Memorandum by West Middlesex University
Hospital NHS Trust (PS56)
Case Study: The West Middlesex University Hospital
NHS Trust outsourced the non-clinical element of its pathology
services to a private company
This is a short memorandum for the House of
Commons Health Committee on the role of the private sector in
the NHS and specifically the Trust's contract for pathology services
with Quest Diagnostics.
This paper provides an overview of the complete
contractual cycle. Dealing initially with the procurement and
award of the contract to SmithKline Beecham Clinical Laboratories
(SBCL) through the operation of the contract and the decision
as to where the Trust goes next.
A brief summary of the West Middlesex University
Hospital NHS Trust is in appendix 1.
TheTrust's representative at the meeting will
be Gail Wannell, Chief Executive who was appointed to the post
on 8 November 2001.
The initial contract for pathology services
was awarded to a private company in 1996 for a period of five
years since the pathology services for the Trust have been provided
both onsite for urgent tests and off site in a purpose built laboratory
for routine testing. The contract was due for renewal in September
2001 but the initial contract has been extended to March 2002
to allow for a robust tendering process alongside Ealing Hospital
for the provision of a joint service.
The public private partnership at West Middlesex
The service remains a consultant
led service which is fully supported and accredited by the Royal
College of Pathologists.
We have secured a high quality, responsive
service through investment in "state of the art" equipment,
new technology and staff support and development.
There are no significant disadvantages although
the following two issues are of concern
Tendering process whilst infrequent
Decision making process takes longer
than is could.
3.1 Reasons for Change
The Trust considered outsourcing its pathology
services for two reasons. First, the pathology service was provided
in accommodation destined for demolition as part of the Trust's
plan for redevelopment. Most of the pathology laboratory accommodation
was very poorly maintained, Victorian buildings not designed for
the purpose. The Trust faced considerable costs of re-providing
the laboratories as part of its new build proposals and decided
to explore alternative options of service delivery.
Second, the Trust's main purchasing agency,
Ealing, Hammersmith and Hounslow Health Authority (EHH) was promoting
a consortium approach with a number of local West London Trusts
in an attempt to reverse the cost pressure trend of escalating
pathology costs. The Audit Commission report on pathology services
and the Tomlinson report were issued around that time and both
were seen as supportive of this initiative.
3.2 Procurement process
In 1994, a consortium, of five West London Trusts,
advertised for expressions of interest to conduct option appraisals
for its combined service needs.
There was a strong response from a number of
private companies, other NHS Trusts and from members of the consortium.
Although a common specification was developed, the consortium
members found little common ground for a single evaluation process
and agreed that each member would use the information submitted
to them to determine their own procurement route or do nothing
at all. The Trust, unable to do nothing invited more detailed
responses from a long list of nine organisations.
In the summer of 1995, following a detailed
and systematic evaluation process leading to a shortlist of three
providers, the Trust selected SmithKline Beecham Clinical laboratories
as its preferred bidder. Throughout the evaluation process, the
Trust was supported by external appraisers from the Royal College
of Pathologists and the Institute of BioMedical Science.
From a commercial standpoint the Trust considered
the contract beneficial. The contract was initially based on the
volume of tests required at that time at a cost that represented
a saving of 10 per cent on the Trust's budget. Over the period
of the contract and as better information became available, the
contract would evolve to a cost per test basis. The costs, in
some part, would be determined by whether the tests were conducted
on or off site. As SBCL were ambitious to use the contract as
the fore runner to other NHS contracts, the Trust negotiated an
additional clause in the contract ensuring that no new similar
NHS contracts would be entered into with more preferable terms
than those contained within its contract.
The Trust was aware that this was a ground breaking
and potentially contentious contract, a position not helped by
the bad press about a similar contract awarded by the Lister Hospital,
Stevenage, the year before. During the negotiation period it became
clear that there were three major issues to resolve.
(1) The Trust's pathologists and the Royal
College of Pathologists were determined to ensure that the laboratory
services remained consultant led. There were obvious conflicts
between this approach and that of a commercially organised laboratory
and after negotiation, an agreed definition of "consultant
led" was included in the contract.
(2) Urgent, quick turnaround, tests would
be analysed in a small laboratory on the hospital site. The remaining
tests would be conducted off site in a purpose built new SBCL
laboratory. This type of arrangement was new to the health service
and the consultants were keen to ensure that service quality was
(3) Whilst the transfer of staff as a consequence
of outsourcing is not unusual, the transfer under TUPE of Scientific
and Technical staff was. The Human Resources departments of both
organisations were heavily involved alongside union representatives
for all effected staff. All staff were regularly consulted throughout
the process. No member of staff was made redundant as a consequence
of the contract although a few chose to leave.
In September 1996, having received satisfactory
responses to all its queries, the Trust awarded a contract to
SBCL for a period of five years. As part of the contract and with
the agreement of the Trust, every Trust consultant pathologist
entered into a separate part-time contract with SBCL. In August
1999 SBCL's laboratory business was sold to Quest Diagnostics,
who took over the Heston laboratory and contract.
4.1 From the hospital clinician's point of
Users of the service become seen as customers
and in general terms there has been a willingness to improve response
times for providing test results. Because the parent company is
based in the United States we were initially unable to make changes
that would be in the interests of the users. For example, the
particular reporting system used and the consequent design of
the report forms sent to clinicians, caused come confusion. Delegation
of this authority to the UK operation now ensures a better response.
In some sub-specialities of pathology it is
critical that the relevant consultants meet regularly with clinical
teams. For example, histopathologists need to attend the multidisciplinary
meetings of the various tumour groups. This has been facilitated
by the pathology medical staff remaining employed by the NHS whilst
having smaller contracts with the service provider. The Trust
also requires a major clinical presence from consultant haematologists
and microbiologists. Consultants in chemical pathology are in
a rather different position in that most clinical advice can be
given over the telephone and their presence on site is determined
more by their other, often unrelated, clinical commitments.
Providing that consultant staff remain employed
by the NHS then the relationship with the private sector does
not interfere with their ability to meet the requirements of the
clinical teams. A more difficult issue now is that increasing
consolidation of pathology providers requires pathologists to
work across multiple sites. This is a particular problem for histopathology
where there is a national shortage of consultants in addition
to an increasing sub-specialisation by histopathologists.
There has been concern that tendering to the
private sector is simply a means of reducing costs. Particular
attention needs to be given to ensuring that this is not the case.
For most Trusts, the clinical staff working within pathology are
best able to ensure that the quality of the service is maintained.
The contract needs to be designed so that there
is an incentive for BOTH parties to have an interest in limiting
tests in an appropriate manner. All clinicians are aware that
some requested tests may not be appropriate in a particular set
of clinical circumstances. It requires considerable effort on
the part of both clinicians and the laboratory to address this.
4.2 From the pathologist's point of view
These are the advantages and disadvantages of
the contract from the pathologist's point of view.
(1) The pathologists have been freed from
many tasks, which previously consumed much time and were carried
out inefficiently and without adequate support. Pathologists can
now concentrate on clinical pathology, the strategic direction
of the service, liaising with clinical colleagues, developing
quality systems and participating in the mainstream of NHS pathology
including committee work and the modernisation initiative. Quest
Diagnostics has assumed responsibility for transport, phlebotomy
services, negotiating with suppliers and equipment procurement.
(2) Clinicians (hospital based and GP's)
enjoy an enhanced level of service. Pre-analytical aspects (transport,
phlebotomy and electronic computer links) are well managed. The
new Client Response Centre (CRC) provides a "one stop"
solution to problem resolution. Offsite phlebotomy centres are
convenient for patients. Quest has given the UK operation flexibility
to take into account local practice and culture (ie patient reports,
(3) Quality systems are now robust and keeping
up with recent initiatives. Both the on and off site laboratories
now hold full, unconditional CPA (UK) Accreditation. The off-site
(Heston) laboratory has been selected as a pilot site to test
the new more stringent CPA Quality Standards. Pathologists are
supported by and have access to the Quest Corporate Quality Group.
(4) The onsite, dedicated pathology human
resource service is a significant improvement for staff. Before
the contract, hospital HR resources were spread thinly between
many departments. Although they performed admirably under the
circumstances, they could not be expected to compete with a dedicated
and focused HR function.
Staff training is now formalised
and provided in variety of formats (lectures, educational material
available on computer).
Surveys and "town meetings"
elicit staff opinion on important subjects.
There is a counselling service at
Heston and an on-site nurse.
(5) The service is more "future proof".
Due to the international purchasing power of Quest, acquisition
of modern up to date equipment is a routine rather than an exceptional
occurrence. Service from reagent suppliers is of a high standard
for a similar reason.
(6) The laboratory computer (Toplab) is
powerful and designed to manage networked laboratories. This could
facilitate the government modernisation initiative without having
to procure or specify new systems.
(1) The bid process is onerous and has consumed
much time and effort. A more efficient process needs to be developed
urgently. In two of the past six years, pathologists have spent
significant amounts of time writing documents, assessing bids
and inspecting services offered by potential providers.
(2) Pathologists value the NHS ethos and
culture and wish to remain in the mainstream of UK pathology.
This should include the national Pathology Modernisation Initiative
and associated funding. There was the initial perception that
outsourced services would not be able to bid for Modernisation
4.3 From a financial and contractual point
The contract was constructed to provide the
Trust with an incentive to move as much activity to the off-site
laboratory as possible to minimise costs. It also guaranteed a
payment to the private sector provider that would cover the fixed
costs of providing a pathology service to the Trust.
For the initial period of the contract between
the hand over date and the 31 March 1997 a flat fee was charged
irrespective of volume changes. Thereafter a fixed payment was
payable monthly with a variation based on actual volumes payable
at the end of the financial year. This variation was based on
a formula which calculated the marginal cost of the volume of
under/over performance between the on-site and off-site locations.
In addition, a 3 per cent inflationary increase
per annum was agreed on the fixed payment element.
In order to monitor the contract a Pathology
Operating Committee (POC) was established to cover both clinical
and financial performance. Representatives were nominated from
both the Trust and SBCL/Quest (managerial and clinical). Issues
raised were fed back through the Trusts management for decisions
to be taken.
In retrospect, certain aspects of the management
of the contract did not perform as well as envisaged.
4.4 Lessons learnt
1. An overly complicated system of payment.
2. An unreliable activity baseline which
is proved to have significantly under-recorded the number of tests.
3. Need to specify more detailed monitoring
arrangements. More effective systems are now in place to provide
better monitoring information and to identify areas of demand,
pressure and utilisation.
5. THE WAY
A joint re-tendering of pathology services is
currently underway between West Middlesex and Ealing Hospital
NHS Trust as part of a Strategic Alliance. Ealing also has a contracted
out pathology service with The Doctors Laboratory (TDL) and their
contract is due to terminate on 31 March 2002.
An initial process failed to produce an acceptable
bid, and there were criticisms of the process in the context of
both Trusts' attempts to salvage the process. A revised tender
process is currently underway. Given the present commercially
sensitive position, they may be issues on which the Trust is not
able to provide information without prejudicing either it's position
or the current process.
Our contract with Quest Diagnostics terminated
on 30 September 2001. This has been extended until such time as
the award of a joint service contract with Ealing is made. Both
Trusts are at the stage of inviting prospective providers of pathology
services to bid against the joint service specification. This
includes the current service providers to both Trusts, in addition
to a number of other NHS organisations.
The experience of the successes and failures
from both Trusts of the initial contract have been taken into
account and a more robust framework for provision of information,
the financial baseline and monitoring of pathology services have
been included in the new contract specification.
The re-tendering process alongside Ealing Hospital
has revealed the need for more detailed specifications and a process
that ensures we collectively secure a robust service that is in
the best interests of both hospitals. As a result the process
has been extended with a view to appointing a joint contractor
by 1 April 2002.