Under the microscope – Reform of pathology services

As the Carter Report widely advised, significant savings and service improvements can be achieved in relation to pathology services, which are believed to cost the NHS approximately £2.5 billion p.a, if best practice was applied across the board. A growing number of NHS bodies are reforming their pathology service arrangements. Many schemes have already completed and/or are under way, in order to realise the foreseen cost savings and to optimise the standard of service provided.

This note provides a summary of the options available to NHS Trusts, and sets out some examples of our recent experience.

Options

1. Lean activities: as some Trusts have proved, evaluating the pathology service process (e.g. redesigning the laboratory layout) can reduce turnaround times without increasing cost and in some cases improve service levels and reduce costs. Whilst care needs to be taken to ensure such exercise does not disrupt the services, it requires little/no investment to off set against the potential savings.
2. Managed equipment contracts: many Trusts procure analysers with consumables and associated maintenance in a bundle of services from suppliers. This allows the Trusts to receive the benefit of capital investment and transfer an element of service delivery risk to the supplier, whilst retaining control of the laboratory services. Subject to the contractual structure, VAT savings may also be achieved.
3. Outsourcing: some Trusts are turning to the private sector for the provision of end-to-end pathology services, including the provision and maintenance of equipment, stock management, training and logistical support. This model can bring with it immediate capital investment by the private sector, paid for by the Trust from revenue, reduced costs, the transfer of operational risks and improved service levels.
4. Shared Services: there are numerous examples across the NHS of Trusts working with their neighbours to consolidate their pathology services and share the subsequent benefits. These may include cost savings (e.g. the Trusts sharing an off site hub laboratory for cold samples) and service level improvements as a result of the peer-to-peer service review. The model does not facilitate private capital investment but may not require a formal procurement exercise and it ensures the Trusts retain control over their pathology service.
5. Joint Venture: generally, this phrase has been used to describe a collaboration between the NHS and private sector. It can take on different legal forms, being either a contractual arrangement or the establishment of a special purpose vehicle that is part NHS and part private sector owned. This is a sophisticated option and requires the investment of sufficient resource to manage a procurement process. The potential benefits though are significant and include private capital investment, an improved level of service and the transfer of certain service delivery risks whilst retaining an element of NHS control over the service. This model also facilitates income generation from providing pathology services to independent sector treatment centres, GPs and other NHS Trusts.

Legal support

Our pathology practice has extensive experience working with both the public and private sectors in relation to the options previously mentioned. Our most recent experience includes:

• Managed equipment contracts: we advised a Trust on its procurement of a managed equipment services contract using the competitive dialogue procedure. We have also advised an NHS Foundation Trust on its procurement of the same services using the restricted procedure.
• Outsourcing: we acted jointly for a Foundation Trust and a PCT in outsourcing the regional pathology services to an end-to-end service provider.
• Shared Services: we are jointly advising three Trusts on the phased implementation of a shared services arrangement for their pathology services.  The consolidation exercise is expected to realise savings of at least 15%.
• Joint Venture: we advised two Foundation Trusts in relation to the establishment of a joint venture limited liability partnership with a private sector partner to provide pathology services. Under the joint venture the Trusts and the private sector partner will deliver the full range of pathology services together whilst the clinical interpretation and advice will continue to be provided by staff employed by the Trusts. The venture also involves plans to launch a multi-million pound state of the art laboratory to provide off site support.
• Joint Venture: we are advising two other Foundation Trusts in relation to the procurement of a private sector partner to establish a joint venture pathology special purpose vehicle using the competitive dialogue procedure.