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England and Wales High Court (Administrative Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Care North East Northumberland, Members of the Committee of, R (on the application of) v Northumberland County Council [2013] EWHC 234 (Admin) (15 February 2013) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2013/234.html Cite as: (2013) 16 CCL Rep 276, [2013] BLGR 265, [2013] PTSR 1130, [2013] EWHC 234 (Admin) |
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QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT at LEEDS
1 Oxford Row, Leeds, LS1 3BG |
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B e f o r e :
____________________
THE QUEEN on the application of MEMBERS OF THE COMMITTEE OF CARE NORTH EAST NORTHUMBERLAND |
Claimants |
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- and - |
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NORTHUMBERLAND COUNTY COUNCIL |
Defendant |
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- and - |
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NORTHUMBERLAND CARE TRUST |
Interested Party |
____________________
Nigel Giffin QC and Tom Cross
(instructed by Chief Legal Officer, Northumberland County council) for the Defendant
Hearing dates: 22-23 January 2013
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Crown Copyright ©
Mr Justice Supperstone :
Introduction
The legislative framework
"(b) the cost of making arrangements for him at his preferred accommodation would not require the authority to pay more than they would usually expect to pay having regard to his assessed needs."
"(1) Local authorities shall, in the exercise of their social services functions, including the exercise of any discretion conferred by any relevant enactment, act under the general guidance of the Secretary of State."
"One of the conditions associated with the provision of preferred accommodation is that such accommodation should not require the council to pay more than they would usually expect to pay, having regard to assessed needs (the 'usual cost'). This cost should be set by councils at the start of a financial or other planning period, or in response to significant changes in the cost of providing care, to be sufficient to meet the assessed care needs of supported residents in residential accommodation. A council should set more than one usual cost where the cost of providing residential accommodation to specific groups is different. In setting and reviewing their usual costs, councils should have due regard to the actual costs of providing care and other local factors. Councils should also have due regard to Best Value requirements under the Local Government Act 1999."
"When setting its usual cost(s) a council should be able to demonstrate that this cost is sufficient to allow it to meet assessed care needs and to provide residents with the level of care services that they could reasonably expect to receive if the possibility of resident and third party contributions did not exist."
"Providers have become increasingly concerned that some commissioners have used their dominant position to drive down or hold down fees to a level that recognises neither the costs to providers nor the inevitable reduction in the quality of service provision that follows. This is short-sighted and may put individuals at risk. It is in conflict with the Government's Best Value policy. And it can destabilise the system, causing unplanned exits from the market. Fee setting must take into account the legitimate current and future costs faced by providers as well as the factors that affect those costs, and the potential for improved performance and more cost-effective ways of working. Contract prices should not be set mechanistically but should have regard to providers' costs and efficiencies, and planned outcomes for people using services, including patients."
The factual background
"The providers were very keen to explain to the Council that we were committed to delivering a quality service to the residents in our care homes. The Council set high quality standards and we wanted to ensure that the service provided to vulnerable people was as good as it could be. However, these high quality services are expensive to deliver and we are facing substantial, rising costs. We therefore saw the consultation period as the opportunity to explain to the Council that, if they shared our agenda for the delivery of high quality services, they needed to set fee levels which met the costs of providing those services."
"queried whether the Claimants had any proposals they wished to put forward. Unfortunately, the Claimants were not forthcoming with any information that might help develop the consultation process and stated that it was not for them to come up with proposals. Reference was made by one of the Claimants, Mr Hunter, to re-running the PWC Model [that was a costing model produced by the accountants, Price Waterhouse Coopers, that had been used for the 2005 Contract]. I was trying to encourage the Claimants to engage in the process of contract negotiation, which they were refusing to do. I therefore asked Mr Hunter if any providers represented by the Claimants could provide any evidence as to why care home fees in Northumberland should be higher than other areas regionally and nationally. I stated that care was being provided in these other areas for significantly lower fees and accordingly it was not clear why Northumberland were paying more for care. Mr Hunter stated that he would consider the issue. Apart from discussions with Mr McArdle referred to at paragraph 108 below, neither Mr Hunter nor any of the Claimants, ever came back to us in relation to the costs that they allege are higher in Northumberland."
"1. that we re-run the TOC [sic] [that is the PWC] model (which I believe has not been run since 2004)
or
2. that we continue with the inflator as it is but over the next two years—we then use the next two years to re-run the model which gives us the opportunity to use the data from that in order to identify both efficient and inefficient costs which can then be reviewed jointly."
"3. Response to CNEN Position
JB [Ms Bowie] confirmed that Neil Bradley (NB) had re-looked at the model – NB stated it had flaws:
- CNEN as providers feed into the model without challenge and against no significant regional or national benchmark information;
- As the model inherently builds in a profit, it creates a potentially risk-free environment for potential investors. This creates additional capacity within the market whether or not it is required forcing down occupancy levels. This effect will further inflate costs on each review of the model."
The minutes continued:
"…MCA [Mr McArdle] asked if CNEN could have a response to option 2 on their e-mail and if there were some elements in that could be agreed upon. JB read option 2 as accepting re-running the model but deferring that for two years so wouldn't be agreeable.
…
4. Next Steps
It was agreed that JB would look at CNEN's option 2 but without the re-run of the PWC model and come back with response at the meeting on 28 February."
"… The underlying situation which I am sure you will understand, is that all public sector organisations are required to make substantial reductions in their expenditure because of the economic situation and the Government's policy on reducing the national deficit. …
… We know from comparisons with other areas that care home fees paid by the Council in Northumberland remain higher than those paid in most neighbouring areas. Indeed we have some reason to think that fees paid in Northumberland may in some cases be cross-subsidising care homes in other areas operated by the same provider.
It is therefore our view that, while we need to take account of increases in the costs of running a care home, we can also reasonably expect care home providers to make some reductions in their costs. We have been asked by CNEN to provide specific justifications of percentage figures which we have suggested – but in a situation which involves many variables, we do not believe that it is feasible to base figures on a precise calculation; we have therefore been seeking to negotiate with CNEN, and separately with providers which have chosen not to be represented by CNEN, about what level and pace of cost reduction is reasonable. We have also invited CNEN and providers who operate homes in other areas to provide us with any evidence they may have about higher costs of operating care homes in Northumberland compared to neighbouring areas. We have not yet received evidence on this point.
At the time of sending out this letter we have reached agreement with care home providers representing over 20% of the total care home places for older people in the County. We think that this provides evidence that it will be possible to meet the needs of those people who require care home accommodation whilst restraining overall costs to public funding.
…
The 'true cost of care' and 2001 Government advice
…
In the years following the issue of Building Capacity, a number of local authorities, including Northumberland, interpreted this advice as meaning that the fees they paid to care homes should ordinarily be based on a modelling exercise of the kind which PriceWaterhouseCoopers carried out in Northumberland in 2004, aiming to set fees at a level which, on the basis of information from care home owners, would cover all costs and normal profit margins.
In Northumberland and elsewhere, these modelling exercises generally led to substantial increases in fees, with no clear evidence of improved quality.
Other local authorities adopted a narrower interpretation of the requirements of Building Capacity, or took a more sceptical view about the validity of the available modelling tools, and continued to offer lower levels of fees, in line with common practice before 2001. We are not aware of any evidence that these authorities faced serious difficulties with care home viability or quality as a result.
…
The current status of Building Capacity
…
The Council … believes that this document reflects the position at a particular time, when circumstances and national policy were different.
…
The Council's view is therefore that Building Capacity is advice issued at a time when both policy and public sector finances were different, and that, while it still has some value as a source of advice, it is now reasonable to depart from its advice, or at least from the way in which the County Council and others interpreted that advice in the last decade.
The issues which the Council will consider
In preparing the options which it offers to care home owners, and in assessing proposals from care home owners, the Council is taking into account a number of considerations:
- The Council needs to make substantial savings in its budget over the next three years.
…
- Both the specific 'true cost of care' model used in Northumberland in 2004, and what we know of models used elsewhere, produces results which do not appear to be in line with the actual functioning of the market – fees below the levels generated by these models appear to be adequate to maintain capacity, and the current level of fees in Northumberland appears to have supported the development of excess capacity. We believe that the models in use are flawed – we have raised this issue with PriceWaterhouseCoopers, on the basis of our experience of their model – and that there are practical difficulties in arriving at an objective picture of costs in a situation where strong commercial interests are at stake. We also think that some care home providers have managed to negotiate both that local authorities should pay the 'true cost' and that they should continue to have the right to charge fees above this figure to private payers.
- Some provider costs are increasing, but this is a context of a relatively high level of fees in Northumberland, and there is scope for cost reductions to offset these increases.
- There is evidence that has been brought to our attention that there is excess capacity in Northumberland, and since it is our objective to become better at supporting older people to remain independent in their own homes, there is no reason to think that additional capacity will be needed in the next three years, and we need to be prepared to accept that some homes may have to diversify what they offer, or close.
...
Overall, the Council's aim is to achieve the required savings while minimising the impact on disabled people – and where possible making changes in ways which further promote disabled people's independence. We will continue to listen to and consider all representations made by providers, but our current view is that good quality services can be provided to care home residents at lower cost than current fee levels in Northumberland.
I have enclosed a copy of the new contract and details of new fee rate on which we have been able to reach agreement with a group of providers in Northumberland. I would very much welcome other care homes signing up now as well… as this would help avoid any uncertainty for residents and their families.
I hope this full explanation of our position is helpful. If you have queries or comments about any points, please contact me, either directly or through CNEN or any other organisation that you wish to be represented by."
"Further to the CNEN meeting held on 15.3.12 where the new contract (2012-2015) was reviewed.
There was a unanimous agreement that the fee proposal contained within the summary and contract was unacceptable and the providers have agreed to instruct legal advisers to review both.
They did not accept the argument or premise put forward in your letter, and I believe that further direct discussions with the local authority will prove unfruitful until this review is undertaken."
"As you know, I wrote to you last week enclosing a copy of the new contract which we propose to introduce with effect from 1 April 2012, and explaining the reasoning behind its terms. I am able to say that we have now received signed contracts back from a further 9 care homes and are expecting signed contracts from an additional 11 care homes who have verbally confirmed acceptance of the offer, which would account in total for just over 40% of registered places for older people in the county.
…
As things stand, however, I need to be clear that, with effect from 1 April, the new contract which we have circulated to you represents our usual terms and conditions for making placements, and we do not expect to make new placements in Northumberland outside the terms of this contract. If you have not already done so, but intend to sign up to the new contract, I would be grateful if you could confirm that as soon as you are able as we will be taking steps to inform care managers about which homes we are commissioning with shortly."
"Following our meeting on Monday, we did take Mark [McArdle] up on his offer to show us information about differences in costs between Northumberland care homes and homes in other areas and to consider the new proposal made by the CNEN Committee, based on extending the inflation provisions of the existing contract over the period from 2012 to 2015, with no commitment to re-run the PriceWaterhouseCoopers 'true cost of care' model.
Neil Bradley met with Mark on Wednesday morning. Neil's conclusion from the information which Mark showed him was that the only specific local difference in running costs that was apparent was that one of Helen McArdle's three homes in the county had unusually high staffing costs. These costs appeared to be associated with high use of agency staff. Surprisingly, the home concerned was not in one of the areas where, on the basis of our knowledge of the local labour market, we would expect recruitment to be more difficult – and indeed was not in one of the areas which we would expect to raise issues specific to Northumberland. Other cost and profitability differences between homes appeared to be associated with specific factors not related to the local authority area in which homes are located.
Our position, then, remains that we have not been presented with any convincing evidence that operating a care home in Northumberland is more expensive than doing so in other local authority areas in the North East. Taking this together with the other considerations mentioned in our letter to all care homes of 13 March, it remains our view that the contractual terms which have now been accepted by more than 70% of care homes in the County are reasonable. (Further homes have signed up since we met – updated statistics are attached)."
Mr McArdle replied to this e-mail on 24 April 2012 (C437-441), which led to a detailed letter in reply from Ms Bowie dated 30 April 2012 (C448-457). There was further correspondence between Ms Bowie and Mr McArdle during May 2012.
The issues
i) That the Defendant failed to comply with its duties of consultation (Ground 1).
ii) That the Defendant had failed to inform itself of the costs to care home operators of providing services before setting its rates (the "usual cost"), and so acted contrary to the relevant guidance by:
a) failing to have regard to the actual costs of providing care, contrary to the Circular;
b) placing itself in a position such that it is unable to demonstrate that its "usual cost" for the purposes of paragraph 3(b) of the Directions is "sufficient to allow it to meet assessed care needs and to provide residents with the level of care services that they could reasonably expect to receive if the possibility of resident and third party contributions did not exist", contrary to the Circular, para 3.3; and
c) failing to take into account, in setting fees, of "the legitimate current and future costs faced by providers as well as the factors that affect those costs", contrary to Building Capacity, para 6.2. (Ground 2).
iii) That the Defendant acted irrationally and/or failed to take into account relevant considerations in that it:
a) imposed "efficiency savings" on care home providers in respect of Care Homes in Bands 1-3 without making any assessment of how those efficiency savings might be generated;
b) assumed (if and to the extent that it purported to take account of the actual costs of care in setting care home fees) that any inflationary rises in the cost of care would be off-set by these "efficiencies", which were set at 0.5% in the first and second years of the contract, during which the inflationary uplift for Band 1 homes was also set at 0.5% (thus cancelling each other out); and
c) provided no inflationary uplift in the case of Band 2-4 homes notwithstanding the inevitability of inflationary increases in costs over the three years of the contract. (Ground 3).
iv) That, by refusing to make new placements with care home providers who have not signed the contract terms issued in March 2012, the Defendant has abused its dominant position in the market and acted contrary to paragraph 3 of the Directions and the Circular. (Ground 4).
Ground 2: allegation that the Council "acted contrary to the relevant guidance"
"In my view, in order to have due regard to the actual costs of providing care it is necessary first to determine what that cost currently is, even if only a broad estimate or bracket is calculable."
"…act under the general guidance of the Secretary of State." (See para 7 above).
In R v Islington LBC ex p Rixon (1998) 1 CCLR 119 at 123 Sedley J said:
"Clearly guidance is less than direction, and the word 'general' emphasises the non-prescriptive nature of what is envisaged… In my judgment Parliament… did not intend local authorities to whom ministerial guidance was given to be free, having considered it, to take it or leave it. Such a construction would put this kind of statutory guidance on a par with the many forms of non-statutory guidance issued by departments of state. … in my view Parliament by section 7(1) has required local authorities to follow the path charted by the Secretary of State's guidance, with liberty to deviate from it where the local authority judges on admissible grounds that there is good reason to do so, but without freedom to take a substantially different course."
"This guidance sets out what individuals should be able to expect from the council that is responsible for funding their care, subject to the individual's means, when arranging a care home place for them. This guidance is intended to describe the minimum of choice that councils should offer individuals."
Mr Giffin observes that the Circular is accordingly directed towards what local authorities have to do for individuals in need of residential care; it is not about the relationship between authorities and care home providers such as the Claimants. Mr Giffin suggests that the characterisation of the guidance in the covering letter is borne out by its contents. Paragraph 2.5 states that a council must arrange for care in an individual's preferred accommodation subject to four considerations. One of these considerations is cost which is dealt with in paragraphs 2.5.4-2.5.8. Paragraph 2.5.4 (see para 8 above) states that preferred accommodation should not require the council to pay more than they would usually expect to pay, having regard to assessed needs (the "usual cost"). That usual cost should be set at appropriate times, and there may be a need for different usual costs for different groups. The single sentence in paragraph 2.5.4 upon which the Claimants rely reads as follows:
"In setting and reviewing their usual costs, councils should have due regard to the actual costs of providing care and other local factors."
"It was a prime objective for me to be satisfied that the fees paid by the Council to the care home providers would be sufficient to cover the costs of providing care in homes operating at reasonable levels of occupancy, although it was not the intention to subsidise over-capacity or incentivise the development of further excess capacity."
"There had been and continued to be substantial investment by providers in new care homes in Northumberland, despite the fact that the number of local authority placements in care homes was no longer growing, because of the increasing emphasis on supporting people to live independently. … We monitor occupancy rates regularly by contacting all care homes. I understand from documents prepared at the time when the PWC model was run in 2004 that the overall vacancy rate in care homes in Northumberland was then 6%. In the autumn of 2011 it was averaging around 12% and has since increased further, and has been around 13% in the months since April 2012. Well managed care homes should aim for vacancy rates of no more than 5%, that being a level which allows sufficient flexibility in relation to new placements. In October 2011, there were 20 care homes (out of 81) operating with vacancy levels of more than 20%. It seemed clear to me and the Council that these care homes must have been able to continue to operate at low capacity levels due to the significant profits generated by the existing fee levels."
"this term was not intended only to refer narrowly to technical efficiencies such as increased productivity, but also covered more broadly all of the ways in which providers could accommodate to reduced fees, including increasing their occupancy rates, removing cross-subsidies to other areas of their businesses and accepting reductions in their profit margins."
"The figures contained within the spreadsheet provided strong evidence that the fees proposed under the 2012 Contract were sufficient to cover the costs of care and indeed could still be argued to be generous in terms of a fee level if providers could maintain high levels of occupancy within their homes. … It was clear that with the current fee structure occupancy would have to fall to quite low levels in most cases before homes could be at risk. This again reinforced our belief that the market could cope with static or even reduced fees from those currently in place."
"… I knew that as we entered into a process of negotiation, if any efficiencies proposed would mean that fees were inadequate to meet the costs of care, care home providers would be unlikely willingly to sign up to contract on those terms. … If…a large number of providers were to sign up rapidly and without accompanying representations, this would constitute good evidence that the fees proposed were adequate to meet care provision costs."
Ms McColgan makes the point by reference to the evidence of Mr Hunter (B5) and Mr Gibson, the Business Development Director for Executive Care Group Ltd, that some providers would not "have the economic option of refusing to sign the Council's new contract" (B126). However the fact is the Council reached agreement with providers representing 20% of beds in the county before it made its offer of 12 March 2012; that total rose to over 40% before the Council decided to set the offered rate as its usual rate without protest from providers about the terms; and by 5 April 2012 providers representing 70% of placements had signed up to the proposed contract, which Ms Bowie states at paragraph 105 of her witness statement
"did not suggest that the fees proposed were insufficient to cover the cost of care. They had not done so under protest or after prolonged delays suggesting that they felt they had no choice, but quickly and readily."
"Fee setting must take into account the legitimate current and future costs faced by providers as well as the factors that affect those costs, and the potential for improved performance and more cost effective ways of working." (See para 10 above).
Mr Giffin accepts that this statement is somewhat more explicit than anything in the Circular, and clearly issues such as the present are the true subject matter of Building Capacity. However the guidance is not prescriptive as to how fee setting ought to take costs and the factors affecting them into account.
"(1) In the exercise of their functions relating to homelessness and the prevention of homelessness, a local housing authority or social services authority shall have regard to such guidance as may from time to time be given by the Secretary of State."
In respect of the guidance that was given by the Secretary of State, Laws LJ stated at paragraph 47:
"Although the guidance is provided for by statute and housing authorities are obliged by section 182 of the 1996 Act to have regard to it, it is not a source of law. … Respondents to such [guidance] must (a) take it into account and (b) if they decide to depart from it, given clear reasons for doing so."
"The Council has considered carefully the relevance of Building Capacity to its decisions. It believes that this document reflects the position at a particular time, when circumstances and national policy were different. For instance it gives advice in favour of block contracts and long term commitments by councils on the level of services they will be buying, which is clearly inconsistent with current national policy on personalisation and self-directed support. In addition, the introduction to 'Building Capacity' includes the following statement:
The Government also recognises that the successful operation of this agreement will, amongst other things, depend on an adequate level of resourcing to achieve the right level of service. The Government is providing significant additional resources for social services. Funding has increased by over 16% in real terms since 1996/7 and will increase by an average of 3.4% per annum in real terms over the next two years.
The Council's view is therefore that Building Capacity is advice issued at a time when both policy and public sector finances were different, and that, while it still has some value as a source of advice, it is now reasonable to depart from its advice, or at least from the way in which the County Council and other interpreted that advice in the last decade."
"… the underlying issue is that, even with tweaks in methodology we believe that any model which is based on surveying current costs at a specific point in time and setting fees which attempt to capture the variations between types of homes at that time is flawed. This is because it fails to recognise the dynamic interaction between local authority fee rates, the construction of new homes, and changes in cost. In my view, it was important for us to break out of what was becoming a cycle of increasing costs and increasing expenditure for a type of service which is not what the majority of older people want."
"… I was conscious of its contents at the time at which the 2012 Contract negotiations were taking place. I have worked in the adult care sector for a number of years, and the 2004 Circular is part of the statutory framework from which I work."
It is not suggested that the contents of the Circular, and in particular the critical words in paragraph 2.5.4 ("due regard to the actual costs of providing care") add anything to Building Capacity. In my view the reasons which justified departure from Building Capacity would have amounted to a "good reason" (see paras 50-53 above) for deviating from the Circular. In fact, as I have found, the Council did have due regard to the actual costs of providing care and other local factors, as the Circular required.
Ground 3: that the Defendant acted irrationally and/or failed to take into account relevant considerations
"It is very doubtful whether a simple freezing of fee rates would be upheld by the courts as reasonable if challenged, though it is possible that agreement could be reached on a more sophisticated approach which restrains cost pressures, particularly given the relatively high fees paid by the Council. Since care home fees are a substantial element in the adult care budget, payment of inflation in full, without any offsetting changes to other terms, would involved a seven-figure cost to the Council."
"… a judicial review court will be particularly circumspect in engaging with the conclusions of the primary decision-maker in relation to complex economic and technical questions."
The setting of normal fee rates for the provision of residential care is a matter involving economic and financial assessment, a degree of expertise in how the sector operates, and judgment about the proper allocation of scarce resources.
"… the overall level of fees was in fact still substantially higher than needed to cover reasonable costs, and the development of the market in the period since 2009 has confirmed that."
At paragraph 62 of her witness statement Ms Bowie states that she "considered that significant efficiencies could be realised, much higher than those actually proposed". She continues:
"The level of the efficiencies we proposed was low, and was front-loaded in order to reflect increased costs that care home providers may suffer, year on year over the course of the contract period, for example as a result of inflation or national minimum wage rises."
"based on the evidence of the way in which the market had been operating in Northumberland, comparable rates elsewhere and the continued operation of Band 4 care homes, there were strong reasons to believe that the base fees proposed by the Council were more than adequate to cover the cost of care, and were high enough to account for the anticipated cost increases that care home providers would face over the course of the 2012 Contract."
Ground 1: that the Defendant failed to comply with its duties of consultation
"We can confirm that the consultation regarding the setting of care home fees has concluded. The conclusion of this was communicated to all providers by way of letter dated [12] March 2012, enclosing the new contract, together with an explanation of the process followed in setting the new rates. You may treat this as the date that a 'final decision' was reached by the Commissioners."
This is in fact not correct. The letter of 12 March 2012 contains an offer in the terms set out in the enclosed contract and indicates a predisposition to those terms. After 12 March 2012 there was further consultation (see para 22 above). The letter of 27 March 2012 sets the fees in the contract already circulated as the Council's "usual rates", and the letter confirmed that the Council did not expect to make placements from 1 April 2012 with homes which had not accepted these terms. That letter evidences a final decision.
Ground 4: challenge to Defendant's refusal to contract with providers unless they agree the contract terms issued in March 2012
"(d) the persons in charge of the preferred accommodation provide it subject to the authority's usual terms and conditions, having regard to the nature of the accommodation, for providing accommodation for such a person under Part III of the National Assistance Act 1948."
"… The practical effect of paragraph 3(b) of the Directions is that, if a local authority decides to discharge its duty to provide accommodation in premises provided by a third party, it has to identify the rates that it will 'usually expect to pay' for such accommodation. The Directions do not mean, however, that a local authority is entitled to impose a blanket prohibition on placing prospective residents in accommodation which costs more than the 'usual' cost. The fee arrangements which an authority may have with providers is not finally determinative of where a person may be placed."
Conclusion