The outsourcing of hospital outpatient dispensaries

Currently hospitals pay 20% VAT on medicines.  But, as private providers are not considered hospitals, they do not have to pay this extra tax.

The result is the outsourcing of hospital outpatient dispensaries to private providers.  The 20% VAT saving is then shared between the hospital and the private provider.  It appears the perfect symbiosis; the hospital saves money whilst the private provider earns it.  What's more, private providers seem to be more efficient than their hospital-run counterparts, with drastically reduced waiting times.  It also frees the time of hospital pharmacists, allowing them to spend more time on wards.

University Hospitals Birmingham has taken a more innovative approach.  Rather than seeking a private provider, the Trust has chosen to create a subsidiary company.  This company is run by the Trust but is zero rated for VAT in the same way private providers are.  They therefore benefit from all the savings this approach provides, without having to pay a service fee to a private provider.

The combination of the 2.5% increase in VAT and the current drive for efficiency savings appear to be why this approach is coming to fore now.  But it seems like a very convoluted way of saving money. 

Being a hospital outpatient dispensary shouldn't be so taxing (pun intended).  Making hospital outpatient dispensaries VAT exempt directly would deliver greater savings and spare the resources spent on putting contracts to tender, or creating subsidiary companies.

Currently providers are tagging on the coattails of a VAT ruse provided by virtue of the fact that they are not a hospital.  If hospitals were also VAT exempt, providers would instead compete solely on any other advantages they are able to provide.  This seems a fairer, more meritocratic way of delivering change.