New models for NHS deliveryDriving efficiency and contestability19 May 2010

CORPORATE FINANCE

HEALTHCARE

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Outline

Structure of Health and Social Care in the UK

Moving from a state-run NHS to a patient-led NHS

A bumpy ride

Templates for change

2© 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Overview of Provision of Health and Social Care

DH - NHS Local Authorities(Social Care)

Public SectorProviders

Public and PrivateSector Providers

Department of(Public) Health

Commissioners

Strategic HealthAuthorities

Private SectorProviders

DH SocialCare Policy

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A new market

The NHS has changed…

… Markets come with a regulatory framework. This framework needsto be reliable and enforceable. It needs to enhance competition and

help deliver integrated, value for money end to end services.

System Management Oversight

Providers

380+ NHS trusts, GPs,

Private providers,Third sector

Commissioners

152 PCTsGP fundholdersPatient choice

New NHSMarket

£100bn pa

4© 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Outline

Structure of Health and Social Care in the UK

Moving from a state-run NHS to a patient-led NHS

A bumpy ride

Templates for change

5© 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Moving from a state-run to a patient-led NHS

Key policy drivers Efficient procurement introducing real risk transfer

PFI NHS Shared Business Services

Creating/commissioning a patient-led NHS (March/July 2005) developing the idea of choice and contestability tasking PCTs as commissioners, not providers

Implications The state operates primarily as the champion of the user of public services (the patient,

the pupil, the infirm, the offender, the traveller) Where the state is involved in delivery of public services, it is a “means” to achieving

good, stable, value-for-money public services; it is not an end in itself James Stewart, Infrastructure UK, Nov 2008

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The increasing role of the private sector

20052004200320022001 20072006 20102009200820001999199819971996

PFI Hospital Programme

ISTC Waves 1-2

NHS shared business services

Pathology outsourcing

LIFT

Increasing breadth of service delivery

7© 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Outline

Moving from a state-run NHS to a patient-led NHS

A bumpy ride

Templates for change

8© 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

0500

1,0001,5002,0002,500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

£ m

illio

n

0

5

10

15

20

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

The rise and fall of PFI

Number of deals to close by year

Capital value of deals to close by year

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The Private Finance Initiative

Features: Private sector design, build, finance and maintain the facility Payment mechanism rewards availability of facility Transfer of lifecycle cost risk Hard FM included Soft FM included to varying degrees in some dealsKey issues: TUPE Constraints on changing use of facilities Initial overscoping of many facilities Exhaustion of pipeline

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0100

200300400

500600

700800

2003 2004 2005 2006 2007 2008 2009Year of full service commencement

Five

yea

r sch

eme

valu

e (£

m)

The rise and fall of central clinical contracting

Fairness in Primary Care

Independent sector treatment centres

Source: Department of Health

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Independent sector treatment centres

Features: Initially take or pay contracts Transfer of all construction (where applicable) and operating risk The first major programme of private sector clinical provision in secondary care in the NHSKey issues: Attracting new players TUPE Demand risk – estimating demand, NHS perception, new entrant issues Clinical negligence coverage Contract specification

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The rise (?) of NHS-led contracting

Ongoing devolution to local NHS organisations has meant a loss of focus but a broader range of opportunities with greater local buy-in Transactions of note:

Back office outsourcing PCTs Acutes

Pathology outsourcing – acute led Radiology/imaging outsourcing – acute led Community health provision Clinical pathway management Hospital management

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Outline

Moving from a state-run NHS to a patient-led NHS

A bumpy ride

Templates for change

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Templates for change – case studies

Guys/Serco Pathology

Great Yarmouth and Waveney Community Services

Hinchingbrooke Hospital Franchising

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GSTS pathology

Guys and St Thomas NHS Foundation Trust Improve efficiency of service delivery esp back office Improve patient care Develop the businessSerco Beachhead for a market leading pathology business Opportunity to extend into a growing market Access to NHS “family”Features Serco control of JV Outsourcing arrangement between Guys and JV for delivery of pathology services Secondment of Trust Staff Allowed Serco the opportunity to enhance NHS provider efficiency, rather than to compete directly with that provider

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Great Yarmouth and Waveney Community Services

Policy Background All PCTs required to have a plan for separating provider arms by Oct 2009 Deadline then dropped… … then changed to 31 March 2010Great Yarmouth and Waveney (GYW) PCT A pathfinder for externalising provision of community health Initially planned as a procurement open to the private and third sectors October 2009: Andy Burnham states that the NHS is the “preferred provider” of services

and should be given two chances to improve poor performance before contracting out GYW therefore switched tack and allowed only NHS organisations to bid Challenge by ACEVO Procurement cancelled by the DHTransactions in the NHS are rarely smooth and frequently politically complex

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Hinchingbrooke Next Steps Project

Background Hinchingbrooke Healthcare NHS Trust has a £40 million accumulated deficit on annual

revenues of around £100 million Strategic Health Authority has agreed to guarantee the future of the hospital – but on the

basis that the status quo is not an optionThe Transaction Operational Franchise The Trust remains an NHS organisation but with management outsourced Current bidders: Ramsay Health Care UK, Circle, Serco Transfer of all financial and operational risks to the successful franchisee, subject to total

liability caps and profit share arrangements 7-10 year termIf successful, this transaction provides a genuinely new model for transforming performance in the NHS

Presenter’s contact detailsMatthew CustanceKPMG LLP (UK)+44 (0)20 7311 8140matthew.custance@kpmg.co.ukwww.kpmg.co.uk