NHS Procurement – A Non-Exec’s Personal Opinion

As part of our "NHS Procurement" month, we’re honoured and delighted to have this thought-provoking guest article from Bob Beveridge, an experienced CFO, crafty off-spin bowler (retired), and now a non-exec and adviser to a number of major organisations.

NHS PROCUREMENT – A PERSONAL OPINION

As a non-executive director and audit committee chairman of Hampshire Hospitals NHS Foundation Trust I take a keen interest in procurement and I know from past experience the enormous business value which can be achieved by procurement professionals.

I think that in the past there has been confusion in parts of the NHS between procurement and purchasing. Procurement comprises a broad range of activities including specification of needs, research into market and supply options, supplier evaluation, negotiation, communication, contract and supplier relation management. Purchasing by contrast is a narrower set of activities involving supplier selection, ordering and administration of the order itself. An effective procurement professional needs to be of sufficient stature and calibre to negotiate effectively both internally and externally and to be proactive in designing value adding solutions. In the past much more NHS resource has been attached to purchasing rather than procurement but this is changing rapidly.

The evidence suggests that although there is variation between trusts, overall the NHS gets good value from its suppliers compared to other countries healthcare systems. I have heard suppliers complain that they can achieve higher prices in other geographies and so will prioritise supply of those markets ahead of the UK. Our Healthcare system is the envy of the world in terms of value for money, costing the government 8% of GDP, 33% lower than most European countries and about half the level of spend in the USA. It seems likely that our procurement actually works better than most other countries.

However there is undoubtedly more we can do. I was pleased to read the Department of Health’s Procurement Development Strategy when it was published in August 2013; I did not agree with all of it but the potential was clear. I was invited to join the Procurement Development Oversight Board, chaired by Dan Poulter, the health minister.

The most important theme for the minister in our only meeting to date was transparency. In different regions procurement hubs are having considerable success by pooling information and volume commitments to secure more advantageous supply arrangements. The DofH want to achieve national level transparency and talked about making procurement information ‘publicly available’. I was not alone in pointing out the pitfalls of doing that! Since the UK usually achieves better prices that international competitors this could work against the NHS. I argued that while it might be sensible to collect benchmark information nationally that it should be used confidentially within the DofH to issue guidance and support information to Trusts and certainly not published externally. Despite this discussion in our meeting, the letter from Monitor to Trusts on 3rd February said it would instruct providers to make such information ‘publicly available’. However, I doubt this will actually happen!

The DofH then caused much consternation within the procurement community by publishing the ‘Atlas of Variation’ in July. As I pointed out to the Health Minister at the time, the information published was from only one supplier, the NHS Supply Chain joint venture with DHL. On average trusts spend less than £10 million per year with this supplier which is lower than it could be because NHSSC is often uncompetitive versus third-party suppliers. In many cases Trusts merely use NHSSC as a back-up supplier to ensure quality of service. The real scandal here, in my view, is that the NHSSC is allowed to charge such different prices; there is no requirement on them to be transparent and open. I believe that some people within the DofH were disappointed that the pressure to publish something was perceived as an over-riding political priority rather than spending the time necessary to do a full benchmark process covering all suppliers in the market.

On the subject of the NHS Supply Chain, however, as I urged in the meeting there is an overwhelming need to negotiate a new sort of contract with DHL, to make it more commercial and more transparent, incentivised to optimise its performance as well as that of the NHS. A new arrangement is needed which encourages NHSSC to take the necessary commercial risks rather than just do whatever they need to earn their profit target. In their recent communication the NHS Business Services Authority announced that “we are working collaboratively with the DHL Team to explore options for the future which may include a contract extension for a shorter term”. So sadly not much further forward than a year ago!

A second priority area outlined in the strategy was the key supplier programme. Unfortunately it seems that the key medical suppliers have not been willing to engage in meaningful discussions, because they perceive too much focus to be on price. Dedicated Crown Representatives for Health have apparently been appointed to lead work with these suppliers and we are told that the approach will include senior NHS Executives alongside the Crown Reps. But again there is precious little detail on this programme to date and no tangible progress yet. To create sustainable partnerships with key suppliers there needs to be mutual long-term benefit to both the Suppliers and the NHS. But who will take the lead on defining such a relationship?

Regarding drugs, the biggest single area of spend, we were told in the meeting that the DofH has ‘fixed this’ by negotiating retrospective over-rider payments from drugs suppliers for the whole NHS. However, it is the intention of the DofH to keep the rebate centrally which does not seem fair when Trusts have to cope with the tariff reductions. As I wrote to the Minister, if you expect the Trusts to participate enthusiastically then it would be best to share the centrally negotiated benefits more equitably.

But all is not lost – in some respects the DofH has made really good progress. In particular a dedicated portal has been set up which allows the procurement community and relevant NED’s to communicate with each other, share ideas and best practice and this has achieved a good level of take-up. A ‘Knowledge Resource Centre’ has been set up and includes case studies, examples of best practice and links to relevant web site articles. A monthly call to update and engage the procurement community on the Procurement Development strategy has been taking place and is well attended.

The Procurement community within the NHS is working hard and collaboratively and making really good progress. Several regional procurement hubs are achieving significant savings and four NHS Hubs working together – collectively known as the NHS Collaborative Procurement Partnership - are developing framework agreements for Cardiology and Orthopaedic solutions.

In conclusion, I believe the procurement community is making excellent progress by working collaboratively but progress on the broader DofH strategy is proving more challenging. Sounds like a familiar story!

 

First Voice

  1. Sam Unkim:

    Whilst I whole heartedly agree with most of the article, does the NHS really need another Orthopaedic framework agreement?

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