An Experience of Managed Service Contracts

1. An Experience of Managed Service Contracts Richard Spooner rjcmspooner@gmail.com Scottish Association of Histotechnology, Dunfermline 2nd November 2012

2. What is a • Managed Service?

3. Board will contract with a SingleSupplier for the Management of its: Equipment, Reagents and Consumables Note: Excludes Staff

4. HMRC allows VAT reclaim on a Managed Service Well established but: Stringent conditions to be met in terms of finances UK only

5. Pro Economy of scale ≈ 5% Tax reclamation ≈ 17% (Maintenance VAT exempt) Single invoice ie perhaps 22% of 25% = 5.5% £ 55,000 saving for each million currently spent

6. Cons Management fee Upfront or loaded on reagents Service fees Possible charge on 3rd parties Support staff Don’t come “free” Flexibility Compromise!

7. Outright Purchase-Equipment • Probably cheapest, but restricts: • Options for finite period • Technology Change • Introduces uncertainty – life span / ROI • Ties up capital • Leasing • Flexible • Aids fiscal planning

8. Lease from manufacturer / supplier • No capital outlay / No asset value • You own nothing • No Capital Charges (UK)

9. Managed Service Contract • Single Contractor • Transfer of Risk • VAT avoidance

10. Single Contractor • Likely to be one of big 4 Diagnostics companies • Chemistry is their core business

11. Spend • Chemistry/Blood Gas 40% • Haematology 10% • Transfusion 5% • Microbiology 25% • Pathology 10%

12. Laboratory Scoring Cost v Technical Managed Service 20% Biochemistry 35% Blood Gas / POCT 10% Haematology 15% Blood Transfusion 7 % Microbiology 7% Pathology 5% Centrifuges 1%

13. Single Contractor then Contracts with third party suppliers for: • Equipment, service, consumables & support it is not able to provide • Maybe more than 100 third parties in large contract mainly, but not exclusively, in general area of “diagnostics”.

14. Single Supplier, Glasgow 2004 Sysmex Haem IL Coag Diamed Transfusion Abbott Chemistry + Immunoassay + Virology + IT Qiagen Molecular IL Blood Gas Siemens Special IA Menarini HbA1c Phadia Allergy Millipore Water Binding Site Immunology Diasorin Serology IDS Immunology

15. Risk Transfer – At What Price ? Optimum risk transfer ? Price Risk Transfer

16. Transfer of Risk Undertaking to manage service does not refer to local interference with working practice. Provides and manages resource to guarantee financial and technical performance (KPI)

17. Will accept financial penalties but penalties don’t guarantee a service Board benefits from guaranteed prices and no surprises in terms of equipment failure Single Invoice benefits Finance

18. All assets transferred to provider (in return for a cheque). You own nothing. Will provide sufficient capacity to cover growth and KPIs eg TAT and upgrade when required. Contract needs to cover changes in technology

19. Provides nominated or onsite staff such as engineers, financial or technical specialists Usually provide electronic reagent management system and are responsible for failures to deliver/alternative methods

20. “Provide” – Board is paying for all this expertise, penalties or transfer of old equipment somewhere in financial offer. Need to work together as “Partners” and you will need a flexible partner

21. Length of Contract • England moves to long contracts • CLO pushes towards 7 years • ? 2 years to deliver • ? 18 months to implement • Cost of change

22. Managed Service Histopathology The Forgotten Discipline?

23. Big 4 operate dozens of Managed Services in Biochemistry, Haematology or Blood Sciences. BioMèrieux at least 1 in Microbiology Very few comprehensive Laboratory Medicine contracts

24. Histopathology: An Automatable Process

25. Contract on basis of: • Clinical need • Operational fluidity • Fiscal benefit • Do not have to take total offer from main contractor

26. Pathology ready to benefit from new technology and experience of large diagnostic companies – Lean, workflow logistics etc. • Not all Big 4 have in house pathology so discipline can,to some extent, pick and choose from 3rd party offerings. • Are benefits to “single supplier” concept even at discipline level

27. Process? Best in Class ? Classically How We Make Choices Now Surely now need to procure “Best Operational Solution” for organisation/discipline

28. Laboratory Scoring Cost v Technical Managed Service 20% Biochemistry 35% Blood Gas / POCT 10% Haematology 15% Blood Transfusion 7 % Microbiology 7% Pathology 5% Centrifuges 1%

29. What’s in it for Pathology? Added Value Relationship IT Education

30. Added Value • Recapitalisation • New Technology / Upgrade Path • Experience – workflow • Develop your process • Reagent Management

31. Relationship • Partnership • Does provider understand Board? • Does provider understand Pathology • Does provider work well with 3rd party? Governance equivalence. • Compromise

32. IT • Middleware enhances traceability • Reagent management software • Write SOPs

33. Education • Provider offers lump sum to central/local Training Budget • Provider offers access to CPD via “Academy”. • Do these cover Pathology? • Does 3rd party offer anything above continuous training?

34. Conclusion Move towards single supplier brings economy of scale benefits without risk to patient Now possible to do this on an organisation rather than department approach in one contract Further savings possible through managed service through VAT reclamation

35. You will Need A Procurement representative who will guide you through the legal minefield A Finance representative to validate your existing costs Support from General Management A Leader who has the respect of all disciplines An Implementer TO KEEP IT SIMPLE

36. Experience of a Pathology Managed Service Contract Steven Harrower Service Manager, Histopathology, NHSGGC steven.harrower@ggc.scot.nhs.uk Scottish Association of Histotechnology, Dunfermline 2nd November 2012

37. Pathology Benefits • Added Value • Major Investment in Equipment • Improved Automation & Standardisation • Introduction of New Technologies • Digital Imaging, Specimen Tracking • Leaner Workflow • Anticipated Value • Reduction in Transcription Errors • Bar Coded Specimen forms/pots, Cassettes & Slides • Improved Audit/TAT Information • Reduced Risk • Dealing with One Company?

38. Implementation Issues • IT/Interfaces/Incompatible Software • Greater Emphasis on Disaster Recovery • Extra Staff Resource Required • Training • Validation of Equipment & Consumables • Quality Control • Validation of Procedures • Quality Issues with some Consumables • Financial • New Ordering System • Double Billing • Helpdesk Response Time

39. Lessons Learned • Bidders Need to Understand Histopathology • Ensure Tender Captures Histopathology & it’s Specialties • (Histology, Mol Path, ICC, Cytology, EM, Neuro, Paeds) • Incorporate the complexities • Don’t focus solely on workload figures • Scoring Responses • Pathology is only part of Overall Score • All Disciplines Involved (& Finance Weighting) • Organise Responses • Multiple 3rd Party Bidders • Identify any GAP’s • Most Bids Focused on Core Histology • Know what’s Included in Contract (and what isn’t) • Equipment & Consumables • Anticipate the Risks