Can outsourcing buy more for less in the NHS?

05 August 2010 by
Can outsourcing buy more for less in the NHS?

As the NHS tightens its belt, contract caterers are pacing the corridor to see if it outsources a bigger proportion of its food provision. Daniel Thomas asks healthcare caterers how their processes can breed cost savings.

Caterers such as Compass say they can bring investment as well as cost savings to NHS catering operations. One of the biggest innovations in recent years has been the introduction of steam plated meals, such as Compass's own Steamplicity system (left)

With the coalition Government promising to take an axe to public spending and to overhaul the management structure of the NHS, there has been much talk of a "bonanza" of healthcare contracts for outsourcing firms such as contract caterers.

While NHS funding has been ringfenced by the Government, underlying inflation in healthcare (both volume and cost) is running at around 8% per year, meaning health service organisations are under pressure to keep costs down.

With an estimated 60% of hospitals in the UK still using in-house catering teams, contractors are confident that there is plenty of space in the market for them to make an impact.

Speaking after Compass Group announced its half-year figures in May, chief executive Richard Cousins said that in sectors such as healthcare, the Government is "under pressure to fix its balance sheet".

"It may take time; nothing is going to happen next week, but there are opportunities out there that we intend to exploit," he added.

It is talk of "exploitation" by outsourcers that concerns many healthcare professionals, according to Kevan Wallace, national chairman of the Hospital Caterers Association.

"I feel quite strongly that contractors should not be involved in hospital catering," he says. "They provide a good service but they are there purely to make a profit to satisfy their shareholders."


But Steve Cenci, managing director of healthcare at Compass Group UK & Ireland, which operates healthcare contracts under the Medirest banner, insists that partnering with an outsourced caterer is "mutually beneficial" for both the NHS Trust and the service provider.

"We can bring cost savings to most, if not all self-operated sites, without compromising on service or quality," he says. "We can also bring in investment, which can go towards updating facilities or equipment, or introduce new innovations to improve working practices."

Alan Starling, sales director of Healthcare Initial, part of Rentokil Initial, says there is "strong demand" for outsourcing right now as many trusts waited until after the General Election before starting tender processes.

"We are certainly looking at the opportunities that exist in the healthcare sector," he says. "Outsourcing is not solely about cutting costs; it is also about benefiting from fixed-price contracts that offer financial stability and budget certainty."

When a trust first outsources its catering operation, the cost savings can be considerable, particularly when the incumbent is very traditional, according to Cenci.

"In these cases it would not be unusual for us to yield a cost benefit of around 10% in the annual cost of those operations," he says. "For example, if a hospital staffs a large kitchen with a team of cooks, using energy-guzzling stoves throughout the day and then using heated trolleys to transport food to wards, we can make significant labour and cost savings when we introduce more modern systems."


This is a point picked up by Simon Scrivens, managing director for healthcare at Sodexo, who says there are three fundamental challenges for operating catering within hospitals.

"Labour costs within the NHS can be rather high, space is at a premium as hospitals are fantastically expensive to build and capital is limited," he says. "Trusts who decide to invest in, for example, new diagnostic equipment instead of a new kitchen tend to start looking for outsourced food provision."

And it's not just food provision - with many of the major players expanding rapidly into facilities management and other services, there are further opportunities to exploit, says Scrivens.

"Whether it's cleaning, catering, portering, or even health records, pathology and space management, we are well positioned to assist the NHS with achieving effective operational delivery within challenging budgets - all, of course, while maintaining front line services," he adds.


Catering remains the core of Sodexo's NHS business
Sodexo is making further inroads into new areas, having just launched a new joint venture to deliver pathology (laboratory medicine) services to the NHS. This will allow trusts to achieve "very significant savings" while maintaining quality and improving speed of reporting back to physicians, with obvious patient benefits, according to Scrivens. But catering remains at the core of the business for the likes of Compass and Sodexo and the companies have continued to invest in innovative ways of handling food provision at their healthcare clients. The standout innovation in recent years has been the launch of steam plated meals, which allow patients to choose meals minutes before being served and eliminate waste. Compass's Steamplicity system, which uses a patented steam valve that controls pressure and steam within the packaging to cook meals from fresh, offers a "revolution in patient dining", according to Cenci. "Typically, with traditional cook-chill, cook- freeze or cooked-on-site operations, a patient will have to choose their meal the day before, which means that sometimes, when presented with the meal on the following day, their appetite has changed and they no longer want this option," he says. "As Steamplicity meals are cooked so quickly from fresh, patients decide on the same day what they would like to eat from a choice of 24 hot dishes and a further 10 cold dishes, incorporating healthy options, higher energy dishes, softer meals that are easier to chew, and vegetarian meals as well as gluten-free and moderate/lower sodium dishes." FOOD WASTE Compass clients regularly see between only 3% and 5% food waste at bulk level - compared with the 20% to 49% waste for bulk cook-chill or cook-freeze systems, Cenci says. Patients also tend to consume more of their meal as they order exactly what they feel like eating that day, he adds. Sodexo has also developed a steam plated proposition, known as Bonne Sante, which creates similar efficiency gains. "Frozen steam meals ensure that a patient's first choice is always available, and can be served within a few minutes of ordering," Scrivens says. "Multiple pack/portion sizes ensure that hostess-style meal systems reduce waste and operate efficiently." COST-CUTTING MEASURES But while innovations such as these - against the backdrop of the Government's austerity measures - should see outsourcers winning more contracts, the cost-cutting measures could, conversely, work against them. Peter Backman, managing director of food service consultancy Horizon, has warned that, although contracts are likely to come up for re-tender more regularly as clients seek to cut costs, the pressure on margins will be increased. Compass Group's Cenci admits that some of these concerns are valid, but stresses that the benefits will usually outweigh the disadvantages for both parties. "We should all remember that there are costs implications of re-tendering which may well exceed any perceived savings of working with a new service provider," he says. "However, it is equally important to remember that a new service provider will bring a fresh pair of eyes to every single operation, particularly those that have been in-house for many years. Changing provider can be an opportunity for a refresh and a chance to move an operation forward." WHAT ARE HEALTHCARE CLIENTS LOOKING FOR? Flexibility is the watchword. The needs of children, the elderly, an orthopaedic patient, and a maternity ward are all very different so having a wide range of propositions covering the nutritional, dietetic and physical needs of different patient groups is fundamental. Add to this religious or ethnic requirements and you have some complex needs - all of which have to be catered for effectively. HOW IS HEALTHCARE CATERING CHANGING? Hospital catering encompasses patient dining, staff and visitor restaurants and grab-and-go retail outlets. The latter in particular have seen rapid growth - they provide a revenue stream for trusts, either as rent concessions or through turnover-based shared income arrangements. Food courts have become increasingly popular and they are often now used to replace more traditional restaurant operations as they provide hospital employees and visitors with a greater variety. Like all areas of hospitality, sustainability has become increasingly important, with trusts looking at local sourcing and joining forces with other hospitals in the area on procurement. HOW TO MAKE HEALTHCARE CATERING MORE EFFICIENTBy Mark Fox, chief executive, Business Services AssociationSimplify processes There is a lack of consistency and coherence in food procurement processes and in the use of procurement models. Suppliers frequently report frustration with the level of bureaucracy involved in dealing with public procurers. For instance, there is little standardisation in documentation, which greatly increases administration time and costs. Standardisation should be considered, particularly within regions where local authorities are using the same set of suppliers. â- Clarify sustainability Certain specifications, such as the need for local produce, can be interpreted in different ways by different people. Definitions need to be clear and not too complex. This is particularly relevant when launching a new sustainability initiative. â- Improve commercial skills The Government should focus on improving the skills of procuring staff in departments. They should look at how they can use the commercial skills that exist in the private sector - for example, through secondments and commissioning frameworks. â- Change attitudes towards outsourcing Just the act of subjecting a service that was once delivered in-house to competitive market pressures can reduce costs and increase service quality. The Julius Review found that shifting public services into a competitive environment created cost savings for the taxpayer of 10-30%.
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