An Experience of An Experience of Managed Service ContractsManaged Service Contracts

Richard Spooner

rjcmspooner@gmail.com

Scottish Association of Histotechnology, Dunfermline 2nd November 2012

What is a

Managed Service?

Board will contract with a Single Supplier for the Management of its:

Equipment, Reagents and Consumables

Note: Excludes Staff

HMRC allows VAT reclaim on a Managed Service

Well established but:

Stringent conditions to be met in terms of finances

UK only

ProProEconomy of scale ≈ 5%Economy of scale ≈ 5%Tax reclamation ≈ 17%Tax reclamation ≈ 17%(Maintenance VAT exempt)(Maintenance VAT exempt)

Single invoiceSingle invoice

ie perhaps 22% of 25% = 5.5%ie perhaps 22% of 25% = 5.5%£ 55,000 saving for each million £ 55,000 saving for each million currently spentcurrently spent

ConsConsManagement feeManagement fee

Upfront or loaded on Upfront or loaded on reagentsreagentsService feesService fees

Possible charge on 3Possible charge on 3rdrd parties partiesSupport staffSupport staff

Don’t come “free”Don’t come “free”FlexibilityFlexibility

Compromise!Compromise!

• Outright Purchase-EquipmentOutright 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

Lease from manufacturer / supplier

• No capital outlay / No asset value

• You own nothing

• No Capital Charges (UK)

Managed Service Contract

• Single Contractor

•Transfer of Risk

• VAT avoidance

Single Contractor

• Likely to be one of big 4 Diagnostics companies

• Chemistry is their core business

Spend

•Chemistry/Blood Gas 40%

•Haematology 10%

•Transfusion 5%

•Microbiology 25%

•Pathology 10%

Laboratory ScoringLaboratory Scoring

Cost v TechnicalManaged Service 20%

Biochemistry 35%

Blood Gas / POCT 10%

Haematology 15%

Blood Transfusion 7 %

Microbiology 7%

Pathology 5%

Centrifuges 1%

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”.

Single Supplier, Glasgow 2004Single Supplier, Glasgow 2004

AbbottAbbottChemistry + Immunoassay + Virology + ITChemistry + Immunoassay + Virology + IT

Sysmex Haem

IL Coag

Diamed Transfusion

Qiagen Molecular

IL Blood Gas

Siemens Special IA

Menarini HbA1c

Phadia Allergy

Millipore Water

Binding Site Immunology

Diasorin Serology

IDS Immunology

Risk Transfer – At What Price ?Risk Transfer – At What Price ?

Risk Transfer

Price

Optimum risk transfer ?

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)

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

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

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

“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

Length of Contract

• England moves to long contracts

• CLO pushes towards 7 years

• ? 2 years to deliver

• ? 18 months to implement

• Cost of change

Managed Service

Histopathology

The Forgotten Discipline?

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

Histopathology:

An Automatable Process

Contract on basis of:

• Clinical need

• Operational fluidity

• Fiscal benefit

Do not have to take total offer from main contractor

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

Process? Best in Class ?Process? Best in Class ?

Classically How We Make ChoicesClassically How We Make Choices

NowNow

Surely now need to procure Surely now need to procure ““Best Operational Solution”Best Operational Solution”

for organisation/disciplinefor organisation/discipline

Laboratory ScoringLaboratory Scoring

Cost v TechnicalManaged Service 20%

Biochemistry 35%

Blood Gas / POCT 10%

Haematology 15%

Blood Transfusion 7 %

Microbiology 7%

Pathology 5%

Centrifuges 1%

What’s in it for Pathology?

Added Value

Relationship

IT

Education

Added Value

• Recapitalisation

• New Technology / Upgrade Path

• Experience – workflow

• Develop your process

• Reagent Management

Relationship

• Partnership

• Does provider understand Board?

• Does provider understand Pathology

• Does provider work well with 3rd party? Governance equivalence.

• Compromise

IT

• Middleware enhances traceability

• Reagent management software

• Write SOPs

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?

ConclusionConclusion

Move towards single supplier brings Move towards single supplier brings economy of scale benefits without risk economy of scale benefits without risk to patientto patientNow possible to do this on an organisation Now possible to do this on an organisation rather than department approach in one rather than department approach in one contractcontract

Further savings possible through managed Further savings possible through managed service through VAT reclamationservice through VAT reclamation

You will NeedYou will Need• A Procurement representative who will guide you A Procurement representative who will guide you through the legal minefieldthrough the legal minefield• A Finance representative to validate your existing A Finance representative to validate your existing costscosts• Support from General ManagementSupport from General Management• A Leader who has the respect of all disciplinesA Leader who has the respect of all disciplines• An ImplementerAn Implementer

TO KEEP IT SIMPLETO KEEP IT SIMPLE

Experience of a PathologyExperience of a PathologyManaged Service ContractManaged Service Contract

Steven Harrower

Service Manager, Histopathology, NHSGGC

steven.harrower@ggc.scot.nhs.uk

Scottish Association of Histotechnology, Dunfermline 2nd November 2012

Pathology BenefitsAdded 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?

Implementation IssuesIT/Interfaces/Incompatible Software

Greater Emphasis on Disaster Recovery

Extra Staff Resource RequiredTrainingValidation of Equipment & Consumables

Quality ControlValidation of ProceduresQuality Issues with some Consumables

FinancialNew Ordering SystemDouble Billing

Helpdesk Response Time

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