Feature / To boldly go

They may have their roots in the 19th century, but social enterprises are seen as key providers in the new NHS. Seamus Ward examines the benefits and challenges facing the sector.

In its final days in government, Labour turned to an idea from its past: co-operatives. It decided to give frontline primary care trust staff the right to request to provide services through a social enterprise. While these were mostly single-service organisations, the coalition government extended the initiative and many social enterprises are now providing community services across PCT patches.

Social enterprises (or community interest companies – CICs) are no longer part of the NHS. They are stand-alone, not-for-profit businesses that do not pay a dividend to their shareholders (in this case, their staff). Instead, surpluses are reinvested in patient care.

In England it is estimated there are more than 600 social enterprises working across health and social care. While many are single-service providers – speech and language therapy, podiatry or even GP out-of-hours services – the scale of social enterprises has increased recently. More than 40 were spun out of primary care trusts in the wake of Transforming community services, many delivering the full range of community services, such as district nursing, health visiting and school nursing. CICs now deliver an estimated 10% of all community services in England.

While these community-based social enterprises are providing largely the same services as they were when part of PCTs, finance staff insist this is about more than simply changing the name above the door. There are generic differences – CICs have their own regulator, which can appoint or remove directors in the case of mismanagement or of a CIC failing to meet its social interest duty. They also have to be Care Quality Commission registered and are likely to be regulated by Monitor when it takes over as sector regulator (the first licences for providers other than foundation trusts are due in April 2014).

As with private companies, accounts must be lodged at Companies House nine months after the year end (the relatively long deadline reflects the size and complexity of some businesses), though many NHS social enterprises try to complete their accounts as soon as possible after year end, reflecting NHS practice and the fact that their accounts are relatively simple.

While some CICs have reverted to UK GAAP rather than international financial reporting standards – Plymouth Community Healthcare CIC, for instance – others have retained IFRS, including the City Health Care Partnership in Hull. ‘We took the view everyone will move to IFRS at some point so we decided not to go back to UK GAAP,’ says Paul Hillary, Hull’s company director responsible for finance.

Phil Bradley, director of finance at Peninsula Community Health CIC, says the biggest difference is being felt at board level, where directors are coming to terms with issues including company director insurance and new rules, such as those on VAT. The Peninsula CIC provides adult health services in Cornwall and Isles of Scilly and has a turnover of about £80m.

Mr Hillary says the social enterprise has to deal with less red tape, as it no longer has to complete monthly management information returns to the strategic health authority and Department of Health. The provider, which has an annual revenue of £50m and 1,200 staff, has its own internal financial reports that are taken to its board, including delivery on financial and efficiency targets. It has also adopted the public sector prompt payment code.

NHS social enterprises believe many of the issues they face put them at a disadvantage and they will wish to see them addressed as part of Monitor’s fair playing field review. Pensions are a potential problem for CICs. Though existing NHS pension scheme members will generally be able to retain their membership, those moving between social enterprises and new staff will not be able to join the scheme. 

Mr Bradley says three-quarters of the the new staff appointed since  Peninsula CIC’s establishment have not taken on any pension. Clearly, access to the NHS scheme would be a positive for staff. But, should CIC staff be allowed to join the NHS scheme following the fair playing field review and a significant number did so, the organisation could face a large additional cost.

‘There is a lack of a level playing field. We also get hit for a lot of VAT,’ Mr Bradley says. ‘And we are asset light, so we have a limited balance sheet – that sets us at a disadvantage if we wanted to go to a bank for a loan, for example, as we have no collateral apart from our revenue contracts.’

Distribution of assets

Former PCT provider arm estate did not transfer to new providers and much of it will be moved to a new national property company. This policy has been designed to give commissioners greater freedom to switch between providers and ensure smoother entry and exit for providers.

However, with relatively few assets, access to capital can be a problem for social enterprises. They do not get a capital allocation so they must generate a surplus to invest in new equipment, for example.

As stand-alone businesses, cash is king for CICs and they acknowledge having adequate cash balances to pay creditors and staff salaries is essential not just for their viability but also their credibility as emerging providers of

NHS-funded services. Mr Bradley says the local PCT has helped by paying earlier than mid month. ‘We have been able to keep sufficient cash and it is critical we ensure we maintain our cashflow,’ he says.

Plymouth Community Healthcare CIC director of finance Daniel O’Toole says the decision to move all PCT estate to a new national company is worrying and could lead to more expense for the social enterprise. ‘If nothing else we have already spent thousands of pounds preparing leases and we will have to do it again with the new company,’ he says.

‘You need to be cash aware and manage your cash position strongly. As part of our setting up process we realised we needed a working capital facility. We went to the market and managed to get a few offers. We opted for the Co-operative Bank. We agreed a substantial facility and are not charged if we do not use it.’

Though his organisation is asset light, Mr Hillary says this has not been an issue for the CIC, though he can see why it could cause problems for some social enterprises.

‘We have been able to acquire another business – a high street pharmacy. Our ability to do that is a comment on the type of organisation we are and how well we are managed financially. We put our business case to the bank and it could see it made sense. The bank would not have loaned us the money if we did not have an appropriately strong balance sheet.’

The acquisition, as well as being good business in its own right, will allow the parent company to gain efficiencies through its supply chain. ‘We can provide wholesale drugs to other parts of the organisation, cutting out steps in the supply chain and saving money as a result. This is the sort of exciting initiatives you can do as a CIC,’ adds Mr Hillary.

Risk concerns

Monitor’s proposed risk assessment framework could be a concern. While the focus on metrics such as EBITDA (earnings before interest, tax, depreciation and amortisation) may be ideal for foundation trusts, they are not as applicable to social enterprises and other community providers. However, CIC finance directors believe their small size and lack of assets mean they will fail to register on the regulator’s proposed metrics.

As with all providers of NHS services, social enterprises run the risk of losing contracts – though the flipside is that they can also extend their income base by winning new work. Though most CICs hold contracts that have a number of years to run, many expect to see individual services put to the market, particularly as the new commissioners step in from next April and under the government’s any qualified provider (AQP) initiative.

Under AQP patients can choose to be treated at any provider that passes a registration assessment and, if applicable, is registered with the Care Quality Commission. Currently the range of services is limited and varies by area, but the initiative is due to be expanded.

While they will wish to extend their reach at some point, many of the social enterprises set up under TCS are in consolidation mode, ensuring they are delivering their current contracts. Others, particularly more established CICs, are open to bidding for more work. Hull City Health Care Partnership, for example, will bid for new services if it feels it can provide them well.

The Hull CIC is working with commissioners to develop local tariffs across its activity base. Where services have a healthcare resource group and tariff, they will look to use these – for example, in some sexual healthcare services. However, Mr Hillary says a tariff will have to be developed for most services. ‘We will look to develop these based on the community dataset or on the specification for the service in our contract,’ he adds. Activity data is good for some services and patchy in others, but the move towards local tariffs will incentivise the CIC to improve data capture.

Nottingham City Care Partnership (CityCare) offers general community services across the city. Director of resources Jonathan Bemrose says its block contract started in April 2011 on a three-year plus one plus one basis. But he expects some services to be tested over that time. Podiatry in both Nottingham city and Nottinghamshire has been put out to the market under AQP. While he says the CIC will be bidding for the work, he acknowledges the risks of extending beyond the city. ‘We are looking at partnerships with podiatrists out in the county where we would subcontract them and use their premises to provide the service. But to offer podiatry you need investment – a proper chair and appropriate decontamination arrangements – and there is uncertainty over volumes of patients so it carries a risk.’

Back in Plymouth, Mr O’Toole says it is vital that costing is accurate, as AQP services will be provided at a fixed price (either based on tariff or a locally-agreed price). ‘AQP will be extended and while not underestimating the potential threat to us, it’s an opportunity for us to expand into other areas because we provide high-quality services. As long as we can get the price right it is an opportunity.

‘As we have good activity-based costing anyway, we know how much things cost and how many we are doing. In some services we are getting fantastic levels of data being recorded and we are feeding that back to staff and using it to make real improvements in our frontline services.’

Despite the challenges, social enterprises believe they have the best of both worlds: bringing together business acumen and quick decision-making with NHS values and ethos of care provision. Mr Bemrose says CityCare, which has 1,200 staff and income of £37m a year, listens to its staff through a group of 30 who make up its staff working group.

For example, he says the group suggested staff be given bus passes to help them get around during working hours. ‘We agreed to this as there was an immediate benefit for a few pounds. We can make decisions quite quickly.’

Similarly, it has acted on staff suggestions to maximise the value of salary sacrifice schemes, such as for lease cars or city centre parking.

CityCare has been forming partnerships, with the city GP out-of-hours provider for instance. ‘It has a building that is open 24/7 and we have our night nurse service based there. We are also working with Boots and have taken over the clinic in its Nottingham city centre site,’ says Mr Bemrose. CityCare uses the space in the Boots store to hold clinics for services including podiatry, physiotherapy, smoking cessation and continence services. ‘This is what patients have told us they want,’ he says.

Growth opportunities

Mr Bradley says social enterprises can grow their business outside pure NHS income.

‘We are looking at any opportunities to grow our income levels. Opportunities exist with some historic existing PCT budgets but also potentially running some services on behalf of the council, but it’s early days with these.

‘We have brought together our early intervention services – integrating the nursing, therapy and social work teams to provide intermediate care and to support patients in their own homes,’ he adds.

In Plymouth, Mr O’Toole says the CIC wants to get better at engaging staff and this can go hand in hand with using its surplus to enhance services to the local community.

This could take the form of giving some resources to small volunteer groups used by staff to support patients. ‘We have helped a few such groups, including a charity that gives people with mental or physical handicaps the opportunity to go sailing,’ Mr O’Toole says.

It’s not been plain sailing for CICs. Earlier this year NHS Gloucestershire was forced to abandon plans to transfer community services to a social enterprise after a legal challenge by a local resident. It is now exploring options for the provision of the services. And in 2009 Secure Healthcare, a social enterprise set up to provide healthcare to prisoners, collapsed under the weight of financial problems.

CICs are clearly seen by ministers as a key element of the NHS provider firmament, but if they are to go boldly into the future they must keep a close eye on their finances and develop their commercial skills to overcome challenges from NHS and private providers.