Comment / Subsidiaries: getting to grips with the detail

Recently the issue of subsidiary bodies wholly owned by NHS organisations has burst into the headlines. This is perhaps surprising given the necessary legislation has been in place for over a decade.

Concerns in some quarters centre on whether this represents privatisation by the backdoor and it has almost certainly been caught up in the similar debate around the creation of accountable care systems – or integrated care systems using the new preferred terminology.

NHS England chief executive Simon Stevens was certainly very keen to separate out the two issues when members of the Commons Health Committee seemed determined to keep asking about subsidiaries during a recent evidence session as part of its integrated care inquiry.

Critics have levelled accusations of dodging VAT while proponents suggest they offer legitimate ways to improve efficiency and focus on some key areas.

However it is true that we are seeing more organisations and health systems starting to use – or at least consider using – subsidiaries in recent times, driven by moves to work more collaboratively and to deliver efficiencies across whole systems not just at the level of individual organisations. They have typically been used in the areas of estates and facilities management, catering, outpatient pharmacy services and pathology labs.

What we also know is that setting up, managing and accounting for a subsidiary or a joint venture is complex and outside of most NHS finance teams’ comfort zones. Our discussions so far have identified lots of disparate issues that members have raised as concerns. The HFMA is therefore developing a briefing that highlights those issues as part of the process of establishing a new working arrangement.

We have previously issued Accounting for joint working arrangements. But it is clear there is an appetite for a detailed checklist of issues to consider in taking forward subsidiaries.

There is no one right way of establishing these new arrangements. But we hope that the briefing identifies those things that colleagues now wish they had known at the start of the process and shares good practice.

The current draft is informed by discussions and issues raised by both the HFMA Accounting and Standards Committee and its Provider Finance Technical Issues Group. It covers issues such as:

• establishing appropriate governance arrangements
• consideration of general ledger and IT requirements
• staffing arrangements
• assessing the resource that will be required to establish the new arrangement.

In the same way that there is no right way of doing this, everyone’s experience will be different, so we want to harness the knowledge of our wider membership base. We have therefore published the briefing in draft form for your comments. Please comment on the briefing, but also tell us your stories and experiences and what is missing.

By publishing it now, we hope that it might be of use to some who are preparing their first set of consolidated accounts.

Our plan is that this document will be updated on a regular basis, so please continue to send us your thoughts even after the June deadline for comment has passed.

Please send any comments on the briefing to [email protected]

Subsidiary companies – financial considerations (draft April 2018)