On 12th May 2010 the Conservative / Liberal Democrat coalition government was formed. At that point it became inevitable that the old Labour government policies guiding the use of information technology in the NHS would be replaced by those based on the coalition agreement between the two parties.Both the Conservative and Liberal Democrat parties had promised in their manifestos to make radical changes to the NHS and to get rid of most of the National Programme for IT (NPfIT), replacing it with locally selected IT systems. The Conservatives committed to dismantle the “central patient database” and to abandon “the flawed local service provider contracts”. The Liberal Democrats said that “there needs to be a radical shift away from centrally imposed systems. NHS Connecting for Health’s central operation needs to be dismantled, as does the effort to secure national databases.” (NHS Connecting for Health is the body that holds the NPfIT contracts with suppliers).Simon Burns, the minister responsible for NHS IT, released a statement on the future of the NPfIT on the 9th September saying “A Department of Health review of the National Programme for IT has concluded that a centralised, national approach is no longer required, and that a more locally-led plural system of procurement should operate, whilst continuing with national applications already procured…… retaining a national infrastructure will deliver best value for taxpayers. Applications such as Choose and Book, Electronic Prescription Service and PACS have been delivered and are now integrated with the running of current health services. Now there is a level of maturity in these applications they no longer need to be managed as projects but as IT services under the control of the NHS. Consequently, in line with the broader NHS reforms, the National Programme for IT will no longer be run as a centralised national programme and decision making and responsibility will be localised.”
On the same day, Christine Connelly, the Department of Health’s director general for informatics gave a briefing which expanded on the ministerial statement. She said: “The coalition government looked at the (BT Group PLC (NYSE:BT) and Computer Sciences Corporation (NYSE:CSC)) contracts and the best way to provide value for money is to fully honour them… Where we are with our contracts with BT and CSC is that we have guaranteed them a number of NHS trusts and that is part of the contract arrangement.” but she added “We will be looking to reduce what we spend both with suppliers and internally.” She also confirmed that trusts choosing to go outside the programme would have to pay for systems themselves and that they would get no central funding.
On the 11th October the results of the reviews of the national Summary Care Record system was published and, as expected, it said that the rollout of the record across England would continue. But the content would be restricted to a small core of information, useful to emergency departments, and not be expanded into a fuller clinical record.
On the 18th October the Department of Health published a consultation document “Liberating the NHS: An Information Revolution” which makes no mention of NPfIT or the existing contracts. The result of the consultation over the next three months will be a new information strategy for the NHS in England which will be published in early 2011.
The Status of the LSP Contracts
So what do these apparently contradictory statements mean for the NPfIT contracts let in 2003/4 and in particular for the five local service provider contracts which were intended to provide all NHS organisations in England with local electronic patient records?
The coalition government clearly does not believe in NPfIT as a national programme to deliver electronic patient record systems to local NHS organisations. It has a minimalist view as to the national systems required to support the NHS in England. But they have taken a look at the supplier’s contracts and realise that terminating them (or “halting” as stated pre-election) would be very expensive. They have a timely reminder of the potential cost in the rumoured £700m that Fujitsu Services is claiming as a result of the termination in 2008 of their £1bn local service provider contract in the South.
The contracts specify that NHS trusts are obliged to buy sufficient core and additional services from the local service providers to bring the cumulative spend up to what the contracts call the “cumulative minimum commitment” in any particular year. In the contract between the Secretary of State for Health and CSC, the cumulative minimum commitment’ represents up to 70% of the contract charges.
But the government doesn’t think that the suppliers will recover the full contract value and hope that the contracts will “wither on the vine”. Is there a basis for this hope?
The NPfIT contracts are confidential and little financial information is in the public domain. Any financial numbers need the caveat that potentially relevant information was not included because of the Department of Health’s interpretation of the question. But when you collate the available information from UK parliament publications and FOI requests to the Department of Health you get the following picture:
The national application contracts (N3 broadband network, the Spine, Choose and Book) have all been deployed and in the case of N3 (BT) and Choose and Book (Atos Origin (EPA:ATO)) the contracts have been extended by 2 years. Based on performance to date the suppliers will recover the full contract values in revenues and may well increase this through further change control.
These contracts have been problematic for both suppliers. All were signed for 10 years in late 2003 / early 2004. Contract values are stated at 2004 prices and are inflation linked.
BT has renegotiated its LSP contract twice – the first time to replace IDX (now GE (NYSE:GE)) software with Servelec RiO for community and mental health organisations and Cerner (NASDAQ:CERN) Millennium for acute organisations. RiO deployments have gone well and are seen as a success. Cerner deployments have been slow and a second renegotiation:
- reduced the number of deployments – 8 Trusts have Cerner already and a maximum of another 10 will be deployed under the contract (leaving 14 with nothing);
- the number of Cerner functionality releases is being reduced;
- GPs were taken out of the contract and the value reduced by approximately £100m.
In early 2009 BT wrote off more than £600m against the value of this contract.
In mid-2009 BT negotiated to take over management of 7 existing Cerner sites in the south; 3 new Cerner deployments and 25 RiO deployments for £550m. This negotiation is widely seen as a much better deal for BT than the original contract because it has much lower risk and was negotiated without competition.
BT has a total contract value of £3,100m across its LSP, N3 and Spine contracts and it had received £2140m in revenues up to April 2010.
CSC originally won 2 LSP contracts in the North West and Eastern/Midlands and took over the North East contract from Accenture in 2006 giving a total contract value of £3,000m. CSC has been successful in deploying TPP’s SystmOne software to community organisations and GP practices. It has deployed a number of “interim” patient administration systems in acute hospitals but it has failed to deploy its strategic iSoft Lorenzo hospital system outside of Morecambe Bay hospitals which missed a deadline of end of March eventually going live in June 2010. CSC are currently working on an early adopter programme to “prove” Lorenzo comprised of NHS Bury, University Hospitals of Morecambe Bay NHS Foundation Trust, Pennine Care NHS Foundation Trust, and Birmingham Women’s NHS Foundation Trust.
Unlike BT, CSC has not completed renegotiation of its LSP contracts. Despite this the Department of Health have announced that they intend to take £500m out of the current contract value reducing it to £2500m. It is expected that, as with BT and Cerner, the number of Lorenzo deployments will be reduced; the number of functionality releases will be reduced and GPs will be taken out of the scope.
Against its LSP contracts CSC had received revenues of £1,000m up to April 2010.
What is the future for the LSP Contracts?
The LSP contracts are more than 2/3rds complete. It is possible that they could be extended, as other NPfIT contracts were by the previous government, but all the indications are that they won’t and will finish in 2014.
The NPfIT contracts are system integration and service provision contracts where the supplier invests in setting up the service; is paid for deploying the service into an organisation and then receives regular payments for providing the service against a service level regime. They are financially structured so that the initial investment, operating costs and profit is recovered over the lifetime of the contract. In a competitive procurement one would expect the cumulative cash flow to be positive in the later years of the contract.
The impact of delays in deployment of the service is the loss of the service years that deliver the contract profitability and failure to realise the total contract value. This can be made up through changes to the contract that shift revenues from service to deployment payments; reduce investment or operating costs by reducing scope; add service years through extending the contract life.
BT and CSC both have the problem that they are way behind against the originally agreed deployment plans and therefore, without some change, they will fall someway short of their full contract values. CSC’s problem is a bigger one than BT’s because they have only received a 1/3rd of their contract value over 2/3rds of its lifetime. Unless they can deploy Lorenzo they are unlikely to exceed another £700m over the remainder of the contract. Even after the potential saving of £500m with a renegotiated contract value of £2500m this gives an additional saving to the Department of Health of £800m. If this is combined with the smaller potential saving from the BT LSP contract it is likely to total over £1bn of additional savings.
- Deploy stable services quickly into acute hospitals; in a replicable way and in high volume;
- Change sponsorship of their programmes from the Department of Health to the acute hospitals. Rather than the programme being pushed into the trusts, often against their will, they should pull the services in to meet their operational needs.
- CSC have to manage their contract renegotiation and ensure that their early adopter programme is fashioned to be a success and doesn’t become the DH’s reason for minimising their contract revenues;
- BT has to manage a complex Cerner upgrade programme and also a large new deployment to Imperial College Healthcare NHS Trust.
First published in GLG News on October 28th 2010share with: