'Serco takeover of NHS pathology labs 'led to clinical and financial failures'

The takeover of the NHS's biggest pathology laboratories by the multinational Serco has led to a series of clinical and financial failures and saw London hospitals being forced to lend money to the company, it has emerged.

GSTS Pathology, a joint venture between Serco and King's College and St Thomas' hospitals, described itself as "an exemplar of public private partnership in the health sector", when it took over the hospitals' pathology services in 2009 – deals worth £800m over the next decade.

Pathology laboratories are a key part of the health service – analysing blood and tissue for doctors across the NHS and involved in 70% of all patient diagnoses.

But documents obtained under the Freedom of Information Act by Corporate Watch, a not-for-profit research group, detail 400 clinical incidents in 2011 – including losing and mislabelling samples – at GSTS's St Thomas' labs. The service exceeded the agreed monthly turnaround times for tests 46 times in 2011, with critical risk levels breached 14 times.

The Corporate Watch investigation revealed a computer system caused problems. In January 2012 a patient "received inappropriate blood due to patient history not being flagged" – an incident the company says it took very seriously. In May 2012 kidney damage results were calculated incorrectly after a software fault which GSTS says was highlighted as a "near miss" and the appropriate action taken to learn from it. A month later, the lab's blood group analysers had to be shut for four days after being infected by a computer virus.

GSTS, in which Serco owns the majority stake, admitted an apparent increase in clinical incidents in a review of its performance in 2010, its first year in private hands. The documents said: "There have been a small but significant number of clinical incidents … some of which could have had serious consequences for patients." The incidents remained of "some concern".

It is understood that the company will make a statement on Monday about its pathology services – which it told staff would improve and break even this year.

Clinical failures have been matched by a slide in finances. GSTS accounts show it lost £5.9m last year owing to higher than expected laboratory costs – with the company kept afloat by cash transfusions from the hospitals. In a cost-cutting exercise the company has admitted, in documents seen by the Guardian, that it will have to withdraw from [certain] markets completely. Unions say that experienced staff who leave are not being replaced.

In a question and answer session with staff in July, GSTS management admitted the venture "did not get off to a great start" and "the corporate functions have not always provided a joined-up service".

Serco set up GSTS after a 2006 review of pathology services commissioned by the last Labour government. The report's author, Lord Carter, boss of a private healthcare company and chairman of the NHS Co-operation and Competition Panel (CCP), argued the £2.5bn spent by the NHS on pathology could be reduced if services were delivered by standalone pathology service providers" – and removed from the hospitals they were based in.

By 2009 Serco had set up GSTS with Guy's and St Thomas' hospitals in London and a year later picked up one of the NHS's best labs at King's College hospital – with ambitions to win a 30% share of the pathology services market in England. It won the right to run pathology services in Bedford Hospital in 2010. In GSTS accounts for that year Serco billed its subsidiary more than £8m for setting up the subsidiary, to recover bidding costs and for enacting a "transformation programme" meant to commercialise the operation.

In May this year senior managers admitted they had underestimated the challenges of running the service and now acknowledged clinicians' frustrations, in part due to lack of investment in new technologies.

A report by the Care Quality Commission in June said GSTS was not compliant with the regulation to ensure staff were properly trained and supervised, and have the chance to develop their skills. A month before the Health and Safety Executive found the competency levels of some staff to be "deficient" after a technician received preventative treatment for possible exposure to the Neisseria meningitidis bacterium that can cause meningitis.

In both instances the company says procedures have been tightened and that regulators are satisfied the labs are now fully compliant. Archie Prentice, president of the Royal College of Pathologists, said that it was "a concern that such actions had taken place. Frankly it's a bit bizarre. We have no problem with contracting out but there are worries because we know private firms are pulling back from pathology when there's less money on the table".

GSTS has installed a new management team and is bidding for the pathology contract for NHS East of England, with labs in Milton Keynes and Kettering as targets. Most services will be transferred to King's College, which the NHS paid £3m to update before it was privatised. Services such as toxicology will be lost from St Thomas'. One scientist speaking anonymously told of low morale and said: "Staff who used to work collaboratively together are now in competition with each other over jobs."

The company says it will turn the service round. In a statement, the company said: "The safety of patients and the quality of our services is the foremost priority of GSTS. The first two years of the partnership were operationally difficult and the necessary change did not happen as quickly as the partners had hoped. The organisation provides high quality pathology services, which it would be happy to measure against any other in the NHS."

Separately Richard Jones, chief executive of GSTS, said: "There were operational difficulties in the early period of GSTS. However, recent clinical, operational and financial performance make us confident that we have turned a corner. Modernisation of pathology is a national priority and GSTS exists to support the NHS in achieving that."

A leading private health company, poised to win much of the new wave of NHS outsourcing contracts, is under investigation for allegedly providing an "unsafe" out-of-hours GP service, and over claims that it manipulated results where it failed to meet targets.

Serco, the leading private contractor to the government, has admitted that it presented false data to the NHS 252 times on the performance of its out-of-hours GP service in Cornwall.

Summary:

- private company takes over hospital pathology lab service
- multiple clinical incidents rise in the first year of the takeover
- private company losing money so NHS hospital has to pay
- experienced staff not being replaced; demoralisation of NHS staff
- "deficiency" in competence levels of some staff

Essentially, private company wants to make money but the staff want to provide a good service. So rather than employ more staff and train them properly, the private company would rather make a profit and sacrifice standards, staff and morale.

Remember, this is the same company that tried to provide an out-of-hours service and is now under investigation.

IMO, this is why private companies should have no business within the NHS.