Tax controls and identifying new saving areas
Vanguards and Sustainability and Transformation plans (STPs) are helping to promote working across organisational boundaries to build consensus for the transformation and redesign and delivery of community healthcare.
However, the recent collapse of the £750m UnitingCare Partnership ('UCP') contract was a high profile event, with parliament commenting that they are astonished that a project approved by Monitor, the NHS strategic projects team and NHS England all failed to identify any potential VAT problems.
As a brief background, UCP was set-up as a consortium between Cambridgeshire and Peterborough NHS Foundation Trust plus Cambridge University Hospitals NHS Foundation Trust and, following an open bidding process, was the awarded provider of older people’s healthcare and adult community services.
A failure to account for unplanned VAT costs was a significant contributor to the contract’s early demise and inquiries commissioned by both the NAO and NHS England have now provided detailed analysis of shortcomings and offered a number of sensible recommendations for other new models of care being planned across the NHS.
So what are the lessons learnt and could these inhibit other co-design and joint working projects that are being progressed?
New legal entities can often be created by the NHS, local authorities and other providers for reasons of risk, to pool resources or simply to provide more cohesiveness for better co-ordinated care. The subtleties of legal partnerships and the principles of agency are important areas and ones that can easily be overlooked, creating risk, potential negative publicity or reputational damage for the board. For example, whilst a legal agreement might assert that there is no partnership intention, formal status can still be assessable by the actual working conduct of the parties involved.
The UCP model (at a late stage in the procurement process) intentionally created an LLP in between the CCG and both NHS providers. This ultimately altered the tax status of the commissioning funds and the NHS provider’s business status. UCP, as a non NHS body, was also excluded from benefiting from VAT refunds enjoyed by the consortium members. The failure to factor these into their financial forecasts was, ultimately, a significant oversight.
The new models of care programme has significant merits to it and the ‘VAT inefficient’ UCP scenario may well have been avoided had better controls been in place.
On the flip side, it is also possible that VAT efficiencies could be made by organisations working together especially when you consider the very different VAT regimes that apply across the various partners involved in our public care service delivery. For example, GPs and GP Alliances generally have minimal to no VAT recovery, an NHS body reclaims a proportion of their VAT whereas local authorities often benefit from full VAT recovery.
As fingers have now been burnt will VAT efficient models still be considered and driven forward? We think so. As the NHS is under eternal pressure to make saving after saving, we are still seeing both NHS Trusts and contractors push the boundaries on what is acceptable. Often, clinical or procurement leads are left to negotiate contracts without fully understanding the risks they could be exposing the Trust to should tax assumptions not be taken seriously enough or if they are not correctly quantified.
Ensuring there’s a rounded understanding of these factors should never be underestimated and is a topic the board should periodically visit. Given the sums involved, all flows of funds and financials should be scrutinised and their correctness challenged before commitment. This is easier said than done when you consider the significant pressures on NHS personnel to effect immediate change and hesitancy for engaging professional advice.
However, during this period of significant change and arguably one of outright experimentation, if we are to avoid more multi-million pound failures let us take one positive step forward and put in place stronger controls and ownership; this may just help avoid the NHS taking multiple steps backward.