Endoscopy Managed Service Case of Need - Nottingham University ...
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Endoscopy Managed Service
Case of Need
Authors:
Isobel Esberger
Emma Hinchley
Jude Fovie
Document approval record:
Committee Date Scheduled Date approved
Surgery DLT 9th November 2018 9th November 2018
IGC 13th November 2018 13th November 2018
HMB 15th January 2019 15th January 2019
FIC 24th January 2019 24th January 2019
Trust Board 31st January 2019
11. EXECUTIVE SUMMARY
This case of need seeks approval to invest £11.4 million revenue funding over 6 years for the
introduction of a managed service for Endoscopy across Surgery, Clinical Support and CAS divisions at
Nottingham University Hospitals NHS Trust (NUH). The purpose of the scheme is to support the
operational delivery of Endoscopy services across the Trust, whilst also enabling significant financial
savings.
There are clear operational and financial benefits provided by managed service contracts:
• Reduction in nursing time spent ordering (approximately 3 hours per day across both NCH
and QMC Endoscopy Units);
• A flexible and specialised partnership with a service provider that ensures the Trust has
access to innovative medical technology and equipment and a range of related services;
• A contract adaptable to the requirements of a rapidly expanding clinical service;
• Repair, fix times and uptime percentages can be streamlined and improved through the
competitive process, supporting operational flow and activity in Endoscopy.
• £1.2 million savings for the Trust over the 6-year lifespan of the contract;
• Clinicians can ensure that equipment meets their agreed specifications and will be serviced
on schedule to remove the risk of having to work with unreliable equipment;
• Response and fix times and uptime percentages can be streamlined and improved through
the competitive process;
• It facilitates clear contract management arrangements to deal with service implementation
and on-going provision so the Trust can focus on clinical activity;
• It will enable better planning to be realised on a predictive rather than a reactive basis. The
MSC provider will sign up to KPIs based on agreed performance and savings percentages, and
take over general procurement responsibilities. The external expertise and buying power will
help to drive efficiencies and innovation.
2. INTRODUCTION
A managed service refers to an arrangement whereby an external provider manages and assumes
responsibility for providing a defined set of services for a client, in this case NUH. This case of need
proposes the implementation of a managed service for all Endoscopy maintenance, consumables and
equipment. Currently it will exclude electro medical equipment including stacks, but this is written
into the contract as a potential expansion for the future once due process and protocols have been
established. Introducing a managed service for Endoscopy would provide several operational
benefits for the service including endoscope uptime, a contract flexible to growing service
requirements and time efficiencies related to ordering of consumables. The managed service will
release projected savings of £1.2 million over six years.
3. THE STRATEGIC CASE
The scheme is aligned to and supports delivery of local, national and Trust strategies. For Endoscopy,
this means expansion of capacity and footprint to deliver compliant cancer and routine diagnostic
2pathways. GI Endoscopy referrals have risen by 42% since the financial year 2014-15 and growth
within the service is expected to continue. Growth in Endoscopy is projected to continue at around
8% per year. This takes into consideration policy changes including a reduction in the lower age limit
to Bowel Cancer Screening and the introduction of a 28 day diagnosis standard for patients on a
suspected cancer pathway.
Introduction of a managed service will provide five key operational benefits to Endoscopy services
across the Trust:
• The release of nursing time spent ordering consumables. This will be more efficient as the
ordering will be completed by the managed service provider, releasing approximately 3
hours per day of nursing time at different levels.
• Repair and fix times and uptime percentages can be streamlined and improved through the
competitive process, supporting operational flow and activity in Endoscopy.
• The expertise and buying power of the preferred managed service provider will be a helpful
resource in terms of identifying further innovation and savings in the future, working in
partnership with the Trust to identify beneficial schemes. This could include non-OEM
(original equipment manufacturer) maintenance.
• The contract has been tendered in a manner that will mean that it can be adapted to the
requirements of the service in the future. Endoscopy is a rapidly expanding service, planning
to extend to 7 day working in the next 12-18 months and the contract has been set out to
ensure that the Trust is supported in its expansion. The contract could also be extended to
include the Treatment Centre, should the Trust be successful in its bid.
• The managed service also provides an opportunity for Endoscopy to consider non-original
equipment manufacturer (OEM) maintenance. The advantage for the service would be the
potential to extend the life of some of the endoscopes further, thus reducing the strain on
capital expenditure.
Additionally as a loss making service for the Surgery Division, the financial savings that will result
from the introduction of the managed service will help reduce the financial deficit and support
delivery of the division’s FEP target; the deficit will be reduced by £183k per annum and £1.2m over
the contract term.
4.0 THE ECONOMIC CASE
The buying power of a managed service provider working with a number of Trusts could lead to an
improved negotiating position. This in turn will enable economies of scale with a proportion of these
savings being passed onto NUH. It will also help reduce pressure on capital. As a high volume and
rapidly expanding service, Endoscopy has an increasing need for additional equipment including
endoscopes, which cost between £40,000 and £50,000 each. While endoscopes will still go through
the MEPG capital allocation process, they will be purchased through the managed service, giving the
Trust access to better prices and allowing the Trust to lower its VAT burden.
As part of planning, a number of different variations of a managed service were considered including:
3A. Do Minimum – This option does not involve a managed service, rather it involves structuring
maintenance contracts so the VAT can be recovered
B. MSC - Maintenance Only
C. MSC – Maintenance and Capital Equipment Replacement
D. MSC – Maintenance and Consumables
E. MSC – Maintenance, Consumables and Capital Equipment Replacement
The different options were scored as outlined in the table below based on anticipated impact against
the following criteria:
• Convenience – ease of use for the Endoscopy services.
• Responsive to service growth – the scope of the service would be flexible and support the
growing needs of Endoscopy.
• Quality and safety – the option would ensure provision of high quality, current and safe
endoscopy equipment and consumables.
• Agility to change in service requirements – the option would be responsive to changes in
patient pathways as well as service environment.
4.1 Economic appraisal
This section provides an overview of the main costs associated with each of the options and explains
how they were derived.
The economic appraisal is based on the whole life costs and relevant assets related capital, revenue
and operating costs. It includes all lifecycle costs, maintenance and consumables costs, excluding VAT
and inflation.
Solution E
Solution C
Solution B Solution D MES -
Solution A MES -
MES - MES - Maintenance +
VFM Summary Do
Maintenance
Maintenance
Maintenance + Consumables
Minimum & Equipment
Only Consumables & Equipment
Refresh
Refresh
Net Present Cost £ 8,546,981 8,739,882 11,670,938 9,310,861 12,241,916
Equivalent Annual Cost £ 1,350,533 1,381,014 1,844,158 1,471,236 1,934,380
NPV/EAC Ranking 1 2 4 3 5
Based purely on the financial appraisal results, the Do Minimum option ranks best as it is the option
with the lowest cost over six years.
4.2 Qualitative benefits appraisal
The qualitative benefits associated with each of the short-listed options have been appraised. This
was undertaken by:
• Identifying the benefits criteria relating to each of investment objectives;
• Weighting the relative importance (in %s) of each benefit criterion in relation to each
investment objective;
• Scoring each of the short-listed options against the benefit criteria on a scale of 0 to 9;
• Deriving a weighted benefits score for each option.
44.2.1 Qualitative Benefit Scoring
Solution A Solution B Solution C Solution D Solution E
Maintenance,
Maintenance + Maintenance +
Do minimum Maintenance only consumables +
equipment refresh consumables
equipment refresh
Importance (0- Score Score Score Score Score
benefit/risk Wtd (calc'd) Wtd (calc'd) Wtd (calc'd) Wtd (calc'd) Wtd (calc'd)
10) (0-3) (0-3) (0-3) (0-3) (0-3)
Convenience 3 2 2 2 4 3 6 3 6 3 6
Responsive to service growth 4 0 0 0 0 3 3 2 2 3 3
Quality + safety 1 0 0 0 0 2 8 1 4 2 8
Agility to change in service
2 0 0 0 0 2 6 3 9 3 9
requirements
TOTALS 2 4 23 21 26
Scoring Definition
0 No impact: there would be no improvement in current arrangements.
Minimal improvement: there would be little noticeable improvement in current
1
arrangements.
2 Some impact: there would be a noticeable improvement in current arrangements.
3 Significant impact: the proposal would significantly improve the current service.
The highest scoring option is Solution E, which includes maintenance, consumables and equipment
refresh. This would enable the Endoscopy department to upgrade all the necessary equipment to an
improved standard, having a significant impact on the service. However, this option would be loss
making to the Trust based on the volume of equipment requiring upgrade to the outlined standard.
4.3 The preferred option
The results of investment appraisal are as follows:
Solution E MES -
Solution C MES
Solution B MES - Solution D MES - Maintenance +
Solution A Do - Maintenance
VFM Summary Minimum
Maintenance
& Equipment
Maintenance + Consumables &
Only Consumables Equipment
Refresh
Refresh
Net Present Cost £ 8,546,981 8,739,882 11,670,938 9,310,861 12,241,916
Equivalent Annual Cost £ 1,350,533 1,381,014 1,844,158 1,471,236 1,934,380
NPV/EAC Ranking 1 2 4 3 5
Qualitative benefits Score 2 4 23 21 26
Qualitative benefits Ranking 5 4 2 3 1
Cost per Benefit 675,266 345,253 80,181 70,059 74,399
Overall Ranking 5 4 3 1 2
Review of scoring against the financial implications identified Solution D as the most cost effective
option for the service. While more desirable from the specialty’s perspective, Solutions C and E
would make the managed service loss making due to the cost of refreshing all the equipment in
Endoscopy to current specification.
5The preferred option does not include capital equipment replacement; these will continue to go
through the Trust Medical Equipment Procurement Group capital allocation process. However
equipment will be purchased through the managed service, giving the Trust access to better prices
and allowing the Trust to lower its VAT burden.
5. THE COMMERCIAL CASE
The tender process for the managed service was run in accordance with the Procurement Contract
regulations 2016 through a mini competition from a National SBS Framework –Supply of Neutral
vendor Managed services SBS/16/SG/FBY/9022. Three companies bid against the Neutral Vendor
Framework under Bravo Reference Project _18526.
The preferred bidder is Althea UK and Ireland Limited. This was determined by invitation to bid
against the framework and then analysis of the offers. Scores are recorded from evaluators of the
bids submitted. Subsequently the two highest scoring companies, Genmed and Althea, were invited
to present their offering and answer questions that had been raised as a result of their offer. As a
result of this presentation evaluators were asked to confirm their choice of company to take forward.
All agreed to take forward Althea to best and final offer.
Althea was then invited to further respond with their best and final offer based on the refined
requirement. The best and final offer shows that awarding to Althea would create savings of £183k in
the first year and £1.2m over the course of the contract. Please see financial case for further
information
Following approval at IGC in November 2018, Althea have been invited to work with the trust during
January 2019 and March 2019 to develop the project initiation document, which will be presented to
the Director of Finance for final approval to award the contract. Director of finance
6. THE FINANCIAL CASE
6.1 Introduction
The financial case evaluates the impact of the preferred option – MSC including maintenance and
consumables (excluding capital equipment replacement) – on the Trust’s balance sheet and income
and expenditure (revenue) position.
6.2 Capital cost
There is no capital cost for the preferred option.
6.3 Impact on income and expenditure
The Endoscopy service line is £1.5 million overspent against its non-pay budget. While a significant
amount of this is driven by the use of an insourcing company (Medinet), the total overspent exceeds
the figure associated with Medinet. Implementation of a managed service in Endoscopy will provide
£1.2 million worth of savings to the Trust over 6 years. These will be enabled by reclaiming the VAT
6associated with maintenance and consumables in Endoscopy. On top of this, the buying power of the
managed service provider will support the Trust in delivering further financial efficiency.
The table below demonstrate the annual impact of these changes:
Baseline Maintenance & Consumables 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Total
Spend £ £ £ £ £ £ £ £
Maintenance (incl. VAT) 256,397 775,600 794,990 814,865 835,236 856,117 580,178 4,913,382
Consumables (incl. VAT) 400,000 1,210,000 1,240,250 1,271,256 1,303,038 1,335,614 905,126 7,665,283
Total - Baseline Costs 656,397 1,985,600 2,035,240 2,086,121 2,138,274 2,191,731 1,485,303 12,578,665
Preferred Option - MSC - Maintenance + 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Total
Consumables £ £ £ £ £ £ £ £
Maintenance 226,009 683,678 700,770 718,289 736,247 754,653 511,417 4,331,063
Consumables 348,333 1,053,708 1,080,051 1,107,052 1,134,729 1,163,097 788,214 6,675,185
Consumables Management Service Charge 21,542 65,165 66,794 68,464 70,175 71,929 48,746 412,814
Total - Solution D 595,885 1,802,551 1,847,615 1,893,805 1,941,150 1,989,679 1,348,377 11,419,062
Savings 60,512 183,049 187,625 192,316 197,124 202,052 136,927 1,159,603
6.4 Opportunities for further savings
The scope of the managed service does not currently include non-OEM maintenance. In order to
expand the contract to this, due protocol and process needs to be followed. However documentation
from previous BAFO provided by Althea suggests that this could generate up to £350k worth of
further savings annually.
7. THE MANAGEMENT CASE
7.1 Introduction
This section of the FBC addresses in detail how the scheme will be delivered successfully.
7.2 Project management arrangements and project plan
The tender of the Endoscopy Managed Service has been led by Procurement with involvement from
key stakeholders in Surgery and Clinical Support. The implementation of the managed service will be
managed through a working group comprising of the same group of people alongside the preferred
provider. High level timelines are outlined in the table below.
Project timelines for implementation of the managed service:
Milestone Timeline
Meeting with Olympus 29th January 2019
Audit of equipment by Althea and commencement of work on the 6th February 2019
Project Initiation Document
Completion of project initiation document and approval by Director of 31st March 2019
Finance
Full implementation of the managed service 1st April 2019
77.3 Risks
The key risk to the delivery of the Endoscopy managed service is Olympus’ willingness to comply with
the managed service arrangements. Recent correspondence between the Trust and Olympus outline
Olympus’ belief that their current contract cannot be transferred to a third provider. Legal advice
from Browne Jacobson has been sought in the event of this overturning the Trust’s ability to continue
with the project.
The financial benefits (including any VAT recovery) depends entirely on the nature, structure and
level of risk transfer of the managed service solution, there is the risk that the MSC will not comply
with HMRC rules for VAT recovery. We will be sending the contract to the Trust VAT advisers (BDO)
at the earliest opportunity for their professional opinion.
8. RECOMMENDATION
It is recommended that the Preferred Option – MSC with Maintenance and Consumables (excluding
equipment refresh) be provisionally approved, pending the outcome of the discussions to resolve the
ongoing dispute between the Trust’s main supplier of endoscopes (Olympus Keymed) and the
preferred MSc provider (Althea UK and Ireland Limited).
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