Implementing Carter: Sharing the lessons of shared services and outsourcing
If you are planning to consolidate your back office or certain clinical services, such as pathology, with neighbouring NHS organisations, Hempsons can help you achieve the costs savings and gain wider benefits.
The key lessons are:
- Focus on patients
- Plan to be flexible
- A good contract saves money
- Good governance is a priority
- Minimise the risk of a procurement challenge
- Consider tax and VAT opportunities
Focus on patients
The distinction between patient-facing and back-office services is not always clear cut. The boundaries can shift with the changing healthcare landscape. A Trust should always focus on the impact on patient experience potentially caused by reducing the Trust’s measure of control over those services to another organisation. This will highlight the standards and flexibilities you require, and sometimes it may limit what you are really willing to share or contract-out.
For example, there may be efficiencies to be gained within a catering budget across a region if those services are outsourced to another Trust or a new organisation under your shared ownership of several Trusts. But this may not be the case if scope of the catering services that you consolidate does not match your aspiration to innovate in a certain location. Either you will lose the opportunity to improve the service at that location, or the cost savings you achieve may be outweighed by additional costs of supplementing the service. Back to top
Plan to be flexible
An ambitious plan might identify many opportunities for shared services, but not necessarily at the same time or within the same contract. If you are proposing to share multiple back-office services, you should consider whether it makes more sense to do so under a single contract or separate ones. Although there may be apparent pricing efficiencies to be had by outsourcing high value, multi-service contracts for long periods, these benefits can turn out to be illusory – one reason for this is the risk of over-pricing, but the flip-side risk of supplier under-pricing may ultimately rebound on the service recipients. Neither outcome is desirable when the objective is to share benefits between NHS organisations.
The temptation to resort to side agreements and informal measures should normally be resisted, as they can tend to make impressions of imbalance even more intractable. The contractual and governance arrangements of the shared service need to be clear and easy to operate. It is well worth doing the hard up-front work that makes for a smoother relationship afterwards.
Make sure you weigh the benefits of immediate cost savings against the longer-term potential income-generating possibilities. This is often an issue for Trusts with ambitions to redevelop their patient welcome and retail offering, if the funding is not available to achieve those goals now. Back to top
A good contract saves money
If a neighbouring trust is delivering a back-office service to your own trust, or vice versa, you will both want a contract that is proportionate, clear, and enables you to demonstrate that good value for money is being achieved. That means you need a contract that is in all commercially significant respects, identical to the type of contract you would enter into with a private sector supplier or service provider. If you are concerned that this recommendation brings to mind a form of contract that would be too cumbersome for you to operate with your NHS neighbours, it is worth examining why. A contract check-up can show you where savings and improvements can be made in your on-going outsourcing contracts, often by simplifying your management processes.
Unless you have the right contract and sound contract management systems in place, you cannot be sure that your customer/supplier relationships with neighbouring trusts are going to be smoother than your relationships with non-NHS suppliers and service providers. Back to top
Good governance is a priority
A well-governed collaboration is a decisive one. Good partnership working will flush out differences and resolve them early and cost effectively.
Where two or more NHS organisations share decisions, you will need to put in place a partnering board (or steering board) with clear Terms of Reference to suit your specific requirements. The high-level principles of good governance are generally applicable, but there is no one-size-fits-all governance process and there are numerous possible organisational forms.
You need to select the most suitable structure and establish the communication and accountability procedures that will enable your organisations to work together with speed and clarity. Back to top
Minimise the risk of a procurement challenge
Despite the Brexit decision, the Public Contracts Regulations 2015 (“Regulations”) continue to apply. In any event, the procurement rules that apply to contracting for non-clinical services are unlikely to change suddenly or dramatically.
There is a market for back-office services and likewise for clinical services, so setting up a shared service arrangement without complying with the requirements of the Regulations is to court a risk of challenge. The risk is heightened if you are considering terminating any service or supply contracts in order to set up newly consolidated arrangements with your neighbours. Your existing suppliers will scrutinise the basis upon which the new arrangements have been entered into.
This does not necessarily mean that you have to follow a full OJEU tender process in all cases. You may be able to structure your arrangement to benefit from “shared service” and/or “in-house” exemptions, both of which are recognised by the Regulations. We have helped NHS organisations to navigate the complex issues involved in setting up valid, workable “in-house” companies – including where the new company is jointly owned by a number of public sector organisations.
It is also important to future-proof your contracts insofar as possible to manage potential procurement law risks associated with any change. Back to top
Consider tax and VAT opportunities
Tax and VAT considerations may encourage the formation of subsidiary companies to deliver shared services, but not in all circumstances. Specialist financial advice is recommended, so you can balance the legal and commercial risks and benefits of each organisational form before deciding the most appropriate way to proceed. Back to top
Deal with transitional costs
A well-planned project to reduce costs by sharing services needs to identify the base-line costs and service levels. Financial and legal due diligence will reveal what is really involved in delivering the back-office service, as well as what an efficient delivery model should will look like.
The process of moving from the current structure to the target structure will need to be carefully managed. This means that responsibility for any unavoidable transitional costs (such as “stranded” services) needs to be allocated. A Business Transfer Agreement can help to avoid nasty surprises. Meanwhile, with specialist support, you can mitigate avoidable costs in respect of:
- Staffing – via TUPE compliance, and allocating redundancy costs on consolidation
- Supply contracts – by novating some supply contracts and properly terminating others
- Premises – confirming your on-going obligations, negotiating the most cost-effective exit, including by mitigating substantial dilapidations costs
- IT, data and information sharing.
Consider seeking partners beyond the NHS
Sharing services does not necessarily mean keeping the delivery of back office services within the NHS family, nor should you insist on keeping the decision-making about contracting-out of the services purely within the NHS.
For example, you might want to consolidate and enhance your commercial expertise when looking to realise estates efficiencies and generate revenue from your capital assets. To that end, a Strategic Estates Partnership (SEP) between a trust and a private sector “integrator” is an additional option well worth exploring. A SEP can bring commercially-focused insight to trust decision making as well as efficiency to back-office service delivery.
Red Rose Corporate Services LLP and Villicare LLP are successful examples of well-established, long-term, estates-based collaborations between NHS Foundation Trusts and Ryhurst Limited that are bringing innovation and savings to a range of capital projects and back-office services in the North West – including to neighbouring trusts that are not directly engaged in sharing the benefits of participating in these innovative joint venture LLPs.
For more information please contact Crispin Pettifer or Jamie Foster.
We value our relationship with Crispin Pettifer and the team at Hempsons. They know their business and what really makes a difference is their integrity and proportionate approach.
Trust Board Secretary, Lincolnshire Community Health Services NHS Trust
Jamie and the team have guided the partners in assessing risks and supporting implementation of Salford Together’s innovative and radical new care model. They have provided first class expertise and have been responsive and professional throughout this complex and high profile project working to a demanding timetable.
NHS Salford Commissioning Group, Salford City Council, Salford Royal NHS FT and Greater Manchester West Foundation Trust