Manchester City Council Report for Resolution. Looked After Children: Multi-systemic Treatment Foster Care

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1 Manchester City Council Report for Resolution Report to: Executive 14th March 2012 Subject: Report of: Looked After Children: Multi-systemic Treatment Foster Care Strategic Director Children s Services and the City Treasurer Summary This report proposes piloting a new intervention designed to safely move some children from residential to foster care, in order to secure improvements in outcomes for these children. It also proposes that this model is funded by a new and innovative financing approach for the Council, akin to the Social Impact Bond initiatives currently in progress elsewhere in the country. Under this model, the costs of the intervention are met by a combination of third party investment and savings arising as a direct result of the intervention. The delivery partner will be paid on a results-only basis. Recommendations That Members note the proposals for the implementation of the Multi-systemic Treatment Foster Care project for an initial pilot period to assess its effectiveness in safely de-escalating the level of care required for Looked After Children as set out in this report. That Members delegate authority to The Director of Children s Services, City Treasurer and City Solicitor to undertake a procurement exercise for the appointment of a delivery partner and to negotiate and finalise the terms of the payment-by-results contract. That Members authorise The Director of Children s Services, City Treasurer and City Solicitor to complete all relevant documentation. Wards Affected: All Community Strategy Spine Performance of the economy of the region and sub region Reaching full potential in education and employment Summary of the contribution to the strategy Children and young people with more favourable educational outcomes are more likely to make a larger contribution towards the regional and subregional economy Evidence shows that children and young people achieve much better educational outcomes in foster care than in residential care.

2 Individual and collective self esteem mutual respect Neighbourhoods of Choice Evidence shows that children and young people achieve much better emotional and social wellbeing in foster care than in residential care None Full details are in the body of the report, along with any implications for: Equal Opportunities Policy Risk Management Legal Considerations Financial Consequences Revenue The report sets out proposals to deliver Multi-Systemic Treatment Foster Care ( MTFC ) which is forecast to produce savings and improve outcomes for young people over the medium to long-term. Such savings and outcomes are delivered through an operational model that provides for the safe and sustainable de-escalation of care required for children already in residential care. Whilst there is some evidence to suggest MTFC will be a succesful intervention, there is a risk that the intervention does not reduce the need for a residential LAC placement and therefore, the savings will not accrue to recover the costs incurred. As such, we consider this risk is best managed through the use of an external delivery partner and a payment-by-results contract for at least an initial period as we seek to prove the concept. The total cost of the project over 5 years is 5.6m, funded by a combination of thirdparty investment ( 2.4m) (which is the responsibility of the delivery partner) and recycled savings ( 3.2m). This funding is used to deliver two operating MTFC units that can provide MTFC to a cohort of up to 80 children. The financial model underpinning the proposal highlights a potential saving to the Council of some 10.9m over 8 years in looked after children costs. However, such savings do not all accrue direct to the Council and are allocated between investor return, MCC return and programme costs. The net saving to the Council over the same period is expected to be 4.7m. Due to the initial ramp-up period to maturity and time taken for the first cohorts of children to pass through the MTFC programme, savings do not begin to accrue to MCC until the third year of the programme. Should the programme prove unsuccessful in de-escalating any children from residential care, there are no adverse financial implications for the Council since the risk is borne by the delivery partner who operates under a payment by results contract. In such an instance, there is sufficient monies to operate the programme for 2.5 years using external investor funding which is more than enough time to draw conclusions as to the suitability or otherwise of the intervention for Manchester. Financial Consequences Capital There are no capital finance implications arising from this proposal

3 Contact Officers: Name: Sean Davies Position: Head of Finance (Commercial & Public Sector Reform) Telephone: Name: Frank McGhee Position: Assistant Director,Commissioning and Performance Improvement. Telephone: Background documents (available for public inspection): The following documents disclose important facts on which the report is based and have been relied upon in preparing the report. Copies of the background documents are available up to 4 years after the date of the meeting. If you would like a copy please contact one of the contact officers above. No documents.

4 1.0 Introduction 1.1 Manchester has a higher than average number of looked after children ( LAC ), 136 per 10,000 children and young people compared to our statistical neighbours of 101 per 10,000. The Council has been looking at different ways of supporting this cohort in order to improve their outcomes and reduce the cost of the care and support required. One approach being considered is Multi-systemicTreatment Foster Care (MTFC). This report sets out how it is proposed to take this work forward including the use of an innovative financing mechanism to fund the proposal. 1.2 At the end of January 2012, there were 1,324 Looked After Children (LAC) in Manchester. Most of these children were placed in foster care, with 188 living in residential care. Evidence shows that children living in foster care tend to achieve much better outcomes than those living in residential care. Residential care is also very much more expensive than foster care residential care costs an average of 2300 per week compared to an average of 300 per week for an internal foster-care placement or 760 for an external foster-care placement. 1.3 This development sits within our overall commissioning strategy for Looked After Children. This new commissioning approach has been trailed with Members at the budget performance group. Our aim is to improve outcomes for LAC while safely reducing the number through a range of evidence-based interventions. The SIB will be one such intervention. We have increasingly been using foster care over recent years. Currently the highest number of foster carers are from external fostering organisations (38%) with only 14% of our placements being in residential provision. The largest single type of placement we use is external foster carers. This development, if supported, will further increase our use of foster carers. 1.4 This report proposes testing a new model for safely moving some children from residential to foster care in order to secure improvements in outcomes for these children and to deliver the service in a more cost-effective manner for the Council. It also proposes that this model is part funded by third-party investors and delivered by partners who will be paid based on their results from savings accruing to the Council. 1.5 The report starts by describing the background to the proposal, explaining both Multi-systemic Treatment Foster Care and Social Impact Bonds. It then gives an overview of the proposed Manchester project including procurement options considered and financial details. The last sections of the report discuss the potential market for providers and investors, and an outline of the next steps, if Members approve the recommendations. Context 1.6 The past twelve months have been some of the most challenging times in recent years for public services. The local government financial settlement

5 presented Manchester with the challenge of continuing to deliver its priorities for the City with significantly reduced resources. The Council s public service reform agenda is therefore looking for new more imaginative ways of delivering and funding services whilst continuing to improve outcomes for Manchester people. The Children s Services Directorate is moving from the role of service provider to one that focuses on systems leadership, strategic planning, commissioning and quality assurance. The Directorate has statutory responsibilities and accountabilities for improving the outcomes of all children and young people in Manchester, particularly the most vulnerable and is responsible for ensuring fair and equal access to a sufficiency of provision. It is well documented that Manchester has a significantly high number of children, young people and families who live in complex/troubled families, as well as children and young people with Learning Difficulty and Disability (LDD), a mental health problems or are involved in anti social behaviour. The high number of children and young people in care to Manchester has been a significant issue for a number of years. Although it can be seen that we are continuing to reduce our looked after children population whilst the trend across the country is to increase the population, there are still significant issues to tackle, not only from a financial point of view, but also because of the poor outcomes these Manchester children achieve. 1.7 The Council is always looking at more robust ways of improving outcomes and reducing LAC numbers, especially how it improves commissioning arrangements of services for those children in high cost placements. 1.8 Where a decision is made that placing a child in care is in their interest then suitable placements are considered. Very often, for the more complex cases expensive residential care is the only suitable option. If the MTFC model proves successful and is ultimately adopted it will provide an additional alternative resource for those vulnerable young people. 2.0 Background 2.1 In 2011 officers commissioned Social Finance Ltd ( SF Ltd ) to conduct a feasibility study into potential new interventions to safely reduce the numbers of children in residential care, improve outcomes and reduce costs and to consider whether Social Impact Bonds (SIB) could provide a way of funding such work. SF Ltd is a not-for-profit entity with hands-on experience in developing new ways of bringing private and philanthropic sector investment into projects for social good. The first SIB contract in the UK was signed by the Ministry of Justice in 2010 and was developed with SF Ltd. The SIB funds work with short-sentence prisoners discharged from HMP Peterborough over a six year period. Interventions work to prevent reoffending (which runs at 60% for this group) and investors will receive a return if re-offending among the prison leavers falls by 7.5% or more compared to a control group. The government and Local Authoriites are actively considering the application of SIBs to other policy areas. 2.2 SIBs are a way of attracting external investment into public services in certain circumstances. An investor in a SIB will fund an evidence-based intervention

6 with the anticipation that in the event the intervention is successful, they will receive a return on their investment paid for by the service commissioner (i.e. the Council). Such financing mechanisms are suitable for interventions where the Council is keen to explore whether they may be successfully applied in Manchester, but do not believe the evidence base is strong enough to to take the risk of funding from mainstream resources. From an investor s perspective, the evidence behind the intervention needs to be sufficiently credible to provide a reasonable belief that the investment will make a return. If interventions do not produce the desired results, investors do not see a return. The challenge therefore, is to identify an appropriate intervention where the Council does not wish to risk its own resource but that will be sufficiently appealing to private investors. 2.3 The feasibility study identified that Multi-systemic Treatment Foster Care (MTFC) might be such an intervention. MTFC is a wrap around treatment approach. A young person, moved from residential to foster care, receives individual help from a therapist, a skills coach and an education worker. A psychiatrist and clinical psychologist are available for specific sessions. Each foster family works with one child at a time for between six and twelve months. Training, 24 hour support and daily contact with foster carers is provided. MTFC is designed to support foster carers to foster young people with extremely challenging behaviour. Without this programme, their prospects of moving out of residential care are low. 2.4 It is proposed that the MTFC provider works with an initial cohort of 8 children currently in residential care. These children will move from residential care to live with a foster carer, who will be recruited by a delivery partner. In the second year of the programme a second MTFC unit will be opened, increasing capacity to 16 children per year with a view to 80 children in total passing through the programme over five years. Analysis of the current LAC cohort suggests it will be possible to ensure the right level of referrals and that those will be suitable young people who meet the MTFC criteria 2.5 Once in foster care the young person and the foster carer are supported in the way described above. The young person will be seen and supported in the foster home and in a variety of community settings, depending on need. We would expect that the young person will experience improved educational, social and emotional wellbeing and after 12 months the young person would remain in foster care, or return home, rather than return to residential care 2.6 There is some evidence to date around MTFC and its levels of success. For example, of 18 programmes trialled in the UK, 9 were deemed successful in improving the outcomes for children and de-escalating the level of care required. Of the unsuccessful trials, 6 were closed due to financial cuts while 3 were closed because of a lack of referrals. The initial trial results suggest MTFC may be worth pursuing and the feasbility study undertaken by SF Ltd on behalf of the Council confirmed that sufficient numbers of young people would be available to benefit from the programme.. However, the evidence is insufficently robust to justify the Council taking on the full risk of funding such

7 an intervention at present and as such, an approach where the performance risk remains external to the Council is considered advantageous. 2.7 There are two further benefits from this approach. The first is that the provider would need to identify the additional foster carers needed and would also find the initial investment to fund this programme Legal considerations 3.1 Securing the wellbeing of children by protecting them from all forms of harm and ensuring their developmental needs are responded to appropriatly are primary aims of Government policy. Children s Services Departments, with their partners have a duty to safeguard and promote the welfare and upbringing of children in their area. 3.2 The Council's legal responsibilities to looked after children and young people are fundamentally the same whether they are placed in residential or foster care and are primarily found in Section 22 of the 1989 Children Act. There are general duties to safeguard and promote welfare, to provide services and to consult the child and others, including parents, before taking decisions. There are specific duties to provide accomodation and maintenance. These duties will remain with the Council notwithstanding any contractual relationships with the delivery partner. 3.3 The Fostering Services Regulations 2011 set out the legal duties around the assessment, approval and support for foster carers. Each child placed in foster care will have a placement plan, the content of which is prescribed by regulations. The 2010 Care Planning Regulations allow a local authority to enter into an arrangement with independent fostering agencies to discharge its functions around placement with foster carers. In addition, Independent Reviewing Officers (IRO s) will monitor the child/young persons plan through the statutory Review process. 3.4 The Council will ensure that all its legal responsibilities to looked after children and foster carers are met in the MTFC arrangements and will ensure appropriate provisions are contained in the contracts with the delivery partner. 4.0 Procurement 4.1 Officers have considered 2 main delivery options:- Option 1: Procure an investor and a delivery partner through a Special Purpose Vehicle or joint venture arrangement. Option 2: Procure a delivery partner (who is responsible for delivering the MTFC and providing foster carers and the investment) and enter into a direct contractual arrangement. 4.2 In each case a competitive procurement would be required in accordance with the Public Contracts Regulations 2006 and the Council s own Constitutional

8 requirements. Option 2 is considered to be the preferred option as this is a more straightforward contractual and procurement route, particularly considering the pilot nature of the project, whilst still being robust enough to ensure our requirements are met. 4.3 The contract details have yet to be determined and specifications will be finalised in due course in consultation with the Legal and Procurement teams. Following the competitive process a contract will be placed with a MTFC provider and payments linked to outcomes under the terms of the contract 4.4 In reality, it is unlikely that many MTFC providers will have the financial means to carry the risk of such a contract from their own resources. As such, potential partners may seek to engage an investor to assist with the working capital requirements of the contract. Part of the next steps in the process will be to mobilise interest and engagement in the Manchester MTFC project from both delivery partners, investors and potential advisors. 5.0 The financial model Financial summary '000 Total Total Costs 5,620 Funded by: Savings 3,206 Investor Drawdown 2,414 Total Costs 5,620 Total Savings 10,949 Allocated to: Recycled to fund costs 3,206 Investor Return (Inc cap) 3,053 Sub-total to Programme 6,260 MCC Return 4,690 Total Savings 10, The total cost of the project over 5 years is 5.6m, funded by a combination of investors ( 2.4m) and recycled savings ( 3.2m). If successful, savings of 10.9m could be generated over 8 years, assuming 2 units (a unit comprises MTFC trained staff with access to professional support such as psychologists), 8 young people in each and the successful move to foster care of 5 attendees per unit per year. It is assumed that a further 3 attendees are unsuccessful in completing the programme. Essentially, the return is generated through the decommissioning of residential provision and is split between MCC and investor return. An analysis of cost and savings by programme year is set out in the Appendix. 5.2 The costs are used to fund the staffing and overhead costs of two units of MTFC workers that each have the capacity to deal with 8 cases per annum. The units are therefore in operation under the auspices of this programme for a period of five years. Should the programme prove successful and the evidence base develop, we would look to procure this service ourselves without the aid of a PBR contract beyond this pilot period.

9 5.3 We have considered the ability of MCC to cash such savings and are confident that we will be able to directly convert the reduction in care costs to cash amounts that can be used to fund the programme/repay investors. This will be achieved through stopping procurement of residential care places for these children whilst at the same time, maintaining existing thresholds of access to such places. 5.4 Note that the model above reflects our current assumptions and is indicative only. As we move through the procurement process, it is possible that there will be further discussion around our underlying assumptions before the contract is finalised 5.5 Sensitivity analysis shows that in the absence of savings being delivered, there is enough funding to run the programme for 2.5 years this should be sufficient time to assess whether MTFC is successful or not. In the event no children are successfully de-escalated from residential care, the programme will be wound down. 5.6 Attracting investor funds via the Social Impact Bond is necessary because of the time delay in savings being realised and also to help mitigate risk to the Council for example, if the first cohort is not as successful as modelled. The MCC return begins to accrue from the third year, as in the first two years, savings are used either to fund the running costs of the programme or to repay investors in order to minimise the costs of the programme. 6.0 Potential providers and investors 6.1 Whilst any detailed work was outside the scope of SF Ltd s engagement, there has been some initial work undertaken to gauge the appetite of providers in this area. Indications are that there are interested, experienced, potential providers of MTFC and we are confident that we will be able to generate sufficient interest from delivery partners in the programme. 6.2 Interest from investors is harder to gauge as the market for Social Investment Bonds is not yet well developed, though we might expect interest from philanthropic funds, wealthy individuals, Trusts and Foundations. Our proposal is to hold an introductory event, bringing investors and providers together with a view to developing interest in the concept and facilitating introduction between providers and investors. We would seek to engage the Cabinet Office Social Impact Bond team to support this event, bringing together the right partners to provide the capital to support the SIB. SF Ltd could also assist in targeting the right combination of investors. 7.0 Next steps 7.1 The proposal assumes that we start the procurement process in April 2012 with a view to concluding the contract and starting MTFC provision from Autumn 2012.

10 Manchester City Council Appendix - Item 14 Appendix Analysis of Costs/Savings of the MTFC Proposal Financial summary '000 Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Total Total Costs ,142 1,130 1,133 1, ,620 Funded by: Savings ,206 Investor Drawdown ,414 Total Costs ,134 1,130 1,133 1, ,620 Total Savings ,540 2,177 2,420 1,999 1, ,949 Allocated to: Recycled to fund costs ,206 Investor Return (Inc cap) , ,430 1,256 1, ,260 MCC Return ,132 1, ,690 Total Savings ,540 2,177 2,420 1,999 1, ,949