A ‘flexible, cost-effective’ route to extra capacity

The NHS currently faces a number of well-known and difficult pressures — including increasing patient demand, ageing infrastructure, budget constraints, maintenance backlogs, and staffing shortages, in addition to the lingering effects of the COVID-19 pandemic. The need to find innovative and flexible solutions to help the NHS navigate these challenges, while adding high-quality clinical estate to achieve current demand, has thus become increasingly important. The adoption of modular construction, while utilising a usage-based revenue agreement, allows NHS Trusts to access state-of-the-art healthcare facilities without the huge capital investments typically required.

Modular offsite-constructed healthcare facilities delivered via a Pulse solution are not only designed to meet the latest Health Technical Memorandum (HTM) and Healthcare Building Note (HBN) regulatory standards, but are IFRS 16-compliant, providing a crucial lifeline for Trusts operating under tight financial conditions. By offering modern, high-quality, and rapidly deliverable healthcare facilities, this solution can help NHS healthcare providers deliver exceptional care despite the financial and operational pressures they face.

The IFRS 16 challenge and the need for flexibility

The introduction of IFRS 16 has significantly altered how leases are accounted for on public sector balance sheets, which particularly affects NHS Trusts — by requiring most lease agreements to be recognised as liabilities. With this regulatory change, NHS Trusts no longer see a distinct difference between capital or hire/lease projects; therefore no matter whether the project requires capital allocation, or some form of funding solution, many NHS Trusts now allocate this from the one central Capital Departmental Expenditure Limit (CDEL). This shift has complicated matters further for Trusts that urgently need new infrastructure, but are unable to commit due to the restriction the accounting standard has had on investment decisions.

The adoption of this accounting standard has increased the strain on Trusts’ ability to procure new healthcare facilities through CDEL, which may have been previously supplied as a lease agreement. It limits their capacity to take on large leases or capital expenditures without negatively impacting their overall financial health. Consequently, the pressure on capital funds has intensified, often preventing Trusts from acquiring the essential infrastructure needed to meet rising patient demand.

To address this issue, a more flexible solution that is IFRS 16-compliant has been created to allow NHS Trusts to access high-quality HTM and HBN-compliant facilities without drawing on their CDEL allocation or increasing their balance sheet liabilities. The usage-based revenue agreement model is a true revenue-based solution, enabling Trusts to pay only for the facilities they use, thus providing the flexibility and financial relief necessary to navigate the current economic landscape.

Capital and revenue budgets — what’s the difference?

Both budgets are crucial for the effective functioning of the NHS, but they address different financial needs within the system. There are several differences in how these revenue streams are utilised within NHS Trusts. Capital expenditure is typically one-off spending on long-term assets that will provide benefits over multiple years. It is often used for investments in physical assets and infrastructure. This includes major projects such as building new hospitals, purchasing medical equipment, upgrading IT systems, or refurbishing existing facilities.

Revenue expenditure is recurrent, and is used to cover ongoing expenses required to deliver effective healthcare services. This covers the day-to-day operational costs of running a hospital — including salaries, medications, supplies, and services needed for patient care and hospital operations. Usage-based revenue agreement solutions utilise revenue budgets, helping to avoid capital expenditure restraints. This enables more projects to move forward, simultaneously improving a Trust’s ability to respond to urgent healthcare demands.

What is a usage-based revenue agreement?

At its core, the model enables NHS Trusts to pay for healthcare facilities based on actual usage, eliminating the need for large upfront capital investments or allocation. This innovative approach ensures that Trusts only incur costs when the facility is in use, directly aligning expenses with surgical volume and patient demand. If the facility is unused, the Trust incurs no cost, making it a powerful tool for reducing financial waste and enhancing cost-efficiency.

The model provides unmatched flexibility for Trusts facing fluctuating patient volumes and evolving needs. It alleviates the burden of long-term financial commitments by offering a scalable solution that adjusts in real-time to the Trust’s requirements. Whether additional capacity is needed for a short-term solution or a longer-term project, these types of agreements allow for expansion of usage as necessary, without impacting the Trust’s CDEL.

•  The benefits of usage-based revenue agreement solutions to NHS Trusts

The solution offers numerous advantages for NHS Trusts, addressing both operational and financial challenges.
The key benefits are:

1. Flexible payment structure: The model’s flexible payment structure allows NHS Trusts to only pay for the facility when it is in use. This offers more accurate budgeting and effective cost management, aligning costs directly with patient activity, and ensuring that money is only spent when the facility is actively contributing to patient care.

2. Revenue budget utilisation: Unlike traditional construction projects that require significant capital expenditure, the model allows Trusts to fund new facilities from their revenue budgets. These budgets are typically more flexible and easier to manage, avoiding the need to draw on limited capital funds, and freeing those resources for other critical projects, or ensuring that projects can go ahead if capital is not available.

3. Compliant with legislation: The IFRS 16-compliant model does not affect a Trust’s CDEL. This allows Trusts to acquire the facilities they need without adding long-term liabilities to their balance sheet.

4. Rapid deployment: Speed is crucial in healthcare, especially when dealing with surges in patient demand or emergencies. Modular offsite-constructed facilities are designed for rapid deployment, with some facilities being patient-ready within as little as six weeks. This rapid turnaround enables NHS Trusts to increase their capacity in response to immediate needs.

5. HTM and HBN compliance: Modular offsite-constructed facilities are built to the highest standards, and are fully compliant with NHS HTM and HBN regulations. This ensures that all modular facilities meet the stringent requirements for healthcare buildings, providing peace of mind that they are safe, functional, and of the highest quality.

6. Increased capacity and resilience: Modular facilities offer a flexible solution that can be quickly deployed and scaled as needed, helping NHS Trusts to meet demand more effectively. This reduces patient waiting times, enhances resilience against unexpected surges, and provides crucial flexibility during peak periods like winter or pandemics.

7. Minimal site disruption: Through utilising offsite construction, up to 90% of the manufacturing is completed offsite, resulting in the delivery, installation, and commissioning being significantly quicker, whilst also reducing the number of deliveries and personnel required on site.

8. Long-term durability: Modular offsite-constructed facilities are built to last, with a 60-year design life. They provide long-term value while being rapidly deployable to meet short-term needs. These are not temporary fixes, but rather robust, permanent buildings designed to serve the NHS for decades.

9. Easy procurement: A usage-based revenue agreement solution is accessible through various compliant and robust framework agreements, such as the NHS Shared Business Services Framework, Crown Commercial Services Framework, and NHS Commercial Solutions Framework. This ensures a streamlined procurement process, saving time and resources, and enabling Trusts to implement solutions more efficiently.

10. A proven solution: Surgical capacity in a matter of weeks.

By utilising a usage-based revenue agreement solution, 
NHS Trusts could have a HTM 03-01-compliant theatre facility providing a no-compromise single theatre suite, complete with a 55 m² operating space, a UCV laminar flow canopy, and all the essential areas required for major surgery patient-ready in as little as six weeks. These facilities can be designed with the ability to undertake orthopaedic and general operating procedures, and to include an operating room, anaesthetic room, sterile pack store, dirty utility facilities, and more.

This level of rapid deliverability ensures that NHS Trusts’ immediate clinical needs are met, but also that healthcare facilities are designed with the future in mind, offering long-term durability and value.

Looking ahead: the future of NHS infrastructure

As the NHS adapts to increasing pressures, it’s essential for Trusts to find innovative ways to increase capacity, enhance patient outcomes, and manage budgets more effectively. Modular facilities provide a practical solution to these challenges, allowing Trusts to access the infrastructure they need without the financial burden of traditional procurement routes.

Modular buildings are designed to permanent standards, but can be deployed quickly on short-term agreements, ensuring that NHS Trusts can address both immediate and long-term needs. Whether it’s rapidly expanding capacity to reduce waiting times, or creating specialised spaces for specific medical procedures, a modular solution offers the flexibility and cost efficiency that the NHS requires in today’s environment. In summary, the NHS faces significant pressures, but by harnessing innovative solutions for modular construction, Trusts can achieve the flexibility, resilience, and cost savings, necessary to thrive, both now and in the future.

At ModuleCo Healthcare (MCH), we’ve built a solid reputation for delivering bespoke modular healthcare facilities across the UK. We’ve worked closely with NHS Trusts to successfully deliver over 120 specialist modular facilities of various sizes and specifications. These range from operating theatre suites and wards to imaging facilities, sterile services departments, and maternity units. Each facility is tailored to the end-user’s specific design requirements, addressing both short-term capacity challenges and long-term infrastructure needs. Our innovative usage-based revenue agreement solution model leverages this experience, offering Trusts a flexible, cost-effective solution that adapts to their unique demands. Whether a Trust needs a temporary increase in clinical capacity, or a permanent facility to ease long-term pressure, MCH has the expertise and funding options to ensure that it happens.