An Experience of An Experience of Managed Service ContractsManaged Service Contracts
Richard Spooner
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
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
