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

2. What is a
Managed Service?

3. Equipment, Reagents and Consumables
Board will contract with a Single Supplier 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. £ 55,000 saving for each million currently spent
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. Upfront or loaded on reagents Service fees Support staff Flexibility
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
Abbott
Chemistry + Immunoassay + Virology + IT
Sysmex Haem
IL Coag
Diamed Transfusion
Qiagen Molecular
IL Blood Gas
Siemens Special IA
Abbott act as the single point of contact for Glasgow
They manage all the other companies including their competitors
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)
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 CLO pushes towards 7 years ? 2 years to deliver
England moves to long contracts
CLO pushes towards 7 years
? 2 years to deliver
? 18 months to implement
Cost of change

22. The Forgotten Discipline?
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: Operational fluidity Fiscal benefit
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 ? “Best Operational Solution”
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 Does provider understand Board?
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
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