Care homes administration fees: exploitative practice or reasonable reimbursement?

Is it reasonable for care home operators to charge new residents an administration fee on admission, separate from the costs of care or accommodation? Do fees of this sort merely compensate care home operators for the internal costs incurred in managing the personalised admission of a new resident, or are they unfair charges which take advantage of the stress and complexities of arranging residential care?

In the recently published case of Competition and Markets Authority v Care UK Health and Social Holdings Ltd [2021] EWHC 2088 (Ch), the Competitions and Markets Authority ("CMA") claimed that Care UK's practice of charging upfront admission fees of around 2 weeks' rent was unfair, misleading and exploitative. Care UK, on the other hand, argued that the fee was a fair charge for services provided, such as employing customer relationship managers to handle enquiries from prospective residents, showing prospective residents around the homes, undertaking pre-admissions care needs assessments and buying specialist equipment where necessary.

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Background

In December 2016, the CMA launched a market study into care homes for the elderly, to see how well the market works and if people are treated fairly, based on data obtained information from a wide range of stakeholders including care home providers, consumer bodies, local authorities and members of the public. In addition, the CMA commissioned research from Ipsos MORI into the experiences of care home residents and their families when choosing a care home, which fed into a report in August 2017 and an updated report in November 2017 which identified various concerns regarding the transparency of pricing information and the practice among some care home providers of charging upfront administration fees.

Whilst undertaking this market study, the CMA instigated a number of consumer protection cases, including the case discussed in this briefing which relates to the administration fee charged by Care UK to self-funded residents in its English care homes. Care UK stopped charging this fee to new residents in August 2018 but declined to refund the fees paid by around 1600 residents between October 2015 and August 2018, as requested by the CMA.

The parties' arguments

The CMA's case was, in essence, that:

Care UK was breaking consumer protection law by requiring a substantial non-refundable administration fee from residents for which they received no services or products in return, which was unfair. The fairness test under Part 2 of the Consumer Rights Act 2015 deems a term to be unfair if it breaches the requirement of good faith, and causes a significant imbalance in the parties' contractual rights and obligations in a way which is detrimental to the consumer.
Care UK's description of the charge, and what it was for, constituted a misleading and aggressive commercial practice, contrary to the Consumer Protection from Unfair Trading Regulations 2008.
The administration fees already paid should be refunded to residents.

Care UK argued that the administration fees were needed to fund the costs of employing the customer relationship managers who met with prospective residents, provided them with all the information they required in order to decide if the home was right for them, and managed the contractual process if they decided to proceed with admission to the home. The operators sometimes incurred costs in personalising rooms for residents' needs. Care UK also highlighted that although they did not mention the administration fee on their websites or during initial telephone enquiries (only giving indicative weekly residential fees), the website did include a disclaimer which referred to individual care needs pre-assessments, and Care UK's staff were trained to give transparent information about the administration fee from the start of a genuine enquiry process.

The judgment

The High Court recognised that Care UK carried out material activities prior to the admission of a new self-funded resident, which were preparatory to each new resident's admission and did not involve the provision of accommodation or care to the prospective resident. The judge stated that there was no reason why an operator should not make a separate charge for the significant costs of those services.

The Court identified that an "average consumer" in this context of selecting a care home was a family member or other representative of the prospective care home resident. This is interesting because the CMA had, in its care homes market study, concluded that an "average consumer" in this scenario would be the prospective resident who is likely to be considered to be in a more vulnerable category of consumer.

The evidence (both from the Ipsos MORI report commissioned by the CMA and the data supplied by Care UK) was that these consumers made careful, clear-headed decisions, despite the need to act quickly and sometimes in stressful circumstances. For example, around 60% of self-pay customers visited at least two other homes and around 40% visited at least three other homes before choosing one, and usually made three visits to a Care UK home before deciding to proceed to admission. The judge therefore disagreed with the CMA's assertion that the average care home consumer's ability to make rational decisions was impaired by their situation.

In obiter comments, the judge also distinguished between a decision to visit a care home and a decision to enter a shop, on the basis of the much higher levels of complexity of the decision to enter into "a contract for the provision of a bespoke service such as the provision of accommodation and care by a care home". She saw the initial visit as forming part of a wider information-gathering exercise and, according to her analysis, the contact between the consumer and the supplier only becomes transactional once the consumer initiates a pre-admission assessment. The charging of a fee at that stage would therefore not influence the consumer's decision-making process.

Conclusion

The decision is likely to be welcomed by care home operators on several fronts:

It validates the charging of fees in respect of discrete services rendered to prospective residents. However, operators should be aware that the judge was clear that the costs of providing marketing materials, handling initial enquiries, and organising initial visits to a care home were pure marketing costs which a reasonably well-informed consumer would not expect or agree to pay for.
It recognises the work that had been done by the operator to train staff in setting out fee structures clearly and transparently, and careful use of disclaimers on its website and marketing materials. The Judge also gave weight to the information gathered by Care UK using its internal "mystery shopper" processes.
The judge acknowledged that care home consumers' main concerns are around quality of care and long-term affordability. In this context an administration fee of around £1200 was not a significant factor either way.
The analysis that the average consumer is a relative of the prospective resident (rather than the resident themselves) and (obiter) that the decision to visit and tour a care home is not a transactional decision for the purposes of consumer law are both positive conclusions for the healthcare sector, as they have the potential to shift future analyses of interactions between suppliers and consumers in the healthcare setting away from the perception of healthcare providers as exploitative and consumers as brow-beaten.