Feature / Too difficult?

28 May 2013

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Many of the health service's most expensive assets are due for replacement, but critics say the NHS will not get value for money when it comes to buying this equipment. Seamus Ward reports

How well does the NHS manage its assets? Sure, there have always been questions about utilisation. There are many anecdotes about waste – departments in the same hospital having the same piece of imaging equipment but using them on different days, for instance. But what about the assets themselves, particularly the big ticket items such as MRI and CT scanners? Are there enough of them? Does the service plan well for their replacement? Does it get value for money when procuring them? And, with quality and safety more important than ever, are the machines used delivering the best possible outcomes?

A National Audit Office report in 2011 highlighted the pressure on the NHS to replace and add to the number of big ticket machines in the years up to 2021. It said about 60 to 80 new Linac machines would be needed in the following 10 years, on top of replacing the 246 already in operation.

It added that 426 CT and 304 MRI scanners were in operation, and, taking all three types of machine together, around 50% would be due for replacement by 2014 (80% by 2017). If buying outright, the NHS in England would have to find £460m within three years and a further £330m within six years.

But, as we are constantly reminded, we live in an age of austerity. Capital funding has been cut by 17% over the current spending review period (2010/11 to 2014/15), restricting the funds available to buy the new equipment outlined in the NAO report. While some trusts have sought alternative sources of funding, finance managers say this has led many to put the issue on the ‘too difficult' pile. Or – at best – a decision has been made to follow the traditional route in hard times: sweat the assets.

That's not to say the NHS has stopped buying expensive imaging equipment. It is believed the NHS in England procured 12 MRI scanners last year, but this is well below the numbers suggested by the NAO figures.

The lack of capital now and in the foreseeable future may explain why suppliers report that trusts do not plan well for the procurement of replacement and additional equipment. The recent overhaul in the commissioning structure and widely trailed transformation of service delivery may also be contributing to the lack of activity in replacing the ageing machines.

Within and outside the NHS, there is a feeling that where trusts pride themselves on a particular service or there is a clear link between a board-set strategy and a piece of equipment, the machinery will have a detailed plan for replacement.

But NHS Supply Chain managing director business solutions Andy Brown says there is room for improvement in medical equipment asset management and believes a national solution is needed, driven by local information on demand and the state of existing assets.

Understanding how assets are used in delivering services has helped private firms improve services, he adds. ‘The NHS has a lot of equipment, with a replacement value of probably £4bn-£5bn, but it doesn't realise it. No single balance sheet sets this out clearly.’

Asteral business development director Jason Long says planning to replace (or purchase new) equipment can be patchy, with decisions made at the point where a new machine is needed – when the old one breaks down and repair costs are prohibitive, for example. This means they will probably not be able to take advantage of bulk buying. ‘There is no chance they can be balanced purchases as they are stress purchases,’ he adds.

Better asset management can be related to improvements in clinical pathways, Mr Brown says. ‘If you are setting clear objectives for the organisation around diagnosis within x days or weeks and treatment within y weeks or months or creating a cancer strategy, Linacs and CT scanners should be a fundamental part of that. A strategy could ask how the right technology could improve and enable the cancer strategy and enhance productivity.’

A national asset register is one piece of the jigsaw, he adds, which should also include asset standards that must be met for equipment to remain in use and information, such as life cycles, maintenance intervals and costs.

‘There are no national standards for asset management that say when something should be upgraded, replaced or disposed of,’ says Mr Brown. ‘But with the funding shortages, trusts will think they can get another year out of a machine, then another and another and we will start to get 12-year-old MRI machines in the NHS when the manufacturer-recommended life is eight years.

‘But if you had a series of criteria together – such as depreciation, running and maintenance costs, risk of failure, resale or trade-in value – you could apply those criteria to give a local answer to when the equipment should be replaced. Few, if any, trusts do this.’



National register

Sam Sweetman, NHS account manager at Real Asset Management, which provides asset management software to about 200 sites across the UK, says that a national asset register with information on costs would increase visibility for benchmarking and strengthen buying power.

A website where trusts could provide information about assets, allowing them to benchmark against useful life cycle and average running costs, would be useful. ‘It would allow the trusts to see the most cost-effective device to drive cost savings,' he says.

NHS Supply Chain has a national pot for buying expensive items, known as the commitment fund. Funded initially with £300m of Department of Health money, Supply Chain uses NHS trust capital plans and its understanding of the market (it has a capital planning team of 20) to scope out how many deals are in the pipeline each year. It will then commit to buying, say, five CT scanners and the bulk of the savings are passed on to the purchasing trust. Supply Chain is incentivised by receiving 1.5% of any saving.

The savings could be considerable – the NAO says a CT machine costs just under £600,000, an MRI £900,000 and a Linac £1.4m.

The commitment fund is replenishable – when trusts take up the equipment, the fund is paid back. From March to December last year, Supply Chain spent £114m in these deals.

While he accepts the commitment fund is not the whole solution, Mr Brown insists that it is an important factor in driving up standards in NHS asset management.

Revenue-based procurement models such as leasing or managed equipment services (MES), are among the alternative sources of finance that trusts have used. Many suppliers and manufacturers have advocated MES, which typically involves a 15- to 20-year contract for the provision, maintenance and often replacement of medical equipment, for several years. However, some trusts have decided against these routes as they do not wish to be tied in to a long-term deal at a time when transforming the delivery of services is top of the agenda. There have also been concerns about its effect on financial risk ratings.

One of the attractions of MES is the ability to reclaim VAT. Even so, some trusts have worried that they could agree an MES deal and several years down the line be landed with a large tax bill, either because their deal falls foul of government rules or these rules are changed.



Tax issues

However, Jason Long of Asteral, which has its own revenue-based solution similar to MES, says VAT should not be an issue. ‘HMRC has not said anything about changing this concession and it seems unlikely the provision will be revised.’ Provided a deal is carefully structured, it should not fall foul of HMRC rules, he adds.

Although he is not convinced about the use of the current model of MES, Mr Brown says a revenue-based model is probably needed to support the national procurement initiative he is suggesting. NHS Supply Chain is exploring the use of the commitment fund to enable that.

Private companies buy used as well as new equipment, an area the NHS has not explored in great depth, according to NHS Shared Business Services (SBS) managing director Peter Akid. 

'The overriding impression is that the NHS tends to buy equipment and then run it into

the ground. In the past, there has never been a vehicle for recycling equipment, so trusts haven't tended to look at life span and residuals. But we have found more interest in this recently.'

While SBS does not often deal with the most expensive equipment, he believes an eBay-style service for the NHS could offer value and help trusts deliver their strategic objectives.

He says a trust could sell, for example, a four-year-old MRI to help fund an up-to-date version that better suited the needs of its patients. At the same time the older MRI could be picked up by another trust with, perhaps, less capital resources if it fitted the trust's needs.

'We are looking at how we facilitate this market place and how we get trusts to collaborate. There may be concerns around functionality and liabilities, but I am sure they are not insurmountable.

'We are also looking at whether we can provide procurement advice; going beyond the cheapest price approach to giving advice on the finance options and whether there are residual value issues, for example. But real buying power comes if you aggregate demand.'

There is no shortage of ideas to help the NHS manage its assets better. If the NAO’s conclusion two years ago was correct, taking up some of them is overdue.

Management gains

Asset management software can deliver efficiencies within accounting processes and help in capital planning, says Rebecca Ferguson, capital accountant at Plymouth Hospitals NHS Trust (pictured right).

Previously, the trust had an asset management system as part of its main ledger, she says. After the trust switched to NHS Shared Business Services in 2007, it retained its legacy asset management software (at the time, NHS SBS did not offer a fixed asset solution). But it went to the market for a standalone system in 2011.

After researching its options and talking to neighbouring trusts, Plymouth opted for the Real Asset Management (RAM) Asset4000 software. Although it has between 7,000 and 8,000 assets, she says implementation was smooth.

‘Having a database already meant the data was reasonably well ordered, though we did some audit work to make sure we could validate the data,’ she says. One major benefit is that new assets need only be entered once on a spreadsheet for the trust’s different systems. ‘Before, we had to type in additions by hand, but now we add the details of the asset – a description of the asset, purchase cost and so on – into a spreadsheet. We have to do this anyway. The spreadsheet populates the asset register system. It cuts out a big step in the process and means fewer errors.’

Ms Ferguson continues: ‘The new software is much more flexible and gives us better access to the data people want. We are trying to use the asset management information to better manage the organisation. Giving more relevant information to directorate managers and planning managers means they can plan asset management and replacement with better data.

‘We are certainly finding this with the big imaging equipment. We can pull off information about existing assets and when they are due to be replaced, to enable us to plan better.’ 



Replacement planning

Radiology equipment, such as MRI and CT scanners, at the Royal Wolverhampton NHS Trust is covered by a private finance initiative that includes provision for refresh. Outside this, the trust has an annual budget of around £2.5m on average for replacement equipment, including Linacs – which it is currently looking to replace – and ultrasound machines.

Trust head of procurement Tony Stanyard says there is a clear decision-making process for the procurement of equipment. Initially, the trust equipment group (TEG) considers business cases for replacement or new equipment from clinical departments (other than radiology).

Mr Stanyard says this meets monthly and is normally chaired by a senior clinician. The committee will also have finance, procurement and estates representatives.

After approval by TEG, the business case passes to the capital review group for action. This also meets each month, and builds the approved priorities into the trust capital plan.

The trust has a rolling 12-month capital plan, which can be revised on a monthly basis should equipment unexpectedly break down, for example. ‘We like to think that we are ahead of the game and we are not waiting for the equipment to fall over before it’s replaced,’ says Mr Stanyard.

The trust has been working with NHS Supply Chain to improve the next step – the procurement of the equipment. ‘They have a number of frameworks in operation, allowing us to go out to market and be compliant with EU regulations without having to go through a full-blown OJEU process ourselves. And we have a good relationship with Supply Chain as we spend a significant amount with them each year on consumables.’

The trust is also able to tap into Supply Chain’s capital planning expertise, he says, which it hopes will lead to getting better value for money in its capital spend. ‘We share our asset register and replacement plans with them and they attend the CRG meetings. This gives them early notice on what’s coming forward – getting this to them as early as possible is one of the key things we are doing.’