Select Committee on Health Minutes of Evidence

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

Key advantages

    —  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 is onerous.

    —  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 not compromised.

    (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 view

  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, requisition forms).

  (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 Initiative funding.

4.3  From a financial and contractual point of view

  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.


  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.

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