Feature / Getting strategic

The operating framework for 2012/13 commits the Department of Health to delivering a procurement strategy by April. Beth Loudon outlines the progress to date

The 2011 National Audit Office report on the procurement of consumables by NHS acute and foundation trusts exposed fragmented purchasing and poor value for money in the NHS. Product prices varied widely from trust to trust, as did product types – for example, the NHS buys 1,751 different types of cannula. Coupled with unnecessary administrative costs and confusing regional procurement structures, things need to improve.

Trusts’ non-pay spending typically accounts for 30% of their total spend. In the current climate it is vital this expenditure is managed efficiently and effectively.

In May 2011, the Commons public accounts committee made recommendations to improve the NHS procurement landscape.

It called on trusts to ensure they have their non-pay spend under control before they contemplate cuts in frontline staff.

The Department of Health’s national QIPP procurement work stream, led by the procurement, investment and commercial division, aims to support trusts in addressing these issues and achieving £1.2bn savings through improved procurement by 2014/15 – procurement’s contribution to the overall estimated £20bn savings requirement.

Many of these issues are not new. In an NAO report on NHS supplies in England (April 1991) the following observations were made:

• ‘Fragmented purchasing resulting in failure to maximise purchasing power’
• ‘Incomplete management information’
• ‘Insufficient senior management oversight and selective review of activities’.

It recommended ‘an approved policy and clear strategies to meet the needs of customers in the reformed NHS’.

Back to today, for the first time procurement has been included in the operating framework for the coming year, requiring NHS trusts to do more to generate savings through better procurement, and to look at how they can do this individually and collectively. The operating framework also commits the Department to launch a procurement strategy by April to help trusts improve their performance.

The aim of the strategy is to contribute to the financial sustainability of all NHS organisations (without compromising quality and safety). It should ensure opportunities of scale are optimised, leveraging the collective power of the whole NHS. It should support the effective representation of procurement at board level and effective strategic management of (and challenge to) the supply base. And it should also ensure everyone plays their part in efficiency and innovation.

Central to this emerging strategy are new NHS procurement standards that will give trusts a structure to work in and improve procurement performance. They will inform how system-level support is applied.

The standards

The NHS procurement standards support the achievement of the strategy’s aim by providing the NHS and the Department with a clear vision of good procurement. Once agreed, a framework for NHS procurement will be developed from the standards to include indicators, guidance on how to achieve the standards, a library of tools and templates and national support for each where appropriate.

There are 19 standards organised in four domains: people, leadership, process and partnerships (see diagram overleaf). Each describes the standard itself and sets out how performance can be improved. It also provides a ‘maturity matrix’ setting out the characteristics of organisations at different stages on the journey to improved procurement.

Level one reflects awareness of what needs to improve and how, alongside having the basic building blocks in place. A level 2 organisation will be making good progress, while level 3 reflects an organisation with outstanding procurement performance.

Suggested indicators

The standards also include suggested indicators, which could be used to measure performance against each standard. This set of indicators is expected to evolve as the standards are used and experience is shared.

The table above provides an example of a standard. The standards were expected to be confirmed at the end of January, after Healthcare Finance went to press.

The specific example covers purchase-to-pay activities within the process domain. Some of the suggested indicators include percentage achievement of payment terms; percentage of e-transactions; percentage of e-invoices matched first time; and the average cost to raise an invoice. The intention is for organisations to self-assess their progress against the levels of performance set out in the standards.

The Department has gained advice from all parts of the NHS on the development of these standards to ensure they are meaningful to all and robust enough to be effective long term.

In order to ensure that the procurement standards are co-designed with – and ownership is taken by – the NHS, a process of engagement has been conducted with stakeholder groups, including NHS executives, procurement professionals, wider professional associations and the Foundation Trust Network (FTN).

It is clear that the financial challenges facing the NHS and the whole of government spending have raised the profile and importance of procurement. But the Department is working to support NHS trusts to improve their procurement, particularly with the launch of the NHS procurement standards.

The standards will enable trusts to assess their procurement performance and identify areas for improvement, which in turn will support improved patient care.