Feature / Buying power

Finance managers and suppliers hope that a new strategy will provide the impetus for more efficient NHS procurement. Seamus Ward reports

The NHS in England spends about £17bn a year on the procurement of non-pay goods and services, typically accounting for 30% of hospitals’ operating costs. Yet the Department of Health insists boards do not pay enough attention to it. The £20bn QIPP (quality, innovation, productivity and prevention) challenge has no doubt sharpened the focus on this expenditure, and while there are pockets of good practice, finance managers will tell you there is plenty of room for improvement.

Procurement is a key element of the Department’s QIPP workstream and last May it published guidance to improve the process. Raising our game, published alongside a set of procurement standards for the NHS, looked to set the ball rolling by suggesting steps that trusts and the Department could take immediately. This addressed some oft-cited weaknesses in NHS procurement: that NHS organisations do not collaborate to take advantage of their collective buying power; that clinicians are often not engaged in the procurement process; and that lack of price transparency means trusts are paying widely varying prices for the same goods.

However, this is a prelude to the launch of a procurement strategy initially scheduled for April 2012 but now pencilled in for March. This aims to be more ambitious, seeking ways to take advantage of the enormous buying potential of the NHS to ensure value for money for taxpayers, more productive relationships with industry, and better patient access to the very best services, technologies and medicines.

The Government Procurement Service NHS Customer Board advises on procurement practice. Its chair, Aaron Cummins, says procurement is essential to the delivery of QIPP. ‘NHS procurement is still pretty poor,’ he says. ‘There are pockets of good practice but the problem for many NHS organisations is recognising what a good procurement function is.’

Mr Cummins, who became Mid Staffordshire NHS Foundation Trust finance director in June 2012 and sits on the NHS National Procurement Council, adds: ‘It’s not simply about unit price reduction; there must be some quality impact assessment so the goods are in the right place at the right time at the right level of quality for the patient.’

One criticism often levelled at the NHS is that it fails to use its enormous buying power to get best value for money. Again, there are examples of good practice – East Lancashire Hospitals NHS Trust is one of 10 North West NHS organisations collaborating to cut costs and improve quality. Jonathan Wood, the trust’s director of finance, says the organisations got together with NHS Shared Business Services (SBS) to try a new approach to the supplies market around 18 months ago.

‘We wanted better outcomes on our pricing structures, given that we were paying a premium for the choice of products our clinicians enjoyed,’ he says. ‘We recognised we had similar financial constraints and were thinking about how to get clinical leadership and ownership on price and quality.’

This collaboration, facilitated by NHS SBS, was not simply about ‘them and us’ – the trusts recognise suppliers want to work with the NHS. ‘We know that if we can organise ourselves to work with suppliers, we can leverage greater savings,’ says Wood. ‘That's at the heart of the project.’

The trusts agreed a set of principles, including a commitment by each trust not to break ranks if they alone were offered a better deal. Suppliers would have to offer the same deal to all 10 trusts. The next step was to get clinicians to narrow down the range of products used in five product areas. Mr Wood acknowledges this would be ambitious in one trust, never mind 10, but it has been achieved and the trusts’ supplies catalogue streamlined in these five areas.

‘There are clear benefits in working in this way. Together we targeted savings of about £2.5m and to date we have realised cashable savings of £1.9m, just in five product areas,’ Mr Wood says. ‘The trick in this is to put a challenge to the supply community – if you can get the volume at the right price and the buying organisations commit to that volume, the supplier community will respond.’

Working with suppliers is vital, he says. ‘The challenge for us in the NHS is to deliver CIPs of 4-5% a year, but understandably suppliers will want to increase their margins by around 5% a year. Unless you’re sitting down with suppliers, it’s going to be difficult to close that gap.’

Such collaboration between trusts and engagement with clinicians and suppliers is likely to be encouraged by the upcoming procurement strategy. Ahead of its publication, the Department says themes are emerging from the review. These include the need to put clinicians at the heart of the procurement process and a greater emphasis on quality over cost. Procurement should have a permanent place on the agenda for every board. ‘Put simply, procurement must become a priority for the NHS and everyone in the NHS,’ it says.

NHS Supply Chain chief executive Nick Gerrard hopes the review will move to end duplication (where trusts launch expensive procurement exercises for the same product) and back the use of GS1 bar coding to simplify data collection and analysis. NHS SBS, which offers procurement services to 56 NHS organisations and a further 200 (some outside the NHS) on a less formal basis, believes the review will help raise the profile of procurement. Managing director John Neilson hopes it promotes closer and longer-term working with suppliers, which he believes is the only way to deliver the levels of savings required, and greater e-enablement.

Mr Cummins says Raising our game raised the profile of quality and procurement capability by suggesting a set of key performance indicators on which trust boards could focus. But he says the strategy must go further. ‘It needs to have teeth,’ he says. ‘If you are going to set standards and KPIs that you expect boards to see to ensure their procurement function is fit for purpose, it should be part of boards’ annual assurance statement or part of the Monitor governance process.’

He believes there is much to support in the current procurement set-up and hopes the procurement strategy will retain these. This includes the Government Procurement Service – which managed more than £2bn of NHS expenditure in 2012/13 in areas such as energy and communications, and the customer board he chairs. ‘We’ve only been up and running 12 months but we are starting to get better feedback and are influencing the GPS strategy.’

The strategy should take on board innovation being adopted by the NHS, such as e-auctions, and help organisations use these different procurement models. Mr Cummins points out that last year several trusts from the East of England and London worked together on an e-auction for mobile devices and saved more than £2m overall – about 60% of the total spend. ‘We have to share this good practice,’ he says.