Efficiency: traffic control

There are around 600,000 transactions between NHS providers and commissioners. More than half of them involve invoices of less than £1,000 and collectively represent just 0.1% of a total £70bn spend. Reducing the volume of low value invoices could streamline provider-commissioner interactions and lead to significant cost savings.

That is exactly what NHS England and Future-Focused Finance, through its Efficiency and value workstream, are currently exploring.

‘We’ve gathered data to show that the majority of this low value activity involves non-contracted activity or out-of-area treatment,’ says John McLoughlin, senior finance lead for financial accounting and services at NHS England. Typically, this might be payment for someone attending a walk-in centre or A&E department while on holiday or out-of-town on business.

In fact, around 76,000 invoices in 2017/18 – 13% of the total provider to commissioner invoice traffic – were for less than £100 and collectively accounted for just £3.9m. This suggests that some providers are invoicing commissioners for single-patient events. It would be easy for this to get out of hand.

Working with rough numbers, 200 providers sending just one invoice each month to each of 200 commissioners would result in 480,000 invoices. So, the fact that there are just 300,000 invoices for less than £1,000 indicates that there is already some consolidating going on with providers including multiple patients on each invoice.

Without this consolidation, the situation might be even worse, but Mr McLoughlin is convinced there must be a better way to deal with these low value transactions.

He says that one possibility would be to look at the net impact of low-value payments. For example, Sheffield CCG might currently receive an invoice from a Cornish trust for a Sheffield patient who received treatment while on holiday. But the commissioner would also not be billed for a visitor to the city who received treatment in a local hospital. At the moment, this would involve potentially low value invoices being sent in both directions.

What would be the net impact if Sheffield CCG was charged for all patients treated in its city (below a certain cost threshold) regardless of where the patient is registered? It would pick up the additional bill for out-of-area patients treated locally, but avoid the costs of local patients treated elsewhere.

Mr McLoughlin suggests that in a lot of cases the net impact would be close to zero.

In any case, on average, there are only small sums involved. The 300,000 invoices below £1,000 only move £73m between commissioners and providers – around £350,000 on average per trust or per CCG. From the provider perspective it doesn’t matter which CCG pays – as long as out-of-area activity is allowed for in local contracts. It would, however, change CCG expenditure.

‘But it is not a significant amount per commissioner. And by the time you net it all off, you are probably talking about a £150,000 cost at one extreme to a £150,000 credit at the other with many of them at nil,’ says Mr McLoughlin.

He adds that the service could even go further and think about applying the same approach – with the host CCG charged for all local activity – for invoices up to £10,000. He says this ties in with the threshold above which providers need to seek CCG permission before undertaking planned treatment as non-contracted activity (set out in NHS England’s Who pays? guidance).

‘So we’ve been challenging this to take it a little further. Could we say that below £10,000 is immaterial? We could be dealing with that through the locality where the treatment is done and then tweak allocations with some form of tourism factor so that high tourism areas get slightly more in their allocations to treat the patients coming in, with others getting slightly less.’ He suggests the adjustments would be small, probably ranging from +£2m to -£2m.

He says the counter arguments are that this does not support the idea that money should follow the patient and that the approach could be open to gaming, with people being encouraged to go out of area for treatment to avoid hitting local budgets.

Mr McLoughlin accepts this is a fair challenge, but believes the potential benefits outweigh these issues and suggests the current system also has the potential for gaming around challenges over responsibility for patients involved in non-contracted activity.

Alternative approach

An alternative approach, that has also been explored, would involve providers sending a monthly invoice for non-contracted activity to someone centrally, together with a breakdown of the commissioners that different payments relate to. The providers could be paid and the costs for different CCGs could then be consolidated and applied to each commissioner.

This has obvious attractions for providers – which would potentially be paid more quickly – but commissioners are less convinced, with concerns about how this would impact on their ability to challenge whether costs are appropriate.

Reducing the number of transactions by any mechanism would have an instant pay-off. Under the NHS England contract with NHS Shared Business Services (NHS SBS) for the provision of the integrated single financial environment and finance and accounting service for commissioners, each transaction costs £3.50. This amounts to total transaction costs for commissioners of £2m per year based on 570,000 transactions.

NHS England figures suggest that providers in fact face higher transaction costs of £9.62 per transaction – or £5.5m in total. Completely avoiding the need for the 300,000 invoices with a value under £1,000 could save more than £1m for commissioners and potentially close to £3m for providers.

And these savings take no account of commissioner and provider staff costs, with staff currently managing the non-contracted activity process being freed up to take on more value-added tasks than debt collecting.

Adrian Snarr, NHS England director of financial control and senior responsible officer for the FFF Efficiency and value workstream, says the ideas have been presented at various FFF events. ‘Everyone buys into the concept – the figures are quite compelling,’ he says. ‘But we now need to move to how we can actually deliver this and by when.’

He adds that linking the work to the imminent long-term plan, including further development of system working and proposed changes to the current payment system, will be key. In particular, he says that the establishment of systems built on good local relationships should demand a better way of dealing with local non-contracted activity.

Mr Snarr adds that the current focus is firmly on a whole system-level solution – with a relaunched FFF working group bringing together key stakeholders including shared services providers, commissioning support units and NHS Improvement’s efficiency team. He believes that this has a better chance of rapidly achieving improved efficiency than encouraging local providers and commissioners all to make changes to local payment rules for non-contracted activity.

Once transactions have been minimised, a second step in NHS England’s efficiency drive is to get as many of the remaining transactions as possible covered by electronic invoices. Under the NHS England/NHS SBS contract, the £3.50 transaction cost falls to £2.50 if an e-invoice is submitted for payment. 

In total, CCGs process some 3 million invoices each year, when you add in invoices from independent providers and other goods and service suppliers. CCGs currently receive just 27% of all invoices electronically. Extending this to 100% and assuming the same £1 per transaction saving would generate hard savings of £2.2m.

Take this a step further to include all the invoices processed by commissioners and providers within the NHS and the service could be looking at savings closer to the £20m mark (and £1 per transaction is well below the level of savings often quoted for adopting e-invoicing).

Even just converting a higher proportion of the 600,000 intra-NHS transactions to e-invoices would be worthwhile. According to NHS England figures, more than 40% of providers issue all their NHS invoices on paper. And within the 35% of e-invoicers there is scope to increase the volume of invoices sent electronically. (The balance is made up of NHS SBS clients, whose invoices are within the NHS SBS system and effectively 100% electronic).

NHS England believes improving this position should be straightforward. There are a range of e-invoicing system providers that meet the PEPPOL compliance requirement – the adopted standard for NHS procurement. Any of these would enable providers to submit e-invoices to CCGs and NHS England.

NHS SBS entered a deal with e-invoicing system provider Tradeshift in 2014 giving
all commissioners an account to receive invoices. Providers can use this system to send invoices to commissioners without being charged per invoice.

Stephen Sutcliffe, finance director of NHS SBS, says there has been an increase in the adoption of e-invoicing by trusts. NHS England figures suggest a nearly 10 percentage point increase in the number of providers sending at least some e-invoices to commissioners between March and December 2017. But this has plateaued more recently.

Mr Sutcliffe says this is often down to culture or a suspicion that the process will be more costly or arduous than claimed. ‘But it is relatively easy to do,’ he says. ‘And the pay back is really quick – easily within a year.’

Providers benefit from increased visibility. They can’t submit an invoice unless all the required fields are present. They get notification that the invoice has been received and can then monitor progress through the payment process. No more calls to check an invoice has been received or to ask when payment will be made.

Invoices can hit commissioners as soon as they are sent – rather than the more typical five to nine days it can take to get from provider to commissioner system via post.

Electronic invoices

NHS SBS has also set its sights on getting suppliers to send electronic invoices for goods procured by the 75 trusts that use its finance and accounting service. This is a big job given these trusts deal with some 200,000 suppliers (nearer to 500,000 if you allow for subsidiaries) generating some 8 million invoices.

Currently NHS SBS receives about 1.2 million of these invoices electronically from some 11,000 registered suppliers, including most of the NHS’ biggest suppliers. Again Mr Sutcliffe says it is the same sell as for trusts – suppliers get increased transparency and potentially quicker payment.

However, he adds that NHS SBS has also been piloting a broader e-commerce platform called The Edge4Health, which is being developed in partnership with Virtualstock. Suppliers are able to create and upload catalogues to the system for free but then pay a subscription to enable trade with NHS trusts registered to the platform. About 350 supplier catalogues are now on the system as part of the trial with NHS South of England Procurement Services at Portsmouth Hospitals NHS Trust.

Direct deals between trusts and suppliers should reduce over coming years as the new central procurement model aims to increase the use of NHS Supply Chain from 40% of spend on consumables and equipment to 80%. However Mr Sutcliffe says it is not clear how quickly this will happen and even if it does there would still be a need to trade efficiently with non-Supply Chain suppliers.

The main focus of the current transformation agenda is on redesigning models of care – integrating services across systems and delivering more services within the community. But back office functions also need to play their part as well as finding ways to provide greater support to the broader transformation programme. Reducing the time and money that is currently tied up in supporting the process around low value transactions would appear to support both of these goals.

NHS provider to commissioner transactions 2017/18

A drain on time

Northampton General Hospital NHS Trust submitted some 3,262 invoices in 2017/18 to other NHS bodies. Just under half of these invoices (1,576) were for £1,000 or less and represented just 0.18% of total NHS income.

In total, non-contracted activity accounted for 71% of the overall 3,262 NHS invoices, but just 1% of NHS income. And looking again at just the invoices up to £1,000, non-contracted activity accounted for 87% by number and 90% by value.

Derek Stewart, associate director of finance for financial services at the trust, admits that issuing and managing of non-contracted activity invoices is ‘a significant drain on our time’ given it brings in a relatively small proportion of income – and impacts both on the small invoicing team and (for queries) the income team.

‘We have done the analysis on our 2017/18 income and it shows that 73% of the number of invoices are for less than £5,000, while 73% of the value relates to less than 1% of the number. ‘An alternative solution would make sense,’ he says, adding that it should help improve cashflow as well as freeing up staff for more value-adding activity.

One of NHS England’s proposed solutions to reduce the number of invoices and transactions between NHS bodies is to make non-contracted activity the responsibility of local commissioners. ‘If this approach was taken, it would need to be differentiated within local contracts’ he says. Otherwise there would be the danger that increases in activity fell foul of local capping arrangements, leaving providers bearing the cost of activity they have no control over.

Northampton has recently taken a step towards full e-invoicing by integrating its previously stand-alone accounts receivable system into its existing ledger. This now means that invoices can be emailed direct from the ledger system, although the system is not a PEPPOL-compliant system – and so doesn’t deliver the full benefits of e-invoicing. Mr Stewart says the trust is keen to learn more about the Tradeshift system or other alternatives.