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The Case For Smarter Procurement Of Locums

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Contents 1.0 Introduction

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2.0 Executive Summary

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3.0 Background

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4.0 Agency Model

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5.0 The Alternative, Direct Model

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6.0 STAFFflow – The Leading Direct Engagement Model

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The Case for Smarter Procurement of Locums


1.0 Introduction With the NHS being challenged to achieve £20bn of efficiency savings by 2015, finding value for money without adversely affecting the quality of care experienced by patients is a serious challenge faced by NHS trusts. In line with the Government’s ‘Better Procurement, Better Value, Better Care’ strategy, which sought to find more than £1.5bn of procurement efficiencies over the next three years, there is a real drive to improve practices across the health service by making intelligent choices about procurement. A major area of procurement for all trusts is temporary staff, such as locum doctors, nurses and allied health professionals. The £2bn the NHS spends on agency staff is often unbudgeted and purchased at a premium cost. As a result, every trust and health board in the UK is trying hard to better control this spend. Despite this, the number and cost of these staff is increasing. The national spend on locum doctors has risen by 8% since 2011 (The Telegraph 2013). The Nursing Standard recently investigated the rising cost of nursing agency staff. Agency costs at 100 NHS organisations were reported to have increased by 22% in one year.

As a result, as part of its wider efficiency drive, the Government has committed to help the NHS reduce its non-permanent staff bill by 25% by the end of 2015-16. To achieve this objective, given that the demand for the use of temporary staff is not going to reduce, trusts face a challenge: how do they engage and manage cost-effective, yet high quality staff? The answer has to be a more efficient way of procuring and managing them. Historically, most have been recruited through employment agencies. Often the process of procurement is uncoordinated, there is little transparency on agency costs making them difficult to manage, there can be a lack of control and this leads to less efficiency. As this paper argues, there is a better way. Through trusts directly employing these staff and centralising their procurement and management there are considerable efficiency gains and cost savings. We set out below how this system works as a model, and demonstrate how trusts are already using it to achieve real improvements in their hiring of temporary staff.

The Case for Smarter Procurement of Locums

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2.0 Executive Summary • The employment of locums represents a sizeable proportion of NHS trusts’ spending on temporary staff, and this is increasing. In January, it was found that spending on locum doctors by A&E units in England had increased by 60% in three years. (BBC News, January 2014) • With the usual method of employing locums through employment agencies, there is a lack of transparency of costs with no breakdown between how much the locum is being paid and how much commission the agency is charging. • This prevents comparisons and hinders trusts from effectively controlling and analysing their costs. • In most trusts there is no central system in place to monitor and control locum expenditure. This means accurate information is often not available for strong procurement practice or workforce planning. • In cases of high demand or short-notice, trusts may face difficulties securing staff through agencies on agreed frameworks, forcing them to go ‘off-grid’ and having to accept higher costs. It is estimated that 60% of agency contracts are in excess of framework rates. • An alternative method being increasingly used for employing locums is through direct engagement. Locums are recruited through agencies but become temporary employees of the trust being paid directly instead of through an agency.

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The Case for Smarter Procurement of Locums

• With the management, payroll and some HR functions outsourced, this creates a single, centralised administration system used by all departments for hiring locums. This is able to use multiple agencies, check for contract compliance, set parameters for pay and challenge excessive rates, and enables trusts to analyse their temporary staff usage patterns. • Trusts using the system can continue to use the same locums as before. The system can be implemented without compromising on quality of care or affecting delivery of frontline services. • This system enables NHS trusts to have full control and transparency over their agency procurement and allows trusts to share the details of negotiated rates between each other to drive costs down collectively. • Across the 36 trusts using the STAFFflow model of this system, annualised savings are already in excess of £15m, equivalent to 500 nursing posts. • If adopted across the NHS, it is estimated that the direct engagement model could produce in excess of £500m of efficiency savings every year out of the estimated £2bn cost of hiring non-permanent staff.


3.0 Background Locums doctors represent a significant proportion of NHS trusts’ spending on temporary staff. In total, £2bn is spent per year on non-permanent staff; estimates suggest that around 50% of agency staff spending is on medical locums (NHS Employers). Locums are fully qualified doctors and undergo the same pre-employment checks required for all doctors irrespective of the duration of their appointment. They may be substantively employed by an NHS organisation but work additional shifts on a locum basis, or they may be employed and supplied by a locum agency with which a trust has a contract. Locums play a valuable role in ensuring continuity of service provision and can enable organisations to work more flexibly and form an important resource for NHS trusts. They provide hospitals with an easy-to-access source of qualified doctors to deal with events such as staff absences due to illnesses, unexpected increases in demand, for example during a cold snap, or to provide cover for long and short term skills shortages. Whilst it is important to note that on the whole NHS trusts do not rely heavily on the use of locums, several factors have contributed to increasing levels of demand for them; the major one being the implementation of working time regulations which has restricted the hours that junior doctors can legally work. As a result, the amount being spent by NHS trusts is also increasing.

The systems for requisitioning locum doctors have always been disparate and there are also increasingly widening disparities between how much NHS trusts spend on agency staff. The Government’s ‘Better Procurement, Better Value, Better Care’ document revealed that whilst, for example, Homerton University Hospital NHS Foundation Trust spent an average of 11.9% of its workforce expenditure on non-permanent staff between 2009 and 2012; at the other end of the spectrum, South Tees Hospitals NHS Foundation Trust did not accrue any expenditure (Department for Health 2013). Many trusts are making headway in reducing reliance on agency staff, but in others it is rapidly rising. In one trust the cost increased five-fold in 12 months (Department of Health 2013). Recent data (January 2014), obtained by the Labour Party under the Freedom of Information Act, showed £83.3m was spent on Accident and Emergency locums alone last year, up from £52m in 2009-10. In order to balance the cost of locum services to uphold standards of patient care against the budget pressures they present, NHS trusts need to find a new, revised system of managing the use of locums which enables them to have greater control, deliver transparency and accountability, and reduce the cost.

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4.0 Agency Model Most trusts rely on the use of employment agencies for procuring and managing locums. When a doctor is assigned to meet a requirement, the agency pays them and handles all the contract and payroll administration. They then usually charge the trust an all-inclusive fee which includes all costs including salary, administration and insurance. Locums

Locums

Locums

Agency

employs locum + charges commission for handling the contact payroll administration, legal checks and bookings.

Staff

Requests staff

NHS trust

Trusts may use a preferred agency (often called a ‘Master Vendor model’); or have several agencies they contact which are tiered by their preference, resulting in some 85% of all locums being hired through just five agencies. There is a nationally agreed framework between agencies and the NHS, the Medical Locums Framework, which sets rates for locums and this currently has 39 agency members.

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The Case for Smarter Procurement of Locums

4.1 Disadvantages of the Agency System Lack of Transparency • Agencies often charge trusts a single amount that encompasses both salary and commission, so trusts have no accurate breakdown of how much the locum is being paid and how much commission the agency is charging. • With this lack of transparency, the agencies’ costs can be covered by a multitude of separate invoices, with no central record held by the trust of what is spent where. • This means that trusts may struggle to separate or compare commission rates or understand exactly what pay rates locums are receiving. This can prevent trusts from effectively controlling and analysing the rates they are paying. • Also, as the locum has no way of knowing how much the trust is being charged for their time they might not be being paid the full amount of the salary element in the fee charged to the trust. Risk of Inflated Costs • Last year, The Telegraph reported that agencies were charging up to £120 an hour for supplying doctors to cover staff shortages. This equates to as much as £900 a shift in commission for each locum provided on top of the doctors’ salary. • The Crown Commercial Services (formerly Government Procurement Service), which oversees the framework agreement aimed at securing value for money from suppliers, wrote to agencies to warn them to keep a check on their “escalating charges” and saying that they should not be charging more to provide doctors at short notice.


• Where trusts have an arrangement with just one or two agencies there is no shopping around. Where, as often happens, locums are hired at short notice, this often means that there is no time to explore more cost effective options or to establish if different arrangements could be established. • Whilst many trusts use procurement frameworks, such as the national agreement, to help them secure quality locums, they can encounter difficulties securing staff through agencies on the frameworks because of high demand or short-notice. In this event, they may be forced to go ‘off-framework’ and end up paying inflated prices and are not given the guarantees that are offered by agencies within an agreed framework. This risks not having commercial protections in place, nor any contractual obligation on the agency to have conducted pre-employment checks on the locum supplied. • Any shortage in supply, particularly amongst some specialities, can often lead to competition between trusts for doctors which in turn can lead to an inflation of prices. In February, The Telegraph reported that trusts had paid as much as £3000 per shift for individual locum consultants filling shifts in A&E departments. There are not uncommon examples of trusts paying up to £14,000 per week for individual locums, including paying full rates for on call periods. • It is estimated that 60% of agency contracts are in excess of framework rates. • With no overall budgetary control, it is easy for costs to escalate.

Lack Of Control By Trusts • In most trusts there is no central system in place to monitor and control locum expenditure. This means accurate information is often not available for strong procurement practice or workforce planning. • The lack of central control prevents trusts from effectively scrutinising their own temporary employment practices, working to improve these and from sharing cases of best practice with other trusts. There is no means of comparing or analysing fees charged so as to ascertain best value. As temporary staff spend is often not factored in during the budget setting process, it is also not possible to have an overall strategy to minimise medical locum expenditure. • Trust procurement teams may establish preferred rates with suppliers or aim to achieve framework rates. However, the lack of a centralised system to check and control the rates the trust should pay, coupled with the need for urgency in some bookings, means these are often exceeded. • In the interests of speed, bookings may be requested directly to an agency by clinicians without management authority or going through the finance system. This means that bookings may be made with agencies with whom the trust has no supply contract, even by accident, which means they will most likely pay a higher price. • Traditional approaches for employing locums have not been subject to the same rigorous, internal controls afforded to other staff groups such as agency nursing.

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• In large institutions and without a centralised system, it is entirely possible that a trust may end up being sent as a locum a member of the trust’s own clinical staff, and paying far more than if they had been asked to work extra hours. • Where there is a lack of central management oversight locums are not always provided with appropriate information before going to their placement, and induction practices vary from department to department. Performance assessments are often not completed by clinical supervisors during or following a medical locum’s placement. • Where trusts use several agencies, they face processing numerous invoices. Not only is this time consuming and costly, but the sheer volume and complexity can often mean that incorrect invoices are approved and there is a lack of checking of agreed rates against actual rates charged for locum staff.

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The Case for Smarter Procurement of Locums

The Use of Personal Service Companies and Umbrella Organisations HMRC are currently consulting on proposed changes to the tax regime to address the use of employment businesses and intermediary companies to avoid the creation of an employment relationship. These are currently used in the NHS for some temporary workers. This results in a lack of employment obligations for the employer and significant tax savings for the agency worker. Under the new test, if the worker provides personal service, or “is personally involved in the provision of services” to another, and if he or she is subject to supervision, direction or control in carrying out his/her duties, then payment for those services must be taxed as employment income. This amendment to the legislation is designed to encompass intermediary relationships involving agencies, employment businesses and personal service companies.


5.0 The Alternative, Direct Model An alternative to the agency model that is rapidly growing in use is for locums to be directly employed by trusts with their payroll and some HR outsourced. This model puts the NHS trust in complete control, offers full transparency, increases efficiency and lowers costs. Under the direct engagement model, locums are still recruited through agencies (who continue to carry out the requisite employment checks) but then become temporary employees of the trust. Most commonly, they enter into a fixed term contract with the trust and the trust pays the locum directly rather than the agency. The model is facilitated by using an outsourced HR system. This service helps the trust put the hiring arrangement in place including the drafting of employment contracts and supporting engagement with agency suppliers. It advises them on how to mitigate any risks of engaging staff directly and then supports them on a day-to-day basis to make sure that these risks are managed, including providing legal, HR and pensions advice. The service then looks after the management of the locums handling all the administration and payroll functions. This is illustrated in the model below: Locums

Locums

Locums

NHS trust recruits locums through an

agency

5.1 Advantages of Using the Direct Model Greater Control and Transparency • Through having one centralised system for hiring all locums, trusts are in direct control enabling them to see which departments are hiring staff, how many they are hiring and how much they are paying. • As a direct contract can only happen with the appropriate authorisations in place, this eliminates the problems caused by staff booking agency locums without approval or where they may not have been needed. • With all the data in one place, good resource management practice can be shared and poor practice highlighted. As a result, trusts are able to manage their resources, take a strategic approach to workforce planning and ahead of time, explore new ways of reducing the need for external staff and challenge ‘off-contract’ or unexpected spending. • As the trust becomes a single, centralised administration, they are free to work with as many agencies for recruitment as they wish, rather than being restricted exclusively to one vendor. • Having full transparency helps prevent any duplication that may take place. Doctors have to submit daily time sheets which can be checked with the department immediately as opposed to receiving weekly invoices from agencies. With invoices being correct from the start, the risk of over payment is virtually eliminated. • It also prevents situations where existing staff are being hired as locums through agencies as the HR system contains all employee doctor records.

NHS trust

employs the locums directly + uses an HR system to facilitate the booking, ensure legal requirements are met, handles all admin

• The improved transparency means trusts can now identify which entity they are contracting with; the trust choses the gross cost they want to pay regardless of whether a locum is contracting via a PSC or via PAYE. The Case for Smarter Procurement of Locums

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Improved Efficiency • Weekly invoices for each separate assignment can be replaced by a single monthly consolidated invoice for each agency, cutting the number of invoices requiring processing by hundreds or even thousands. • Improved transparency enables trusts to establish the commission easily and simply as one lump sum, without being required to double-check agency invoices in case of mistakes or over-charging. • Direct engagement ensures that locums are only paid when they are actually working and not for inactive periods when they are on call as under the agency model. Managing Costs • The direct engagement model enables NHS trusts to have full control and transparency over their procurement costs. Through increased transparency they can seek to make significant savings on commission costs. The agency will charge a fixed commission fee for the locum they provide. As the salary payment is made directly to the locum by the trust, the amount of commission is clearly identifiable on their invoice to the trust. This enables the trust to ensure that the commission rate fits in with a range considered reasonable, is competitive with other agencies and is in line with what has been paid for previous, comparable engagements. • Trusts contract through either a fixed term contract of employment or PSC allowing them to establish and negotiate pay arrangements with staff directly ensuring that one department does not pay over the odds for a particular grade of staff. It also allows trusts to share the details of negotiated rates between each other to drive costs down collectively.

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The Case for Smarter Procurement of Locums

• Using this model means trusts can derive savings from a stronger, more informed negotiating position based on centralised data with better levels of control. As they achieve better control over actual rates charged and combined with their new ability to work together, this could potentially see trusts’ savings grow further as they share data and explore the potential to benchmark pay levels regionally and nationally. • As adoption of this system grows, so trusts will be able to drive down commission rates charged by agencies as they are forced to compete to retain business, so producing savings across the board for the NHS. • A further benefit for trusts is that it is far simpler for trusts to comply with tax regulations. • By handling tax and national insurance payments themselves, trusts no longer have to seek and gain assurances from agencies that these have been paid correctly and in full and face the risks associated with non-compliance if they fail to do so. As the locums are engaged directly by the trust, there is no VAT due on the salaries paid. Where locums are engaged through a PSC it is a straight forward matter to obtain the assurances from the PSC concerned. • Collectively, the net result of these efficiencies have meant that to date, across the 36 trusts using the STAFFflow model of this system (see below), annualised savings are already in excess of £15 million, equivalent to 500 nursing posts. • Every trust and health board in the UK is, of course, trying hard to better control this area of their spending, in line with the Government’s aim to achieve £1.5bn a year in efficiency savings. It is estimated that if the direct engagement model was adapted by the NHS across the board, it could result in excess of £500m of efficiency savings every year out of the total spend of £2bn on non-permanent staff.


6.0 STAFFflow – The Leading Direct Engagement Model Established in 2011 by Liaison and PwC, STAFFflow is a direct engagement service that puts trusts in control of hiring and managing locums. It was developed with trusts wanting to secure the benefits of direct engagement but needing help to do this and is designed to address the need for greater efficiency, control and transparency of locum spending. STAFFflow provides specialist advice on how to mitigate the risk of engaging staff directly and day-to-day support and administration of the service including payroll, pensions and other HR support. It also advises on indirect and employment-related tax issues connected with the new arrangements for trusts which were outlined in detail to HMRC when STAFFflow was first established. The specialised software used, STAFFflow Validate, ensures that NHS organisations can implement a strong contract management approach and carefully manage agency costs at the point of booking. Each trust’s own parameters are set, costs are controlled, and excessive rates are flagged and can be challenged. The NHS may procure well, but it is sometimes lacking the means to monitor post contract compliance to the agreed rates. STAFFflow Validate provides this safeguard. Importantly, this is achievable without compromising on quality of care or affecting delivery of frontline services.

The Department of Health has expressed its positive view of the service as STAFFflow seeks to empower trusts to improve their efficiency. NHS Protect, which leads on a wide range of work to protect NHS staff and resources from crime, has national responsibility for tackling crimes including fraud. After seeing a demonstration of the STAFFflow Validate software, Dermid McCausland of NHS Protect said he believes every trust in the NHS should use STAFFflow Validate software to avoid fraud, mistakes and malpractice on agency invoicing in the NHS. The 36 trusts currently using the system have a collective agency spend of more than £140m. This collective spending power is growing rapidly, offering unprecedented opportunities to further drive down costs and improve efficiencies. Based on the success of the STAFFflow model, trusts are now pressing for the system to be extended to cover agency nurses and bank staff.

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Contacts Mike Bailey, Partner, PwC

Bruce Thew, Chairman, Liaison

This publication has been prepared for general guidance on

020 7804 3254

0845 603 9000

this publication without obtaining specific professional advice.

michael.bailey@uk.pwc.com

07768 560 608

Emma Cody, Senior Manager, PwC

bthew@bthew.com

matters of interest only, and does not constitute professional advice. You should not act upon the information contained in No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, the authors and distributors do not accept or assume any liability,

01727 892 243

Andrew Armitage, Managing Director, Liaison

emma.j.cody@uk.pwc.com

0845 603 9000 07801 193 786 aarmitage@liaisonfs.com

responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2014. All rights reserved. STAFFflow is a registered trademark. In this document “Liaison” refers to Liaison, the trading name of Liaison Financial Services Ltd (Reg. 6426660). “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.


The case for smarter procurement