Reed Health profits hit by NHS crackdown on temporary nurses

Coordinated efforts across the National Health Service to reduce its dependence on expensive temporary staff from the private sector prompted a profits warning yesterday from Reed Health, one of the biggest suppliers of agency nurses.

Reed also said it has had to strike off up to 200 of its nurses - out of about 3,000 active staff on its books - after failing to get them to comply with tough new training and appraisal rules.

A new NHS contract for temporary staff, introduced last April, has helped cap fees and create a new regime of spot-checks on agencies to ensure that nurses' paperwork is up to date.

David Fennell, the chief executive of Reed, said that with an audit of its London office due at the start of next month, the company had been forced to "withdraw" a number of nurses. He said: "We are required to do a programme of training, and gather further documentation, 27 items for each nurse. That is quite a body of work to get through. Some nurses have come up with what is needed, others have not."

Even incentives such as the promise of free Christmas turkeys have not been enough to encourage every nurse to come forward for appraisals.

The company's shares tumbled 14p to 77.5p on the profits warning, its second in less than a year. Reed now says that interim results next week will show turnover for the six months to 31 December of £54.9m, down 6 per cent, and earnings before tax, interest and write-offs down 40 per cent. With no substantial improvement expected in the short term, results in the second half of the financial year will be significantly below expectations, it said.

The NHS spends £500m a year on temporary nurses and healthcare assistants, but promised to find significant savings in this area. It has created NHS Professionals, its own in-house pool of temporary staff, and there are a string of local initiatives such as Nurse Banks, which enable hospitals to cover additional rotas from their own pool of nurses.

Richard Jones, an analyst at Brewin Dolphin, said the coordinated effort was causing considerable financial pain for Reed - which is the second largest supplier of agency nurses, after Nestor Healthcare - and its peers.

He said: "There will constantly be more demand than supply, but the NHS is a dominant customer, and if a dominant customer is acting correctly it should be able to push down prices. It is sick of private companies raping and pillaging on rates."

The latest profits alert continues a tumultuous few years for Reed, whose previous chief executive was ousted by the major shareholder, the Reed family, in 2002 and further boardroom resignations last year.

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