NHS procurement is in a state of flux, again. National procurement organisations have been dismantled, the effectiveness of frameworks set up by regional collaborative hubs is in question and the former NHS Logistics organisation, renamed NHS Supply Chain, is now partly privatised and with its own commercial motivation. With collaboration being the word on everyone’s lips and the numerous procurement agencies now competing against each other for business, it’s all change again. Overlay that with the Commons public accounts committee highlighting the lack of standardisation and being openly critical of a lack of efficiency, and the whole situation looks like an almighty mess.

Everyone seems to be waiting for a silver bullet solution – a panacea that will, in an instant, provide every single part of the NHS with a small number of perfect suppliers, lowest prices, best service, same day availability and access to cutting-edge innovation. And all sorted out by some central organisation, with the savings delivered on a plate.

It simply isn’t going to happen. The supply market for healthcare goods and services is global, competitive, profit-hungry, driven by complex market forces and, for many categories, subject to rapid technological change. Dynamic change is an understated description.

Faced-off against all that is NHS procurement. With this level of change there can never be a ‘one size fits all’ solution. The NHS is a hugely complex and varied organisation, which needs an enormous variety of goods and services. The supply market always will be in flux and procurement will always be in a constant state of change to accommodate this. Of course improvements are happening at all levels, but we must expect these to be incremental rather than radical. The different layers of collaboration and aggregation at national, regional and local levels will change and adapt, as the market changes and morphs. Trusts must get used to this change and work with it. After all, this is a normal part of a dynamic supply market.

We must also recognise the fundamental limitations of collaborative frameworks. There is no doubt that aggregation of volumes does provide the economy of scale to drive improved pricing. But with every collaboration comes compromise and the resultant frameworks can easily end up trying to be all things to all men. It is hard enough for a single trust to standardise products and channel their requirements to preferred suppliers, let alone trying to do this across multiple trusts. The simple fact is that for a supplier to provide its best prices, they want exclusivity and commitment. These are the two things that are missing from frameworks, the worst of which then end up simply a collection of multiple suppliers’ list prices.

So what can NHS execs do to ensure that their trust can navigate through this confusing landscape and determine effectively how to get the best value for money and get the savings they need?

Firstly, trusts must take responsibility for their own financial health. In our experience 30%-50% of a trust’s total costs is likely to be on purchased goods and services and it is this commercial interface with the supply base that fundamentally determines the financial health of the entire organisation.

Secondly, action must be taken at trust level. Each trust needs the commercial capability, skills, tools, processes and knowledge to achieve best value for itself, based on its own particular requirements and based on the commercial landscape it faces. Don’t wait for some greater entity to do it – that silver bullet simply won’t come.

Thirdly, use all the potential sourcing solutions to your advantage. National frameworks, regional collaborative frameworks and NHS Supply Chain or other distributors will be the right answer for many requirements. These should be used when each trust has defined that this is the optimum commercial solution for them, on a category-by-category basis. And when procurement at trust level is the most effective solution, the trust needs its own commercial capability to achieve this independently. Not every trust is ready for this though, and some might need help to build this capability. Close collaboration is the most effective way of coaching and preparing the team for the challenges ahead.

Finally, recognise that the money is actually spent at trust level, so this is where the savings are implemented and actioned. This is where QIPP is important, as each trust must drive its own savings programme to standardise product requirements, drive spend to the optimum suppliers and challenge clinical preference. Whether a trust is utilising national or regional frameworks or putting in place its own agreements, commitment and exclusivity in its own requirements will allow procurement to achieve the optimum costs. You can access the best frameworks in the world, but if everyone can buy anything from any of them, the net result is still poor.

Many say that procurement has not delivered the savings it should have done. But it doesn’t mean it can’t. The answer is to improve procurement at national and regional levels, and get it working properly. But it is at trust level where it can make a big impact. It is the role of NHS execs to prepare their trusts for the bumpy ride during the reforms. And procurement, if done correctly, will be an answer to their worries.

It is an interesting time for the NHS, faced on one hand with extreme economic pressures and on the other with exciting opportunities under the banner of QIPP (quality, innovation, productivity and prevention) to deliver better health outcomes.

Well, it won't be easy unless clinicians and finance managers find ways to proactively share their knowledge and skills to drive common goals - improving quality and efficiency by working together effectively. Finance directors cannot design clinical pathways, but they can help frontline clinicians to play that lead role by informing them of the financial implications of the changes they intend to make to improve quality of health services, including the impact of any variations of clinical practices. Therefore, both groups of professionals have to engage at all levels in an NHS organisation in a meaningful way.

The creation of such valuable engagement at a large scale within the NHS would pave the way to achieve QIPP objectives. However, we would also need to:

• Challenge conventional boundaries of silo working with new approaches of effective engagement
• Generate new ideas to streamline structures and data sharing, in order to make rational decisions together to deliver effective services (in terms of patient outcomes); and
• Use tools, such as patient level information and costing systems (PLICS), to create better understanding of cost and quality issues and showcase examples of good practice of joint-up working with measureable outcomes.

With the help of the HFMA I have recently initiated an online survey to get views of such engagement from acute trusts’ finance directors. And I hope, through this blog, our wider finance community feel inspired and come up with ideas to do things differently – but jointly with their clinical colleagues. I look forward to hearing your ideas, views and examples of good practice of effective engagement, which you think should be spread widely in the NHS.

We are now firmly into the ‘pause and listen’ mode on the great NHS reforms. Competition is a key area being discussed. But what does competition mean for the NHS? And is it a healthy thing? These are perhaps two of the most frequently asked questions.

My academic endeavours – running in parallel with my day job as finance director – have given me an opportunity to look for answers to these questions among the existing academic literature.  

It would be great if we could determine how much of the change in healthcare outcomes in the last 20 years is due to: increased funding; approaches to managing the system; advances in medical understanding and technology; and external population factors (rising obesity levels for example). Unfortunately determining causality in a healthcare system is difficult.

In fact being able to link a change in outcome to a specific change in input or practice is a bit like trying to find a politician who recognises the contribution of NHS managers – it’s rare.

Two articles by economist Carol Propper stand out in reviewing competition in healthcare.  One reviews the responses of hospitals to the more competitive market models[i], by looking at what factors determine prices.  The other assesses the impact of competition on the quality of care[ii], by evaluating three years of death rate data.  Both take the original 1989 Working for patients reforms[iii] as their context.

The first paper, which is itself dated given it stretches back to 1996, uses regression analysis to evaluate the relative importance of potential drivers of price setting, including individual hospital costs, average prices, market size, bargaining power of seller and hospital characteristics.  The paper concludes that ‘the results offer some support to the view that competition will result in lower prices in the NHS internal market.  Clearly, these results are partial[iv].

But of course efficiency in the healthcare system is only an element of the requirement to deliver taxpayer value. We also need to consider effectiveness.  A cheap system that saves no lives would not be regarded as optimal.  Hospital death rates provide one obvious way of measuring effectiveness, although they can be misleading.  In her second and later article (2004), along with colleagues, Ms Propper attempts to evaluate whether the competitive system set out in Working for patients led to better outcomes for patients, as measured by death rates after patients had been treated for a heart attack.

Published data on individual hospital death rates for acute myocardial infarction (AMI) within 30 days of admission to hospital were analysed by type of hospital (specialist heart, teaching specialist heart, London hospitals and all hospitals). Two proxies for the level of competition were factored in – the number of hospitals serving the catchment population and the number of hospitals divided by the population they serve. (This latter measure could be the more sensitive as the lower the population and higher the hospitals, potentially the higher the competition).

The research concluded: ‘We find the impact of competition is to reduce quality.  Hospitals located in more competitive areas have higher death rates, controlling for hospital characteristics, actual and potential patient characteristics.  The estimated effect of competition is small, but is robust to different measures of competition and hospital volume[v]. This research is fascinating but it can clearly be challenged.  First, is competition really linked to hospital concentration? You need more than a monopoly provider before you can have a competition. But they need to do more than just exist, they have to actually compete and that would require a marketing strategy and spare clinical capacity.  Also the choice of clinical area provides some difficulties. How much choice or competition is involved when the patient is lying in the back of a blue light ambulance having a heart attack? 

In these circumstances, the ‘choice’ of hospital will be a function of the shortest journey time and the most appropriate unit with an available coronary care bed or emergency staffed facilities.

Inconclusive at best. The researchers clearly found differences in outcomes, but had they really proved correlation and causality. I don’t think so. These studies struggle to conclude what the precise impacts, and cause and effect are, of competition in healthcare, it is therefore unsurprising that politicians and the service itself is struggling too.

 In my view there are probably areas of service delivery where competition keeps the provider sector its toes and other areas where these incentives don’t work.  The trick is how to draw the line. Any regulator trying simultaneously to determine whether the healthcare marketplace is adhering to potential duties to compete and collaborate is going to have its work cut out.

As I said before, if we are to use competition, there is a clear issue around providers or services being able to fail.  If ‘access to essential public services’ is shorthand for all services, in their current provider locations, competition may not be the tool we need to drive any required acute service reconfiguration in the next few years. 

Competition and markets remain firmly on the agenda in the English NHS. This summer’s white paper Liberating the NHS makes that perfectly clear with its promises to deliver patient choice based on any willing provider, to make it easier for new providers to offer services and for a level-playing field for competition.

First it is perhaps worth noting that this is not the only way to run the NHS or any other health service.  They don’t do it like this in Wales, Scotland or Northern Ireland.  In Wales, the One Wales coalition assembly government abolished the internal market last year. In its place, it has established seven integrated care health boards with responsibility for many of the elements of primary and secondary healthcare provision. This followed similar changes in Scotland to adopt single system working.

Nevertheless England has remained unswayed and appears firmly wedded to the market principles. In fact, the white paper appears to signal moves towards a higher degree of market-based mechanisms.

The academic under-pinning for the efficiency of the market is based on the fact that unproductive suppliers go out of business, leaving the competitive suppliers in the market place.  This market-based efficiency – the efficiency with which inputs are turned into outputs – is known as X-efficiency.

The pursuit of X-efficiency potentially poses some interesting challenges in the specific Liberating the NHS: regulating healthcare providers consultation. A market-based NHS system has to allow for provider failure and insolvency. In fact, it could be contended that the only way that we could truly demonstrate we were delivering a level of X-efficiency would be to see a number of poor performing hospitals, or certainly services in individual hospitals, go out of business or be stopped.

There are perhaps three key challenges to the pursuit of X-efficiency in health – all of which can be related to specific questions in the regulation consultation.

• - Is hospital failure acceptable? (Q18)
• - What goods are provided in the NHS marketplace? (Q8)
• - Are existing pricing structures sophisticated enough to ensure a level playing field? (Q16)

Q18. Do you agree that Monitor needs powers to impose additional regulation to help commissioners maintain access to essential public services? If so, in what circumstances, and under what criteria, should it be able to exercise such powers?

The key thing here is the definition of essential services. A service could be considered essential not just because of the nature of the service, but because of its local context. Without it, patients might have to travel too far to access a comparable service. This might legitimately require some form of intervention and even discretionary funding. But without this clear definition, how do you determine the cases where the market should be allowed to run its course and those where intervention might be appropriate?

Q8. Should there be exemptions to the requirement for providers of NHS services to be subject to the new licensing regime operated by Monitor, as economic regulator? If so, what circumstances or criteria would justify such exemptions?

Again we need clarity. How broad exactly is the market place that Monitor will cover – particular as foundation trusts look to develop their sub-acute and social care activities? The divisions between step down care, continuing care and residential care are blurry. In a plural market place, it is hard to see how Monitor or others will draw a distinction between say healthcare provision and wider social care provision. A highly-effective foundation trust with a broader mandate for social care would still require a Monitor licence. For a market to exist and function properly, licensing and regulatory regimes need to be consistent for all providers taking part.

Q16. What more should be done to support a level playing field for providers?

If organisations are to be allowed to fail – or if we want to decide how we react to potential failure – we need to understand the reasons for that failure. Different causes could indicate different responses. For instance, failure could be a result of relative inefficiency. Or it could be because of tariff prices that do not accurately reflect costs. Some organisations may be perfectly able to operate with a tariff set using national average costs. Others, with a more complex casemix say, may have a shortfall in income. Levelling the playing field may require a step change in pricing methodology.

Research and development and teaching levies also provide a distortion. But again in a level playing field, prices would take full account of legitimate activities that contribute to an organisation’s cost base. While the movement at present is towards paying the same tariff irrespective of setting, perhaps we need to consider tariffs for tertiary services or differential tariffs that recognise training responsibilities or casemix differences that are not picked up by the current HRG4 currency.

But levelling the playing field goes beyond price setting. Commissioners are in different positions relative to their fair share of resources – some are over target, others under target. This will have a knock on impact on providers. If a PCT is over its capitation funding target, it will have more resource available to pay for provider activities whether in terms of paying higher prices for non-tariff services or simply buying more activity. This will lead to differentials in the level of pressure on different providers. A true level playing field would need to take this into account.

We await the feedback from the Liberating the NHS consultation with interest.

Prior to the general election there was much talk not just of X-efficiency but of 3X efficiency. This reflects efficiency generated by better integration with primary and sub-acute care, in many cases in response to the Transforming community services agenda. The English NHS perhaps needs to decide where greater efficiency can be found. Targeting X-efficiency should lead to provider failure, which may or may not be politically acceptable. Targeting 3X could be regarded as anti-competitive.