Perspectives From The National NHS Procurement Conference 2011
Most of us have gleaned there are big changes ahead in the NHS, such as funding and commissioning functions being vested in GP consortia from 2013 and the need for large scale efficiency savings to be found to meet the needs of a growing population over next three to four years. But what does this mean for NHS suppliers and users of the service and what changes are already having an impact? I have picked out a few of the highlights to share with you from what promised to be a very dry day at the NHS National Procurement Conference 2011.
I admit I arrived late and left early but there was still enough flavour and some key insights that were more than worth sharing. There were some fairly controversial issues laid out but no opportunity for comments from the floor as questions were strictly by telephone text messages to the panel! As we were under a heavy few stories of concrete which my mobile phone service provider was unable to penetrate, I was left without a voice.
The catchphrase of the day was “there are more questions than answers!” And that was from government officials and others in the fast track.
NHS Restructure – A Diversion?
Bob Dredge, senior Fellow, School of Public Policy, Keele University alluded to the restructure of the NHS, such as GP commissioning and abolition of Primary Care Trusts and Strategic Health Authorities as a “diversion” not likely to be helpful in meeting the challenging £20bn of savings required in the NHS over the next few years.
More Than 50% of OJEU Contract Notices A Waste Of Our Time?
As someone who gets involved in tenders for public contracts the figure that most stuck in my mind and is a shocker is that in relation to OJEU contract notices (these are notices about tenders valued above £100k which must be published in the European Journal), of 255 notices that were published only 96 resulted in a contract being awarded. What a huge waste of time and money that represents especially when you consider that it costs thousands of pounds, sometimes tens of thousands of pounds for a company to put a tender together. The National Audit Office found that tenders costs from £5k to £150k, NHS Supply Chain puts the mean cost at £93.5k. At the end of the day these costs have to be absorbed into product costs. This fact was highlighted by Ray Hodkinson MBE, Director General of British Healthcare Trades Association (BHTA).
The Pressure Is Down When It Comes To Tariffs
There are big changes taking place right now in how for example acute care is funded. Post April 1st 2011, that is this Friday, tariffs paid to hospitals such as for a hip replacement or coronary bypass will reduce. The shift is towards more product based tariffs with performance bonuses e.g. if a TIA (transient ischaemic attack or “mini stroke”) is treated within four hours the hospital will be paid a bonus. On the other hand if a patient is readmitted within a month of treatment for various ailments a penalty will be levied, although the devil is in the detail and this is clearly going to be a complex area to administer. Bob Dredge also mentioned that there is no evidence that it is cheaper to keep people out of hospital, which of course is a key policy driver for the NHS.
Centralising Procurement – What Does It Mean?
Luke Jarvis, Strategic Commercial Adviser for the Government Department of Health, looked back at recent history from 2000 to the Coalition Government’s White Paper: Equity and Excellence Liberating the NHS and the role of Buying Solutions, the UK partner for all UK public services and now a part of the Efficiency and Reform Group within the Cabinet Office then went on to talk about the central government Efficiency and Reform Group – ERG. Sir Philip Green of retail chain New Look was roped in to do an Efficiency Review which in October 2010 highlighted the need for Centralising Category Procurement (CCP), he said “centralizing procurement – what does it mean? Whitehall is investigating.” CCP covers all the categories of commonly bought goods and services across central government such as telecoms, energy and professional services. They are looking at implementing LEAN procurement processes and have set up a new database that is supposed to list all contracts above £20k spend.
Big Business Is In Control of Supply Chains – Are There Fair Competition Issues?
There were two really interesting stories about how the private sector is being used to oil the wheels of procurement and manage supply chains.
One was told by Ray Hodgkinson, BHTA. He gave an insight into the workings of the Master Services Agreement (MSA) between NHS Supply Chain (NHSSC) and the British Government. The MSA is held by DHL whose role is to provide a dedicated supply chain to the National Health Service (NHS) in England. The contract is subject to Key Performance Indicators and includes an anti-embarrassment clause which essentially caps allowable profits – profits in 09/10 were c£26m.
One controversial issue that has been highlighted by the BHTA who reviewed the MSA, is the ethical question around whether it is appropriate for a body that is responsible for negotiating a contract to have their own brand in competition with brands from other manufacturers/suppliers. Ray’s view is that what we have is a tendering process that seemingly allows the ‘principle’ (NHSSC) to both tender with their own brand alongside suppliers with their own brand, a game keeper / poacher situation. Whatever your view might be, it is believed that DHL is successfully increasing their own market share and it is hard not to put two and two together and see this as a direct result of their unique position in the marketplace. The Office of Fair Trading is examining the sector as there are concerns that there are not enough players and not enough choice for consumers so there may be a competition issue brewing.
An interesting story of how a UK Healthcare Purchasing Consortium (HPC) can become a branch of a USA company was told by Fiona Chew, Deputy Director, Strategic Sourcing, Healthcare Purchasing Consortium. Healthcare Purchasing Consortium was formed in 2001 as the NHS collaborative procurement hub for the West Midlands, Luton and London with a membership of 36 Trusts. It has a contract portfolio of 900+ contracts with value of around £350m. In 2009 the government published Necessity – not nicety: A new commercial operating model for the NHS and Department of Health which proposed the introduction of Commercial Support Units (CPUs). As a response to this the West Midlands Strategic Health Authority established a working group on the needs of the region and the way forward. The outcome was that HealthTrust Europe was formed by the purchase of HPC by HCA International (20%) and HealthTrust Purchasing Group LP (80%) a USA company based in Delaware, also with a presence in Shanghai.
The ambitions for HealthTrust Europe are big, including to extend their customer base across all sectors and right across the UK. Their target is coverage of 80% of all NHS Trusts’ influence-able spend in 3 years time, with Trusts being 8o% compliant and prices offered in the top quartile. There will be penalties for non compliance such as loss of your right to buy at the lower contract prices. They want to move towards an ‘Amazon’ style dynamic online catalogue with their own warehouse. They envisage moving to transaction based fees. NHS buyers will know that fees have been subscription based with a payback via savings delivered by HPC in a 4:1 ratio. Meanwhile as HealthTrust Europe is an established NHS supplier you can buy from them without the need to tender, but you cannot buy from US contracts as they are not OJEU contracts.
Introduction of Barcodes
Another interesting point from the conferences made by Andrew Rudd, Former Chief Operating Officer, NHS Purchasing and Supply Agency, was that the NHS is the biggest industry that does not have a single product barcode – a standard GS1 barcode. Generally medical products and suppliers have no barcode with the result that one simple medicine may have many different names/labels. Not a good thing when you consider the risks of mislabeling and therefore mixing up of critical medicines and also not helpful in being able to understand and track the quantities of supplies being purchase and used. In fact for this one reason alone there is very little useful data available to help with price comparison and managing logistics. The vision is to move to a dynamic procurement catalogue (Amazon model) with proactive management of codes and classifications. Andrew posed the question – is there a case for a single NHS catalogue of product information?
So what appeared to be a rather dry conference with virtually no interaction from the floor was actually a day with quite a few pointers and points of interest for those of us who need to grapple with the unfolding NHS and health sector agenda. It held a few pearls of wisdom about how the NHS is being reshaped with GPs to be in the driving seat but massive savings require. It gave some critical insights into how large international private sector companies are involved in UK supply chains. Most of all it set the scene of a change agenda where the outcomes are largely unknown – more questions than answers.