Despite alignment across government, industry, and the NHS under the 10 Year and Life Sciences Sector Plans, innovation is failing to scale because capital is not reallocated to fund adoption, and only a shift from revenue to capital funding will unlock system-wide implementation, growth, and better patient outcomes.
Across the UK, particularly now in the year after the launch of both the 10 Year and Life Science Sector plans, there is energetic agreement across the system that change can happen. Experts across industry, the NHS, and government have aligned and determined what needs to happen. The challenge is that the people who know what needs to happen are not the people who need to make it happen.
It is obvious to us all. We have watched, participated and sometimes navigated around problems, and everyone involved can provide examples of issues, both evidenced and anecdotal, but the frustration is that they are theoretically able to be overcome.
NHS Procurement: The System Isn’t Broken, It’s Disconnected
The problem is the system itself. It’s not a single system; individual elements perform very well, and the quality of each part of the system is world leading – just as we aim to be. The problem is that the system is not a high-functioning team. There is no handover of the baton and no momentum to deliver.
The NHS is running a relay but not passing the baton on to the next leg. No one takes responsibility for a successful changeover, and we end up with different parts of the system tripping each other up and dropping the baton.
How can a government-funded innovation that has been developed based on system need reach market readiness through every part of the process, at significant cost, and not be implemented across the system that said it needed it?
How can innovation funds make this ready, yet people in the trusts are able to decide it isn’t innovative enough?
How do products reach this stage and then be overlooked because they’re not proven, or because it’s cheaper not to change and to continue to do what is already being done?
When Innovation Funding Leads Nowhere
The funding needs to follow the products if innovation is to be adopted. The technology or process that is being replaced should be de-funded and those funds should be mandated to support the implementation of the replacement technology.
It shouldn’t be up to the individual hospitals or trusts to find new money for products that come through innovation funding. This means that government funds are being wasted. Development money will get no return on investment, and increasing innovation funds is pointless if the funds for using these products are not provided.
To be clear, this isn’t about increasing money flowing into the system. This is about a systemic process that reallocates funds to products that are meeting the needs of the patients.
Capital, Contracts, and the Cost of Delay
This needs a system restructure. Currently, NHS contracts in high technology are often too long in order to spread setup costs over time. They need to be shorter to encourage new entrants and me-too products. To address this, capital funding should be available, as long contracts are not cheaper for the NHS. When cost of capital is applied, the NHS pays up to 30 per cent more for equipment. It’s simple financing; the monthly payment might be lower to manage revenue budgets, but the cost overall is higher. If an amount of capital were available to support innovation entry, there would be the potential to reduce overall costs by around a third.
This would support innovation by allowing for more frequent replacement cycles, thereby reducing the need to cover capital costs through revenue over extended contract periods. In turn, that would allow the NHS to respond to technical developments, and ensure that industry is supported by de-risking the market and attracting international investment.
Outcomes would improve for the NHS, and the UK could reap the benefits of a thriving life sciences sector, as set out in the Industrial Strategy and Life Sciences Sector Plan, enabling growth, investment, and R&D opportunities for companies to set up, scale and grow.
Capital availability for new technology would make procurement more agile and cost-effective, as Trusts would not be locked into long contracts. This would create better opportunities for SMEs, who are unable to finance long term contracts through their own financing and investment. Currently, it’s often too risky to secure inward investment.
Unlocking Growth for SMEs and the UK Economy
There would be less concern over fruitless payments or stopping the use of technology that is still not fully paid for, because the asset would be owned outright. Equipment could be resold on the second-hand market (within regulations), creating opportunities for cost savings through future tenders.
Capital funding would mean that products could be procured, used and replaced in sensible replacement cycles, encouraging returns for investors and resulting in product improvements for patients, increased competition, and a market sector for large and small companies. This would result in cash releasing savings for the NHS because regular competition cycles encourage this.
This wouldn’t require a complete overhaul of process, as some technology areas are slower in innovation and stable, but enabling new technology through capital would simply open up the market entry and allow new technology to scale.
Cash Not Credit: a Simple Structural Fix
The capital funds into SMEs is gold dust and secures their futures, their capital, and their ability to invest in the UK for employment and skills, and also secures further investment to make the UK attractive for multi-nationals as a global destination for product launches, with a good headwind. The UK could attract more manufacturing as there would be a return within acceptable timescales and the risk would be mitigated.
Capital instead of revenue isn’t more money. It’s the same GDP used differently, and such an easy fix to bring technology, innovation, and investment to the UK.
It could be argued that making market entry easier for innovation through capital would also reduce the noise of other reasons for lack of adoption.
Is there really an issue with regulation? Is there really a problem with NICE? Is there really a stuffy procurement regime?
Or is it just that good products and good companies don’t get bought by the system because the system is too full of long-term commitments and processes that are introduced to make the monthly costs affordable? Making capital funds available for innovation addresses several actions – both micro and macro – in the 10 Year and Life Science Sector plans, and it doesn’t cost any more than currently, yet has so many benefits for patients, companies, UK growth, international attractiveness, inward investment, and skills and competition. Cash instead of credit for innovation is an easy enabler to kick-start our economy and achieve several elements of our health plans.
This article features in the new edition of ChamberUK. Our parliamentary journal.