Carter 2016: Generating efficiency savings using managed service contracts
Published 8 September 2016
The Carter Report, published in February 2016, was emphatic in its requirement for Trusts to achieve efficiency savings and consistency. It highlighted the wide range of cost differentials for similar services or products, especially in the context of pathology and imaging. Now, all Trusts must ensure that their pathology and imaging departments achieve their benchmarks, as agreed with NHS Improvement, by April 2017. And for more general procurement, Trusts must commit to the Department of Health's NHS Procurement Transformation Programme to increase transparency and achieve a reduction of at least 10% in non-pay costs across the NHS by April 2018.
Here, we look at the increasing use of managed service contracts to generate these efficiencies, and discuss the best approach to putting these contracts in place.
The Carter Report confirms an uncomfortable truth but is probably of little surprise to those familiar with the NHS. Implementing the recommendations is no small challenge and comes at a time of ever-growing demands and the need to manage healthcare costs.
With diagnostic imaging and pathology integral to most patient pathways a failure to invest in new equipment risks both an adverse impact on the quality of clinical care, and lost opportunities to make operational improvements. As a result, many Trusts are exploring and putting in place managed services contracts in order to realise these clinical, operational and financial benefits.
What is a managed equipment service?
Typically, a managed equipment service is a flexible and specialized partnership with a service provider that ensures a Trust has access to innovative medical technology and equipment and a range of related services. The service provider should manage all of a Trust's equipment concerns such as ownership, provision, purchase, installation and commissioning, user training, asset management, maintenance and ongoing replacement and disposal.
The services are generally provided for a fixed monthly unitary charge for the entire contract duration.
The objective of these contracts is to smooth out the peaks and troughs of payment obligations and provide more certainty around capital. Some managed services will involve considerable management (by the provider) of sub-contractors, others may lean more towards a single provider model depending on clinical requirements.
However, there is no one size fits all. Simply calling something a managed service does not make it so, and any financial benefits (including any incidental VAT recovery) will depend entirely on the nature, structure and level of risk transfer of the managed service solution. Trusts should carefully consider how the inclusion of consumables works within such contracts and must be cognisant that although such benefits are possible, they are not a given.
Unfortunately, we sometimes see poor service offerings masquerading as “managed services” but failing to deliver tangible clinical or financial benefits; suppliers can "promise the world" but then be reticent to underwrite this contractually.
However, "done well", a managed service can deliver clinical, operational and financial benefits.
What are the benefits?
There are clear clinical benefits that managed contracts provide to quality of care and patient pathways; clinicians can ensure that equipment meets their agreed specifications and will be replaced on schedule to remove the risk of having to rely on old or obsolete equipment. Trusts don't need to budget for capital, both on a planned and emergency basis. Response and fix times and uptime percentages can be streamlined and improved through the competitive process. It should facilitate clear contract management arrangements to deal with service implementation and on-going provision so the Trust can focus on clinical activity and input. It should enable better planning to be realised on a predictive rather than a reactive basis. And suppliers can sign up to KPIs based on agreed savings percentages each year, and take over general procurement responsibilities for all sorts of provisions.
However, to achieve the benefits, contracts must be carefully negotiated and drafted; there can be risk due to the long-term nature of such contracts. Technology can change and become cheaper over time and contractual protections are necessary to ensure continuing value for money. The contracts should "work" to facilitate the achievements of operational, clinical and financial benefits, rather than simply adding layers of bureaucracy and costs to the procurement process.
The right route to procurement
Many managed service contracts are subject to the Public Contracts Regulations 2015 and Trusts will need to decide the right procurement procedure from the outset.
Once a procurement route is selected, a Trust is legally bound to follow it; therefore, the quality of the framework and any potential advantages or disadvantages should be carefully considered so as to optimise the route to procurement and minimise the risk of challenge under EU law.
We advise Trusts to consider:
- if the suppliers on the framework represent the supplier market
- if the services on the framework meet the Trust’s scope
- whether the terms and conditions of the framework and/or call-off contract are clear, and do they permit the Trust to use the framework?
- has the framework had a history of successful call-offs or legal challenges?
A good framework should provide robust contract terms, shorter time frames, access to the right market players and stringent evaluation. However, if a framework has not specified call-off rules or contract terms this can be problematic. Perceived economic and time benefits can be lost if there is a challenge under EU law resulting in escalating costs and risks.
How we can help
We have a number of what we would describe are “typical” managed service contracts. These have been developed from numerous projects and reflect our understanding of MES development and the various supplier pools. We also advise on established and well run MES frameworks.
Our contracts are drafted to facilitate project specific considerations reflecting latest NHS guidance including risk transfer and contract structure for VAT recovery. We always advise Trusts to “walk through” the proposed contract with us so it can be fully understood and project specific instructions can be obtained. This also helps in the formulation of evaluation criteria for the procurement. We also provide advice on how to structure the procurement and how to ensure that all advisers and Trust personnel understand relevant requirements/constraints on it.
We advise Trusts to understand and engage with the market prior to procurement, understand and focus on requirements/drivers and apply a holistic approach in terms of clinical, technical, commercial and legal work streams. We aim to help our clients minimise the risk of a procurement challenge as far as possible. All this said, it must be emphasised that a well negotiated and well drafted contract is only useful if it is understood by the Trust and if the remedies within it can be triggered if required.
For successful contract operation it is essential that Trusts avoid knowledge gaps between the clinical, operational and financial teams that procure and negotiate the contract and those that manage it "on the ground" operationally. This way the operational management of the contract should achieve what the procurement set out to do and be clear as to a Trusts' remedies in the event it does not.