from Dr John Puntis
Should LTHT partners be expected to walk ‘The Leeds Way’?
Boots was a family company founded by Jesse Boot who grew up in Nottingham in the 19th century. Between 1883 and 1920 Boots developed as a successful chain of 660 shops and was keen to invest some of its profits in the workforce and local community. Welfare workers were recruited to improve the health of employees, staff were taken on day trips for recreation and all sorts of sporting clubs were set up. Boots also endowed Nottingham University and built some of the main buildings on campus, a remaining monument to the philanthropy of its founder.
Boots is the largest pharmacy chain in the UK and takes around £2bn a year from NHS prescriptions, a third of its annual income in the UK. Taxpayers money is now being used to fund contracts with Boots for other patient care services including hosting in store GP surgeries, running hospital pharmacies (as in Leeds Infirmary and St. James’s), managing hearing test centres and anticoagulant clinics.
In 2007 Boots was bought for £11bn, the biggest buyout ever seen in Europe, and backed by one of the world’s largest private equity groups, Kohlberg Kravis Roberts (KKR). The buyout was led by the billionaire Stefano Pessina who merged Boots with his wholesaling business AllianceUniChem to form Alliance Boots, and then bought the entire business and took it into private ownership. Pessina’s business philosophy locates the company not in healthcare but in the retail sector.
Five years after taking Alliance Boots private, Pessina and KKR began selling the firm to America’s biggest pharmacy chain, Walgreens – a process completed at the end of 2014. Pessina claims to have tripled the value of KKR’s investment in the company and he himself moved from 428th to 99th in Forbes magazine list of richest men in the world. In 2010, David Cameron and George Osborne – both of whom describe tax avoidance as “morally repugnant” – took Pessina as part of their entourage to China for a business charm offensive. He is now both chief executive and the single largest shareholder in the all new entity ‘Walgreens Boots Alliance’. Following the merger 700 jobs in Boots UK were lost as part of the restructuring.
Pessina and KKR are estimated to have made £2bn profit out of Boots in five years. They had invested £2.5bn of their own money, borrowing an additional £9bn from some of the major banks. Pessina and a small consortium of wealthy investors, having picked up a 158 year old company employing around 70,000 Britons, put their borrowed billions on the balance sheets of Boots in the UK, pushing it deep into debt. A firm that provided an essential social service is now private, and the profits made by Boots UK are used to repay the lenders faster and leave more profit for the investors. The KKR funds that owned Alliance Boots were housed in the tax haven of the Cayman islands, while the stakes held by Pessina were located in Luxembourg. A few months after going private, Alliance Boots shifted its headquarters from Nottingham to the low-tax canton of Zug in Switzerland. Headquarters of Walgreens Boots Alliance have since moved to Delaware, described as “the longstanding leader among US states in providing opaque corporate structures”.
In 2013 a report published by War on Want and others claimed that Alliance Boots had legally avoided paying over £1bn taxes in the UK since going private, while 40% of the revenues for its British business come straight from the cash starved NHS. The large debt loaded onto Boots threatens its future financial stability, and when things go wrong for private equity buyouts providing patient services, it will be the taxpayer who picks up the bill. Boots is now about limiting tax, squeezing labour costs and taking out the dividends rather than reinvesting in the business. Even its own workers say that all the company now cares about is profits and targets, while patient safety, appropriate staffing levels, staff training and wellbeing are low down the agenda. Boots also stands accused of “trying to deceive the public”, after a letter sent to the Guardian purporting to be from an independent pharmacist defending the company’s record was found to have been processed and extensively revised by the retailer’s senior executives.
Virtually all hospital outpatient pharmacies have been outsourced. This has been positively encouraged by Lord Carter of Coles who has led a review on NHS productivity and performance. The noble lord is chairman of the US owned health care giant McKesson which has contracts with more than 90% of NHS organisations, as well as other private health care companies. In the US, McKesson Pharmaceutical distribution supplies branded, generic and over-the-counter pharmaceuticals to more than 40,000 customers spanning retail chains, independent retail pharmacies and institutional providers such as hospitals, health systems, integrated delivery networks and long-term care providers. Interestingly, in his report Lord Carter does not mention the £4.5bn a year lost on market transactions, which according to independent and parliamentary reports into the NHS since 2010, add nothing to patient care. While asserting that £900 million a year could be saved if patients were moved out of hospital more quickly, he ignores the additional funding which would be needed by social services to provide the extra care required in the community. He is an advocate of NHS “surplus land” being sold off, and the use of existing buildings being reviewed (for a local example, think of the sudden closure of Bootham Park hospital in York, now likely to find its way onto the property market and leaving the people of York with 50 miles to travel for the nearest mental health bed).
The Leeds Way
Leeds Teaching Hospitals NHS Trust (LTHT) describes ‘the Leeds Way’ as “who we are and what we believe”. The key elements are being patient centred, fair, collaborative, and accountable. While Jesse Boot’s business philosophy would have fitted comfortably within this outlook, it is clear that the same cannot be said of the new Boots. The outsourcing of the outpatient pharmacies may bring some limited short term gains to patients, and small financial benefit to the Trust through sharing VAT saving, but commissioning services from Boots is likely in the long run to bring damage to the NHS. While most of us see ‘the Leeds Way’ as having been a positive development, its continuing relevance will depend on a demonstration that it can be developed and refined over time. I would suggest that there needs to be an ethical component to commissioning so that the business philosophy of prospective partners is taken into account. In addition, LTHT should celebrate not only its own successes but those of the NHS as a whole. ‘
The contract with Boots should be reconsidered at the next opportunity, and the question asked: is their business model consistent not only with the traditional values of the NHS as a public service, but also with ‘the Leeds Way’?
(For more information see: ‘The long read. How Boots went rogue’. Guardian 13 April 2016; Aditya Chakrabortty – JP)