Feature / The matrix
It is often said that many NHS strategies go from printer to shelf to – some years later and somewhat dustier – the bin. And given that little has been heard of the NHS procurement strategy, Better procurement, better value, better care, in the six months or so since it was published, the finance community may have assumed it had gone the same way.
Not so, insists the Department of Health. The groundwork has been laid for a modern procurement system based on collaboration, greater finance staff involvement, standardised bar codes and online purchasing. And providers will begin to see results soon.
Complexity is part of the problem – a matrix of thousands of product lines and thousands of suppliers in a market worth more than £22bn each year and where trusts buy individually, in groups and through a range of intermediaries.
Department national director for NHS procurement Rob Knott says the procurement strategy, which aims to save £1.5bn to £2bn by the end of 2015/16, is different from previous top-down strategies. They did not work, including the last strategy – the supply chain excellence programme – which created 10 collaborative procurement hubs, a national sourcing model for high-end clinical commodities, and that was to turn the NHS Purchasing and Supplies Agency (PASA) into a high-performing organisation.
But PASA has closed, and its guidance, tools and data lost, he says. The supplies landscape had become fragmented. A variety of forms of invitations to tender and pre-qualification questionnaires is ‘bewildering’ potential suppliers. Only four NHS-owned collaborative procurement hubs remain, with a further two owned by the private sector.
‘They replicate each others’ activities, causing angst among suppliers and trusts alike and there is no national sourcing team for high-end clinical categories,’ says Mr Knott. ‘Collaborative procurement is the one thing the procurement and financial communities are desperate to see.’
The new strategy acknowledges that finance has a key role in efficient procurement. The Department’s procurement, investment and commercial division is keen to work with the finance community and is working closely with the HFMA. This includes developing a joint conference on better procurement in June and using the association as a portal to the Future-focused finance strategy.
Moving away from professional silos will benefit the NHS and, ultimately, patients. Where finance and procurement professionals work together, spending is managed better and costs are reduced, Mr Knott insists.
Communications issues
‘The procurement community has an obsession with sharing information among its members rather than making sure the finance community is informed of what best practice in procurement looks like. Some trusts have 95% purchase order compliance; in others it is somewhere down in the 20s. How can you have that level of difference across the finance teams?’ he asks.
‘You go into one trust and they have an annual capital investment plan because they only know how much they can invest that year. In another, you find a seven- to 10-year plan supported by an asset management system and they understand strategic financing, the differences between leases and outright purchases and the total cost of ownership.
‘When they come to making purchasing decisions, the financial options are thoroughly understood by everybody in that cross-function team. We'd really like to get every trust to that level of understanding.’
The Department is working with NHS Supply Chain to save trusts £150m. ‘This is about implementing cost-out strategies, not price management,’ he says. ‘We are also trying to get the remaining NHS-owned hubs to work together to the benefit of NHS providers.’
Core consumables list
Other matters being considered include whether the NHS should have a single core list for consumables such as syringes and rubber gloves. As well as simplifying the purchasing process, it could offer savings to NHS organisations committing to buy significant volumes of standard items over the contract period.
‘In the next two years, we are committed to building a tighter range of high-performing clinical products,’ Mr Knott continues. ‘Some 80% of procurement spending through NHS Supply Chain is on just 5,000 or so product lines. But what could we achieve if the NHS finance community could get behind this core list and work with trust procurement teams and with clinicians to standardise around – and commit to – a smaller range of products that they know work every time?’
Dialogue with suppliers is an essential element of the strategy. Nationally, this is being delivered through meetings with key suppliers. The national team hopes to counteract the fragmentation of the NHS customer base by talking to suppliers about how the NHS can help them work more efficiently.
At the first meeting, health minister Dan Poulter met representatives of 10 suppliers with the greatest strategic value to the health service. ‘He asked them to work with us – they have never seen a national key supplier management initiative before. We are trying to understand what is the best way to get the NHS to act as a single customer. We know that won’t be easy, but it’s our ambition,’ Mr Knott adds.
This work must be replicated locally and the Department is expected to issue guidance shortly. ‘At the moment, the local focus and effort is predominantly about price. We must work with suppliers to deliver both efficiencies and value, looking at how we can work together to deliver better outcomes in the patient pathway, as opposed to the price of a consumable.’
Collaboration will mean nothing without transparency, particularly when it comes to delivering the strategy aim of a simple price comparison system to help drive down prices. In February, Dr Poulter, Monitor chief executive David Bennett and NHS Trust Development Authority chief executive David Flory wrote to trusts asking them to resist suppliers’ attempts to insert non-disclosure clauses into contracts. This would frustrate attempts at benchmarking.
‘Transparency and subsequent benchmarking of information is a key enabler in driving better procurement,’ the letter said. ‘We are aware that some suppliers are asking foundation trusts to sign confidentiality agreements to discourage price benchmarking, so we would urge you to refrain from signing such agreements.’
Mr Knott takes up the theme. ‘There are a plethora of non-disclosure arrangements out there. We want to work with trusts to ensure there is maximum transparency trust to trust, so trusts will know whether they are getting excellent price performance from suppliers. The minister is passionate about transparency and, as of 1 April, there will be key clauses in the NHS standard contract on transparency.’
Support for finance
He adds that his team is also creating a package of support to help senior finance leaders and non-executive directors better understand procurement. The latter group are important to the success of the strategy, he insists, and the Department has written to every trust asking them to appoint a non-executive director to champion procurement at board level.
‘There will be a big investment in capability and capacity at trust level through a new centre for procurement efficiency. That’s the central piece of the national jigsaw that has been missing previously,’ says Mr Knott.
‘We want trust boards to understand what good looks like in procurement; to understand issues such as supply risk and issues such as
the total cost of ownership. And we want procurement teams to become trusted advisers and help boards embed this understanding and be a prime catalyst for change.’
Procurement professionals are just as important as human resources or IT professionals to the successful operation of a trust, he adds. ‘A third of the total operating costs of every provider is outsourced to third parties and there are 90-plus complex spend categories and sub-categories. These must be managed by qualified professionals.’
The Department is expected to publish its
e-procurement strategy soon and this will signal a big investment in a national enabling infrastructure, he says. NHS organisations and their suppliers (if they are not already using it) will switch to the GS1 system, which gives every product a unique number and barcode. This will allow NHS organisations to drive down costs by, for example, enabling accurate cost comparison or automating stock replenishment. GS1 will be supported by a product information management and messaging system, allowing products to be tracked from the factory gate to their arrival at the hospital and even to the patient level.
Tuned-in to change
Mr Knott likens the potential impact of GS1 on NHS procurement to the role iTunes played in the success of Apple iPods – without iTunes, the iPod was merely a gadget with limited applications, but iTunes allowed the iPod to shine, transforming the music industry.
‘There’s an entire ecosystem to be built around this technology and we are trying to do this in the health sector. GS1 will provide a single product information code that will help us understand what we are buying,’ he says.
It can also help trusts implement Lean principles in supply management. ‘GS1 will underpin a stock and inventory management system, so you can accurately track and trace from the factory gate to point of use, understand what stock you need to consign or purchase, or what stock you haven’t used for years and therefore should not have been bought at all. It should stay in the supplier’s warehouse at its risk,’ says Mr Knott.
But the e-procurement strategy is not just about GS1, he says. There will be a range of measures to aid the procurement process, from e-sourcing to running tenders, from contract management to spend analysis.
‘Some trusts still use email and paper to run competitive tenders, while others haven’t had any paper for two or three years because it's all online. The contracts from their competitive tenders go straight into an online contract management system. Every interaction you have with the supplier is also captured, so when it comes to retendering you are sitting on a repository of key information. We want everyone to get to this level of maturity.’
Better procurement, better value, better care said there was wide variation in NHS provider use of non-permanent staff. One trust – South Tees Hospitals NHS Foundation Trust – hired no non-permanent staff in 2011/12. At the top of the range, two trusts spent almost 10% of their total workforce spending on non-permanent workers. The strategy said the NHS could save £230m by bringing their non-permanent staff numbers up to the national average of 4% of the workforce.
South Tees Hospitals NHS Foundation Trust director of nursing and quality assurance Ruth Holt says: ‘The reason the trust had the lowest proportion of non-permanent staff spending as a percentage of total workforce spending in the procurement strategy is that we recruit to vacancies and have a relatively low turnover of staff.
‘We do have a few areas currently using agency staff. NHS Professionals is the primary provider and in most areas the sole provider of our flexible workforce. We have plans to stop the use of all agency nursing and healthcare assistants from 1 June. This will offer financial savings, but more importantly should have a positive impact on quality of care provided.’
Total agency spend
Mr Knott says trusts spent £3.5bn in the 2012/13 year on agency staff and the indications are that much of the increase was due to the focus on quality of care. The NHS as a whole deals with around 400 agencies, ranging from large firms to local small and medium enterprises. He has no doubt that standardising and rationalising contracts with all these firms will reduce the overall spend. A national team is working on it.
He believes providers could do a lot more upstream to avoid the need for agency staff – for example, by using an e-rostering system with robust rules. And, where the use of agency staff is unavoidable, they should be engaged through an equally robust framework agreement, which should offer the cost and quality required.
Procurement is immensely complex, with thousands of product lines, from pens to precision laser surgery equipment, bought through thousands of suppliers. Technology will help, but working together, whether to streamline processes or reduce the number of surgical gloves available in a trust procurement catalogue, could be the key to this strategy’s success.
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Supplier test As NHS finance professionals, we’re aware of the level of monitoring of our organisation’s financial position, but do we routinely monitor the financial health of suppliers of goods and services, writes Jill Boggan. Many NHS organisations mention the requirement to review the financial health of suppliers and contractors in their standing financial instructions or corporate governance manual, with significant numbers referring to a list of approved suppliers. There is a strong case for finance teams to support procurement and operational colleagues in the proportionate assessment and monitoring of risks to the financial health of key suppliers. Checks could include:
Finance teams will be able to readily interpret and analyse financial information provided by suppliers and are well placed to pick up early signs that a supplier may be facing financial challenges. Supplier behaviour is not always a good indicator of their financial health. Financial appraisal and ongoing monitoring have limitations and will reduce rather than completely eliminate risk. But in some circumstances they are essential, such as when:
Evaluation of JIT arrangements may be particularly important, with trusts relying more on these as they seek to achieve savings and preserve cash balances. It is also important to consider the pros and cons of stockpiling items, including medicines. Monitor’s Risk assessment framework uses two robust financial indicators to assist in the assessment around risks around provider continuity of services. NHS providers could learn from the rigour of these tests when examining their own suppliers of goods and services. How does your organisation seek assurance that your suppliers’ financial health supports continuity of supply to you? Jill Boggan is assistant director of finance (financial accounts) at Royal Liverpool and Broadgreen University Hospitals NHS Trust and a member of the HFMA Accounting and Standards Committee |
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