iSoft’s £82m upfront cash for existing IT revealed

Upfront payments totalling nearly £82m were made to health IT specialists, iSoft, in a complex deal which gave the company money in advance for existing NHS contracts, it has emerged.

Health secretary, Patricia Hewitt, defends the arrangement in a letter to Richard Bacon, Conservative MP and leading member of the Public Accounts Committee who has been prominent in questioning NHS IT developments. She says the deal will yield savings.

Bacon asked Hewitt whether advance payments had been made to iSoft, whose financial difficulties have been well-aired, and she confirmed that payments of £58m and £23.8m were made at the end of company’s financial years in 2005 and 2006 respectively.

She says in her reply that the payments related to an Enterprise Wide Agreement between iSoft and the Department of Health, negotiated by NHS Connecting for Health (CfH), in respect of contracts with individual trusts, and were not part of the National Programme for IT (NPfIT).

Bacon, however, was sceptical of the explanation and told E-Health Insider: “I can’t think of any good reason why it [the advance cash] would be paid by CfH at the centre. It’s evidence that CfH has been propping up iSoft come what may.”

Trusts are generally responsible for funding their existing systems but Hewitt’s letter to Bacon describes an arrangement under which iSoft receives money for existing systems upfront, then collects payments from clients in NHS trusts and GP practices and passes it back to the Department of Health.

Hewitt says that, in exchange for the advance funding, the health service received reductions from iSoft totalling £20m over three years and “in addition removed some obligations on certain trusts, waived certain termination provisions on exiting trusts contracts and provided greater flexibility on contract extensions.”

The system has yielded £37.9m in returned money from NHS clients up to the end of July 2006, the letter, first reported in the Guardian today, reveals. Hewitt says full financial audit figures are available if required.

CfH has prided itself on not paying for IT products and services for the NPfIT modernisation until they are delivered and working and Hewitt emphasises to the MP with handwritten underlining in the letter that the payments were not part of NPfIT. She also says that the payments were made against letters of credit and underwritten by its lending banks.

CFH has posted a statement on its website expanding on the nature of the 14 Enterprise Wide Agreements with iSoft and other key suppliers which are designed to save money and reduce time spent by trusts in negotiations and procurements with IT suppliers.

E-Health Insider asked CfH whether any other suppliers covered by the agreements received money in advance in exchange for benefits of the kind offered by iSoft. A spokesperson said: "No."

iSoft referred enquiries about Hewitt’s letter to the CFH statement.

The MP’s questions about the payments are the latest twist in an annus horribilis for iSoft, which holds major contracts with local service providers working under the national programme to supply core clinical software to three English NHS regions – the North-west and West Midlands, the North-east and the East.

The company announced last month that the Financial Services Authority had begun a formal investigation to look at accounting irregularities uncovered by the firm’s new management.

It has also been dogged by late delivery of its core Lorenzo clinical software, currently being developed in India, though chairman, John Weston, appointed last October, said when the firm’s results were announced that Lorenzo elements were already in use in the NHS and Lorenzo functionality would be delivered in 2007 with solution modules being delivered during 2008.

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