to fund DP setup Agree support plan Best Practice guidance • Simple standardised contracts and • • Cost neutral vs. direct provision • • • Many authorities already track individual clients for timesheet crossreference to supplier invoices Budgets are a prerequisite for IBs Use of existing accounts payable procedures and systems minimises cost Financial cost/benefits • No effective change terms for clients Standardise initial payment Treat each client as a “supplier” for payments by standard accounts payable procedures including payment authorisation and budget tracking Copyright © 2007 Alastor Ltd, All Rights Reserved

DP Support Service: Advisory What is Involved • Provide help and support to clients to set • • • up and run DPs Also manage financial administration and risk reviews Best Practice guidance • Regard DP as the norm • Apply rigour and energy – develop • Small extra cost vs. direct provision The advisory element of the DPSS represents an additional management cost, offset by process savings in other areas Financial cost/benefits • Small additional management overhead procedures and apply them Do not double count cost – actively redeploy administrative resource for direct provision as DP volume increases Effective advocacy through user-led organisations Copyright © 2007 Alastor Ltd, All Rights Reserved

DP Support Service: Bank Account What is Involved • • • Provide help and support to minority of clients who do not have a discrete bank account and need to set one up Manage (or facilitate management of) third party supported account where appropriate Support alternative financial arrangements where policy dictates Small extra cost vs. direct provision • • Additional management cost Only for the small proportion of clients that require support Financial cost/benefits Best Practice guidance Small additional management • Several LAs outsource this process to • third parties effectively overhead Copyright © 2007 Alastor Ltd, All Rights Reserved

DP Support Service: Payroll Service What is Involved • • Facilitate provision of payroll service for PAs and other service providers directly employed by clients Statistics show that while many clients do provide accurate and timely information, it is more consistently provided for clients using a payroll service Best Practice guidance • Actively seek accurate and timely • • financial information, and encourage use of payroll service where there is a risk this will not be provided Manage through third party supplier Optionally charge the client Small extra cost vs. direct provision • • Additional management cost if not recharged to clients Only for a proportion of providers: – Not self-employed staff, agency staff, or support organisations Only for those clients requiring support For both DP and direct provision, PAs and service providers have to be paid Financial cost/benefits • • • Additional overhead for setting up and managing service Broadly cost-neutral (as PAs have to be paid in both scenarios) Some LAs cross-charge additional payroll costs to the client Copyright © 2007 Alastor Ltd, All Rights Reserved

DP Support Service: Sourcing Advice What is Involved • • Help clients to find suitable service providers, including agency suppliers and support organisations Where the service is provided by a directly-employed PA, or where help with interviewing individuals is required, HR support is available via the DPSS (see next page) Best Practice guidance • LAs may wish to continue to • negotiate with agency, support organisation and other providers to achieve economies of scale There is an option to outsource sourcing advice to a third party Small extra cost vs. direct provision • • • Additional cost for “helpdesk” function Minimal requirement for providers identified via relatives and friends For both DP and direct provision there is a sourcing requirement Financial cost/benefits • • Small additional overhead for setting up support function Broadly cost-neutral (as services have to be sourced in both scenarios) Copyright © 2007 Alastor Ltd, All Rights Reserved

DP Support Service: HR/Recruitment What is Involved • Manage recruitment of a PA (selfemployed or agency), including help where appropriate with job description, interviewing, CRB check, contract, liability insurance, holiday cover etc. Best Practice guidance • LAs may wish to continue to • Cost neutral vs. direct provision • • • All components required only when requested by client directly recruiting and employing staff Interview help may be needed with agency or support organisation For both DP and direct provision there is a recruitment process, either by in-house staff or paid for as part of an outsourced service Financial cost/benefits • Cost-neutral negotiate with agency, support organisation and other providers to achieve economies of scale There is an option to outsource HR and recruitment advice to a third party Copyright © 2007 Alastor Ltd, All Rights Reserved

DP Support Service: Brokerage What is Involved • • Maintain an overview of supplier (agency) costs and capabilities Act as a broker to provide this information to clients where appropriate, thus providing additional benefit and managing cost base Best Practice guidance • LAs may wish to continue to • Cost neutral vs. direct provision • • Minimal effort, more than offset by reduced cost of procurement of direct provision The LA role is the provision of information, not the procurement process (on behalf of the client) Financial cost/benefits • No effective change negotiate with agency, support organisation and other providers to achieve economies of scale There is an option to outsource HR and recruitment advice to a third party Copyright © 2007 Alastor Ltd, All Rights Reserved

DP Support Service: Training What is Involved • • Provide training to practitioners, administrators and (where appropriate) clients Critical for a smooth process and “buy in” to DP Best Practice guidance • Introduce as part of normal training cycle with ad hoc support available Cost neutral vs. direct provision • • Initially seen by LAs as a cost because it is a new process Once DP is incorporated into normal training cycles it will be cost neutral Financial cost/benefits • Cost-neutral after initial training/conversion Copyright © 2007 Alastor Ltd, All Rights Reserved

Service Delivery (out of scope) What is Involved • • • Focus on outcomes, so many potential approaches Delivery of a creative range of services (not just domiciliary or day centre care) No reduction in quality to client Cost savings vs. direct provision • “Benefits for local authorities include lower administration costs…. and lower overall costs of provision” (Audit Commission May 2006): – – Best Practice guidance • Use third party to manage payroll • • services (with client agreement) Continue to review supplier costs, and broker information accordingly LAs may still be able to exploit volume discounts on behalf of clients For most authorities, hourly cost of care is less when directly contracted, even when compared to block contracts Reduced volume of commissioning and supplier tender management Financial cost/benefits • Ability to redeploy resources associated with administration of traditional direct provision as volumes decrease Copyright © 2007 Alastor Ltd, All Rights Reserved

Payment Management What is Involved • Once direct payment has been set up, a BACS payment is made monthly to the client’s bank account (or alternative) Best Practice guidance • Treat each client individually as a “supplier” for payments by standard accounts payable procedures including payment authorisation and budget tracking Cost savings vs. direct provision • • Simple BACS payment replaces significant financial processing for direct provision Direct provision usually requires monthly reconciliation of variable supplier payments based on the match of purchase order, timesheet and invoice Financial cost/benefits • Significant savings of administrative process by reducing three-way reconciliation and variable supplier payments Copyright © 2007 Alastor Ltd, All Rights Reserved

Risk Management What is Involved • • Regular financial (and care) reviews CIPFA recommends “light touch”: – • Potential for claw back of unused funds (where and when appropriate) • Best Practice guidance • Balance light touch and appropriate • • Minimum requirement: three months after programme starts; annual check of bank account and paperwork Additional quarterly or ad hoc review as required based on risk or request – • Cost savings vs. direct provision diligence, in line with new CIPFA guidelines Only carry out more frequent reviews where justified by the risk reduction or benefits (e. g. claw back) Annual reviews of client bank statements/paperwork equate to monthly accounts payable reconciliations to vendor statements Risk-led or requested financial reviews are an extra, but by exception Still need care reviews– no change Financial cost/benefits • • Light touch minimises additional cost Overall cost reduction when compared to monthly three way matching and payment authorisation (see Payment Management) Copyright © 2007 Alastor Ltd, All Rights Reserved

Benefit Realisation • DP implementation will be recognisably successful when the following Recognition Events TM occur: – – – – – DP is a standard payment procedure within the LA The deployment of DP is a standard component of all LA sourcing strategies DPs (including charging, paying, monitoring, review and claw back) are routine Accounts Payable activities The only direct, additional cost that DPs incur are direct BACS transaction costs Redundant costs (management and administration) of direct provision have been eliminated DP training is provided to all relevant council staff, partner agency staff, information providers and DP recipients All eligible clients are offered the DP option (at initial contact, assessment and review) Support for people about to, and using, DP is readily available DP is promoted by, and to, staff as a standard option • A number of these components have also been included in the self assessment tool 33 Copyright © 2007 Alastor Ltd, All Rights Reserved