Feature / Grand designs

A new national procurement strategy looks to transform the current approach to sourcing goods and services in the NHS and finance directors have a key role, the Department of Health’s John Warrington tells Steve Brown


In a politically charged world, where the media equates cutting costs to cutting services, reducing  procurement costs – both the costs of goods and the cost of buying those goods – has obvious appeal. So there should be no surprise to see a further attempt to curb the NHS non-pay bill. But the Department of Health says its new strategy differs from earlier initiatives in putting the main spotlight on the role of local providers and the need to build a world-class NHS procurement function.

‘There have been lots of policy strategies in the past, most of which have tried to fix procurement with top-down approaches by creating new organisations such as NHS Supply Chain or NHS procurement hubs,’ says John Warrington, deputy director of policy and research in the Department of Health’s procurement, investment and commercial division. ‘Basically it hasn’t fixed the real issue, which is that procurement in the trusts themselves, while it is getting better, isn’t as good as it could be. And leadership in trusts do not take it seriously enough.’

Not that there isn’t a role – and a major one at that – for the centre. But the role is a supporting one, providing the tools that will enable the system itself to build better capability and drive better value.

The call for procurement to be taken more seriously was underlined by health minister Dr Dan Poulter in a foreword to the new strategy – Better procurement, better value, better care: A procurement development programme for the NHS. ‘For too long, there has been a failure to properly understand the nature and scope of the opportunity procurement represents,’ he writes. ‘Non-executive directors and trust boards must play a stronger role in both championing improved procurement and holding their executives to account.’

Finance staff might argue that procurement is already a key part of each year’s cost improvement plans. But national figures display a worrying trend.

Despite the current financial challenges, and the fact that procurement is a key part of the QIPP quality initiative (with a £1.2bn savings target all to itself), non-pay expenditure in trusts increased by more than the rate of NHS activity and general inflation in 2011/12, compared with the previous year. In fact, according to the Department, the increase was 11%, and this continued into 2012/13 with another 10%.

The document says that ‘in the current economic climate, this is extraordinary and cannot be allowed to continue’.

Mr Warrington adds that with non-pay expenditure accounting for 30% of a typical trust’s operating expenditure, trusts have no choice but to prioritise procurement. The first step for the Department is to stop the current trend and so it is targeting keeping non-pay spend ‘inflation-free’ to the end of 2015/16. The comparison will be with the 2012/13 level of spend – about £22.5bn – and will allow for activity growth. But, in effect, it equates to a £1.5bn efficiency requirement.

The strategy describes a four-part procurement development programme that will help put the brakes on non-pay spend in the short term and establish ‘world-class procurement capability’ by 2017. These four parts aim to:

• Deliver immediate efficiency gains
• Improve information and transparency
• Establish clinical procurement review partnerships
• Improve leadership and capability.

Mr Warrington says the key on short-term savings is to spread good practice that already exists. ‘Some trusts have been successful in resisting price increases [from suppliers],’ he says, citing Central Manchester University Hospitals NHS Foundation Trust.

The trust has avoided more than £5m of inflationary pressures, engaging with more than 1,000 suppliers in the process (see Level playing field, page 23). ‘And they’ve done this intelligently, coming up with ways to defer, pay more quickly or offer more volume,’ he adds. ‘We have to share that across the NHS.’

Of course finding savings on more than £20bn of NHS non-pay spend really means finding savings in wide-ranging spend categories – everything from drugs, agency staff and clinical supplies (such as gloves, sutures and implants) to energy, vehicle costs and training. The Department estimates that a single trust is typically managing more than 80 complex categories and subcategories of spend, often with just five to 10 core procurement staff.

But it believes there are potential savings – and good practice to be learned from – in many of the categories. The strategy offers gloves as an example, highlighting total spending of £25m on sterile surgeon gloves. With one brand as the dominant market leader, the report claims up to 38% could be saved from product substitution. Similarly the Department estimates a further £5m of savings could be made with latex examination gloves. And it says these opportunities exist across the whole £4.5bn clinical supplies and services budget.

The Department also wants trusts focusing on their non-permanent staff. This has seemingly been an ever-present component of trusts cost improvement plans. However, the Department says there remains widespread variation in the costs of non-permanent staff as a percentage of total workforce costs – three-year averages range from 0% to nearly 12%.

While the report recognises that permanent staff may need to be recruited to replace agency staff used in some trusts, it still thinks there are savings to be made. If all trusts with non-permanent staff costs above 4% of total workforce expenditure reduced spending to the national average, 4%, it could save £230m.

To support trusts in pushing for these short-term wins, the Department is planning to set up a simple price comparison system. Trusts will be asked to submit prices for a basket of around 15 products and services – a different basket each quarter. The aim is to get non-executives challenging their boards on local prices and performance.

Data is in fact the focus of the second strand of the strategy.  ‘We’ve got to do something about data and information,’ says Mr Warrington. ‘Trusts are getting better but it is still not great. It is not consistent and there is no way of sharing data.’

The GS1 coding system – which would be applied by suppliers to all products sold to the NHS – is seen as the solution. However, it has been seen as the solution for several years now and progress is patchy. Mr Warrington talks about ‘kick-starting’ its use.

Supplier side legislation will force suppliers to adopt in coming years, but Mr Warrington says its use also needs to be ‘enabled’ within the NHS. In short, suppliers need to put the codes on products, but the NHS actually needs to use them, loading the codes into catalogues and reporting systems.

A central GS1 data pool will make this more straightforward and Mr Warrington says the Department is looking at how and, more importantly, when it can mandate the use of GS1 coding through standard commissioning contracts.

Building on the quarterly basket of goods comparisons, the Department says it wants to ‘explore’ developing and procuring a ‘single, best-in-class NHS spend analysis and price benchmarking service’.

‘We need to do this just once only for the NHS and get a good deal and have a system all can use,’ says Mr Warrington.

However, this may take some time to get in place. Other opportunities being explored include requiring all NHS healthcare providers to publish all procurement data and implementing a dashboard of performance metrics based on seven piloted metrics.

The third strand of the development programme focuses primarily on medical device procurement. Mr Warrington describes the current business model, which relies on clinicians buying from sales reps, as ‘outdated, broken and inefficient’. 

Some 40% of the price of a hip or knee joint is associated with ‘costs to serve’. These costs, which relate largely to sales teams and consignment stock, are estimated to be double those in other sectors. The strategy talks about building a new relationship ‘built on partnership and value, rather than price and sales’.

Data again holds part of the answer. Building on the established national joint registry, which already stores data on joints, suppliers and outcomes, a number of trusts have also been uploading procurement data.

‘We now know costs as well,’ says Mr Warrington, even opening up the possibility of comparisons at individual surgeon level. Although no data has been published yet, with more confidence needed about its accuracy, he says the initiative ‘definitely has legs’.

New multidisciplinary clinical procurement review partnerships will ‘forensically examine all products’ to consider effectiveness and identify cost effective solutions. The intention would be to document and disseminate good practice across the NHS.

Leadership skills

The final part of the strategy covers leadership and capability. Non-executives and finance directors are identified as having specific roles. Both can look forward to a package of support. Boards are already encouraged to identify an executive director with accountability for procurement and finance directors are key contenders. ‘Where we see really good procurement happening, it is where the finance director understands the procurement role and its impact on the bottom line,’ says Mr Warrington.

The Department is keen to provide directors with better support and build up specific procurement networks for executives and non-executives. Into this gap will come the new Centre for Procurement Development, incorporating an Academy of Procurement Excellence while also providing a home for best practice and standards and for diagnostics and benchmarking data.

There are some real challenges in sorting out procurement capability. In some ways, it will mean turning current practice on its head. Mr Warrington says procurement should not be about cherry-picking from a range of framework contracts organised by different intermediaries – where prices have been agreed without any guaranteed commitment from across the NHS.

‘That is just not world-class procurement,’ he says.  ‘We want trusts to look at their categories, know what they want to do, choose partners for the right reasons and then drive commitment to those partners over a long period of time.’

Mr Warrington urges finance directors in particular to ‘think about the value’ that procurement can add. Procurement should not be seen as the office at the end of the corridor, placing orders, doing contracts and trying to keep everything legal. Instead, he says, it needs to be reinvented as the team that can add ‘true value to the bottom line’. And finance directors are absolutely crucial to this makeover.