Bed baiters beware – the competition may be on to you!

Introduction

The CMA issued their Guidance on Residential Care Contracts in November 2018, indicating that they would review compliance in November 2019. Here, we highlight the impact that compliance with the CMA’s Guidance on Residential Care Contracts could have on the market for residential care home services.  The Guidance requires changes to be made to both the contractual arrangements and practical arrangements that providers engage in, from the very first to the last point of contact with residents.  The CMA has taken a sensible view about how quickly most providers would be able to make the necessary changes to give effect to their Guidance, but the “deadline” of 1 November is rapidly approaching.

This paper is heavily influenced by our view (recognised in the Guidance) that care homes operate in small, local markets; not regional or national markets. As a result, their performance is driven significantly by, and critically dependent upon, access to residents and to staff, both of whom will only travel a limited distance to either move into or work at, a care home.  The local nature of its own market gives rise to the opportunity for each home to monitor the compliance of its competitors with their new obligations, closely.  We expect to see significant “whistleblowing” on the part of providers who perceive they have been left at a competitive disadvantage as a result of failures by other providers to offer potential residents the price transparency that the Guidance requires.

What the Guidance says

The job of the CMA, when it comes to consumer goods and services, is to address how businesses use various tactics to maximise their takings and profits by making sure that these do not take unfair advantage of consumers. A cynic would say that the CMA is pro-market to the point of anti-business in that the rights and restrictions it imposes to create an outcome where the ‘consumer is king’. Whenever the CMA is investigating a market, price transparency and ease of price comparisons are key features of their approach to empowering individuals, and their analysis of the care homes market was no different.

The key provisions of the Guidance covering price transparency are contained in paragraph 3.18, which require every care home to provide the following information at the first point of contact, (which includes the information being “one click away” on your website):

  • “an accurate and up to date indication of the total weekly fee rates charged to self funding residents”;
  • “the full range of fees you typically charge”;
  • “indicative fees for each kind of care or room you offer”;
  • “any optional additional services and extras that are not included and which may need to be paid for separately”;
  • “fees payable in advance of moving in”;
  • “the amount of any deposit you require”.

Homes and residential care providers have typically shied away from publishing any information about prices because they consider the price of the care will depend on the level of the prospective resident’s needs. Publishing rates that try to cover a wide range of bespoke packages may, as a result, be misleading.  There is also a natural reluctance to publish information about prices when the market in which the home operates is local because, if your competitors know your rates, they can easily undercut you.

Homes that comply with the Guidance may well be in a minority when it comes to following the new rules on price information, at least initially. Some providers already offer price range information on comparison websites (if not their own homepage) although these are typically described as ‘for guidance only’ and residents are encouraged to contact the home directly to confirm the exact price. This often does little more than indicate a ‘basic economy’ versus ‘luxury’ range of care and accommodation when comparing prices.

So, can those who are complying expect the CMA to carry out a rigorous examination of how price transparency is working in practice?  That seems unlikely, apart from in connection with the largest providers, because the CMA will use its resources where it thinks it will have the most impact, and target the most well-known names first to hold them up as an example of poor or good practice.

One of the CMA’s stated approaches to enforcement is to “make an example” of non-compliant businesses and publicise their shortcomings to encourage the rest of the market to comply with their requirements.  If you are a large provider, this may mean your practices will come under close scrutiny.  It is likely to be left to individual homes to police the local market by complaining to the local Trading Standards Department where the home is situated, asking them to investigate their competitors’ failure to comply with consumer regulations.  We expect there will be a large number of such complaints, especially from organisations who come under scrutiny from the CMA and have to comply or face action. This may feel like a radical shift in competitive practice, especially for those homes who are focussed on internal analysis and do not carry out “mystery shopper” exercises or benchmark their fees already.

Homes looking to ensure that their competitors are as compliant as they are in terms of price transparency may struggle to persuade local Trading Standards officers to intervene, as most are under significant pressure due to lack of resources. However, homes will have little choice because there is unlikely to be any private law remedy available to them and it is unlikely that the CMA itself will wish to get involved in local, small-scale interventions.

The solution may be found in the creative presentation of information to the market, which is both compliant with the CMA Guidance but also gives sufficient “room for manoeuvre” so that there is still the possibility of a sensible discussion to be had between the home and the prospective resident. Similarly, homes will need to make better use of the marketing opportunity the changes present, so that consumers can understand where they are getting better value for money, even if the price is higher.  Comparisons may be difficult between an ‘all-inclusive’ service and cheaper alternatives that actually require lots of add-ons to obtain the same quality experience. We have helped a significant number of providers develop appropriate wording for their own contracts and website content with this in mind.

Conclusions

The concept of “bed baiting” is one that arose in the hospitality sector, when cheap hotel beds are advertised, but on closer inspection it becomes apparent that only a limited number of cheap beds is actually available (likewise for flights, etc.).  The CMA has indicated they feel there is a similar risk with care home beds; however, we do not think that is how the dynamics of care home operations work.  We suspect the more straightforward issue will be that some homes will advertise their prices and explain clearly to residents exactly what is included in the cost and why this might change over time, and some homes will not. Those that do not will take advantage of prospective residents’ ignorance and the comparative information available from their competitors to gain an unfair advantage, leaving compliant homes needing to spend significant resources explaining the true value of their services to residents and persuading Trading Standards to intervene.

John Wearing and Emma Watt

Anthony Collins Solicitors LLP

Anthony Collins Solicitors is a growing specialist law firm with offices in Birmingham and Manchester.  The firm is nationally recognised for advising individuals, charities and social businesses enterprises, local authorities and housing organisations driven by a clear purpose to improve lives, communities and society.

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