The great debate

A major debate is going on in the British National Health Service over the topical issue of outsourcing. Some believe that outsourcing is the single most significant answer to the current financial challenges faced by the NHS. Others believe it would be a sure path to substandard service, destroying the essential founding vision of Aneurin Bevin. These two polarities describe the essential positions of protagonists in the NHS outsourcing argument.

Budget pressure
Certainly, there is financial pressure on the NHS, despite budget protection compared to other government departments. NHS spending as a whole has been ring-fenced, yet this masks the reality that NHS financial managers are having to contend with; £1 billion of the overall budget has been reallocated to social care and over £20 billion of efficiency savings have to be achieved by the middle of the decade. Capital spending is to fall by 17 per cent in the next four years (from £5.1 billion in 2010/11 to £4.4 billion in 2014/15), and even these statistics will only be adhered to if the NHS can deliver huge increases in productivity: four per cent every year until 2015.

Overall budget pressure (despite ring-fencing), along with a particular pressure on capital spending is evident, but why should it be of particular importance? After all, capital equipment investment represents a mere 20th of health spending the NHS.

Many studies have, however, shown that access to the most up-to-date healthcare technology often has a disproportionately large and positive impact on the ability to deliver better health outcomes and operating efficiencies. In other words, a relatively small investment in technology can have a large effect on radically improving the cost, efficiency and effectiveness of diagnosis and treatment. As such, the contribution made by technology to those operational efficiencies which the NHS is charged to find, is crucial.

MRI scans
In one example MRI scans can now be completed in a quarter of the time they formerly took, thanks to technological advances achieved since the millennium, according to Siemens’ studies. The scans are also clearer and more accurate.

The National Audit Office has pointed out that the number of diagnostic scans carried out on NHS patients using MRI and CT machines has tripled in the last ten years. In parallel, the number of radiotherapy treatment sessions has increased two-and-a-half times over the same period. A focus on reducing waiting times and an increasing clinical application of the technologies have largely contributed to their growing demand.

The costs
The argument for outsourcing is thus put in place: capital budgets are under pressure; trusts want to free capital and devote it to front line services; up-to-date technology plays a very significant part in achieving mandatory efficiencies and improvements; so why not shift both the capital expenditure and the service delivery onto a private sector third party? The response to this argument, however, is “don’t forget about the overall cost”.

Private sector organisations do not take on outsource contracts for the public sector without the ability to earn a suitable margin. It is their duty to shareholders to deliver not just revenue, but also earnings. In fact, a little further thought shows that in some respects, a knee-jerk move to wholesale outsourcing may involve several layers of profit margin.

Outsource companies do not necessarily have deep capital pockets. They may turn to financiers to help them acquire the equipment needed to fulfil their duties – financiers who themselves will, naturally, charge a margin. So now the NHS trust may potentially pay two profit margins.

Specialist services
Of course, the argument for outsourcing certain facilities to the private sector can be strong, in that such organisations are able to deliver economies and scale plus efficiencies of operation that individual trusts would find it difficult or impossible to achieve. This idea of outsourcing specialist services is after all hardwired into the system: the NHS Supply Chain is run by DHL and the Department of Health half-owns NHS Shared Business Services. We are seeing the rise of Diagnosis and Treatment Centres (DTCs) provided by the private sector – an important point in that this is the outsourcing of clinical services, not just ancillary blue-collar work.

In conclusion then, it is the suggestion of this article, that where outsourcing deals take place, it may be wise for NHS trusts to retain the financing relationships for capital equipment acquisition themselves. In other words, the NHS trust leases the required equipment directly, and the outsourcing company is engaged to concentrate on providing the service. In this way, the trust retains more transparency on the costs involved with its outsource relationships.

Outsourcing in the NHS is a trend that appears to be irreversible. However, transparent management of outsourcing relationships is crucial to ensure that they deliver promised efficiencies without a drop in the quality of service to the public.

Written by David Martin, general manager, Siemens Financial Services Ltd UK