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How to ensure your federation is a commercial success

Federations must plan carefully and commercially assess every opportunity if they are to succeed, says Roger Tweedale.

There are opportunities out there but there are also contracts which are commercially unviable (Picture: iStock)
There are opportunities out there but there are also contracts which are commercially unviable (Picture: iStock)

An increasing number of federations are being created, but many are struggling to develop commercially viable new services and yield the anticipated benefits to their patients and constituent GP practices. 

So what steps can federations take to help ensure they succeed commercially?

The importance of business planning

If they haven’t already, federations should take a step back and confirm their overall strategy and business plan as well as identifying a detailed implementation plan with allocated responsibilities and specific timetables. Setting off on a new business initiative without proper planning really is a recipe for disaster. 

The last thing the NHS needs right now is for leading GPs to reduce their patient-facing time whilst being distracted on new ventures which ultimately fail to generate any meaningful benefits - and the last thing GP practices need is to lose any financial investment they made in a federation. 

Commercial assessment of every opportunity

There are some good opportunities out there to improve patient care and generate a profit for federations; but there are also plenty of contracts on offer which are commercially unviable and could lead to a relatively rapid federation failure. 

Here are some key tips when seeking new contract income. They might seem obvious, but are often not completed thoroughly on account of lack of available time and resource.

  • Only go for contract opportunities that play to your strengths.
  • Identify the appropriate clinical and admin pathways for the service – sense check any pathways that are provided as part of a procurement process.
  • Perform a full and detailed analysis of what costs the federation will incur in providing a service - this should include identifying actual sources and associated costs for all equipment, consumables, staff and premises
  • Assess the cost that the customer (eg a CCG or NHS England) is currently paying for the service – this could be a single cost (as for a DES or LES) or the sum of national tariffs and market forces factors for each and every stage in a secondary care pathway
  • Be clear how primary care can benefit by participating in the delivery of the service.
  • Consider whether there are competitors who are in a position to provide a better and/or more cost effective service

There then needs to be either an assessment of what price the federation will propose within a tender or a comparison against any pricing already specified by commissioners. 

Early stage federations need to ensure that new services work at the ‘bottom line’ (i.e. generate a profit) and avoid the temptation of accepting loss making contracts just to ‘get things going’ or as a strategic step in some larger plan (which may never happen).

I have seen a tender for a community gynaecology service where the tariff on offer for each patient to be seen was actually lower than the cost of the consumables that were required to deliver the service. I am also aware of a number of federations where none of their services generate a profit but they continue to struggle on nevertheless, fearful of the reputational impact of relinquishing or re-negotiating NHS contracts. 

If a federation is providing services but still struggling financially it needs to perform a thorough review of its business and take corrective action quickly.

Operational dos and don’ts 

  • Don’t try to run a federation in your spare time – new business start-ups need huge amounts of time, energy, enthusiasm and stamina to endure in the long term.
  • Be focused and pragmatic when setting up any new legal entity – there is huge potential to turn this into a protracted and over-complicated process which consumes large amounts of cash at a time when federations need to be highly focused on cash conservation.
  • Be ruthless in selecting initiatives to pursue – say no to ideas if they don’t have a strong commercial case. If a new service isn’t commercially sustainable you won’t be able to offer it for long regardless of the benefit to patients or GP practices. 
  • Don’t get distracted by the constant flow of great ideas - retain focus and get a small number of services across the line (i.e. generating income) quickly rather than try to push a lot of initiatives forward at a slower pace. Be prepared to put brilliant new ideas on the backburner if you already have enough on.
  • Avoid fixed costs like the plague – wherever possible try to structure your cost base so that it is variable (i.e. that you only incur additional cost on account of you earning additional income). 
  • Maintain primary care engagement – Keep GP practices involved and informed or you will lose their support.

There is a real opportunity to create federations that make a huge difference to patient care while remaining commercially viable. However there is no easy money to be made in the NHS and successful federations will be the ones that plan carefully, take a disciplined, commercially focused approach to assessing individual opportunities and manage their cost base very tightly. 

  • Roger Tweedale is director of Blue Kite Consultants, a specialist healthcare consultancy that provides strategic, commercial and operational support to CCGs, GP federations, hospitals and other healthcare organisations nationally. Email: roger@bluekiteconsultants.co.uk

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