NAO report on consumables procurement in hospitals

As we reported last week, the UK’s National Audit Office issued their report on consumables procurement in hospitals last week. The findings won't surprise anyone involved. Data from 61 hospitals (analysed by @UK using their spend analytics tools) showed a vast disparity in prices, in the number of different product variants between hospitals, and different contracts and prices even within the same hospital. There were also huge numbers of what appear to be inefficiently small orders, with consequent high admin costs.

There are two sets of issues here - related yet also quite different. The first is about procurement getting a grip in individual hospitals. There are real issues of capability, clinical preference (a convenient term that sounds more acceptable than "doctors and surgeons buy what the hell they want”), and lack of data. It is clear that there is a huge difference between the best and worst performing hospitals in terms of procurement capability and therefore outcomes and VFM. From my personal experience, the best procurement people in this sector are as good as anyone I've seen in public procurement. But in some Trusts, procurement is just not on senior management's radar at all, and users of products and services decide what is bought with little input from procurement.

Then there is the question of wider collaboration between hospitals. Here the NAO rightly identify a number of key issues, principally the independent status of hospitals. And you can't have it both ways. You can't turn every hospital into an independent Foundation Trust (half there already, the rest will go that way), free them of all central or regional control, ask them to compete for business, then expect them all to work together in nice comfortable procurement groups. There is certainly an argument that the CPO in a large hospital should be looking at how (s)he can create competitive advantage for their hospital; that doesn’t necessarily mean doing the same as all the other local hospitals, even in terms of consumables procurement.

Then we have the problem of the collaborative landscape. As NAO says, there is often competition between NHS Logistics, regional hubs and / or ‘commercial support units’, or informal groups of hospitals to put in place collaborative deals.  Too often these don’t have committed volume and therefore offer poor VFM; NAO have some good examples where proper procurement with committment (including use of auctions, which is rare) has literally saved 50% of previous spend.

And there is little evidence from the NAO report that the central Department of Health is active in trying to improve matters. (I’ve recently submitted an FOI request to find out more about the ‘QIPP’ procurement workstream run by the Department and got a very disappointing / unhelpful response). As an example of the difficulties the centre has in driving change across this huge and largely uncontrollable network, Commercial Support Units were proposed by the Department in mid 2009, yet according to NAO, this initiative “is as yet in its early stages”.

So we’re seeing what is an emerging trend for the coalition govenrment, and one that is likely to provide a running thread for the next few years.  If they really believe in, and want, localism, in areas such as health and schools, then that is fine.  But then there is little point subsequently  standing on the sidelines complaining that people are doing things differently to how you might design it from the centre. And that will apply to procurement collaboration amongst many others issues. So the best hope in Health is perhaps a ‘bottom-up’ realisation by hospital senior managers that effective procurement and skilled staff will make their organisations better able to survive the new more competitive environment; and procurement staff will then see where collaboration will really benefit.

Finally, the comments in the report about NHS Supply Chain (operated by DHL) were mixed. Turnover is well below the expected value for this stage in the contract, and customers were somewhat negative about their pricing (although positive about service and convenience). Pricing is of course affected by Supply Chain’s inability in most cases to offer committed volume.  We wrote previously about the SBS / NWCCA deal, and also about DHL's legal challenge to the HBC / HCA contract. I'm sure Supply Chain are going to face stronger and more focused competition pretty soon; it will be interesting to see what strategy DHL have to respond to that.

Voices (4)

  1. Lyn Duncan:

    Daniel – I am pleased to hear that there is an excellent group of trusts out there…….we have analysed 195 trusts data covering just over £100bn of spend and found patterns that are consistent with the smaller sub set used for the NAO report. The largest area of savings identified is around benchmarking, where a view across large numbers of organisations demonstrates the potential for better pricing and further reductions from committed volumes. The NAO report addressed consumables which represents less than 50% of a trusts spend, analysis of the rest shows much larger potential for savings.
    I would be happy to run one of your trusts data and give you a high level view of what we find, if you want to have an external validation of your excellence – we have found a few really good trusts and are delighted when we do.

  2. Daniel Ball:

    Despite the NAO figures pockets of NHS procurement excellence exist. In the North East of England a consortium of trusts has achieved seamless integration of sourcing and purchasing, total spend visibility and contract rationalisation across a buying community of 7,000 employees spending £350m annually with 8,500 suppliers on all hospital products and services from clinical supplies to catering equipment. Videos of a range of stakeholders from finance to ward management to catering can be found at the following link.

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