Feature / Priority report

In the science fiction film Minority report police officers could predict when citizens were going to murder someone and arrest them before they could commit the offence. It took few such prediction skills to see that the NHS would tackle procurement spending as part of the QIPP initiative.

At about £20bn a year in England, spending on non-pay goods and services is too big to ignore. Equally, it was a given that the solution would involve technology and that the Department of Health would produce a strategy – the fourth in 10 years – to frame local and national action. But the planned April launch of the strategy has come and gone, leaving, for some, a perception of drift.

Of course, individual NHS organisations do not need a national strategy to get on with making procurement savings and there are examples of good practice across the country. Yet the fact that the 2012/13 Operating framework promised a new strategy barely two years after the last shows how difficult it is to deliver an effective value-for-money service in a system as devolved as the NHS in England.

Many procurement specialists, finance managers and suppliers believe collaboration and standardisation are central to procurement savings. These are certainly characteristic of systems in other parts of the UK: NHS Scotland has a shared finance and procurement system; later this year Northern Ireland will introduce a similar system; and NHS Wales has a shared services partnership for procurement.

Up to now health ministers in England have been loathe to mandate trusts to work together or even to insist suppliers use the same set of bar codes for their products. Their preferred approach is to set out the case for aggregating procurement across a number of organisations or introducing the standard GS1 bar code system, for example, believing the potential benefits will win over dissenting trusts or suppliers.

But this has left the NHS open to criticism from the Commons public accounts committee and others. Critics say the service is not using its buying power to get the best prices and that there is significant variation in the prices trusts pay for similar goods because they do not have the information needed to benchmark prices.

The strategy, which will now be published later this year, will set out how procurement will contribute to QIPP savings – valued at £1.2bn – and many will be looking for a greater deal of prescription. The delay is reportedly due to NHS chief executive Sir David Nicholson asking for a more radical approach – a procurement strategy review will take place over the summer and the Department has called for evidence and ideas on speeding up the transformation of NHS procurement. In place of the strategy, the Department published guidance, NHS procurement: raising our game, at the end of May to allow trusts to ‘start the journey to world-class procurement’. Procurement standards published alongside the guidance remain largely unchanged from those discussed in Healthcare Finance recently (see Getting strategic, February 2012, page 19).

Improvement areas

Raising our game proposes actions in six improvement areas: levers for change; transparency and data management; NHS standards of procurement; leadership, clinical engagement and reducing variation; collaboration and use of procurement partners; and suppliers, innovation and growth.

Tim Kempster, procurement information lead in the Department of Health’s procurement, investment and commercial division, admits progress has been slower than hoped but he believes there are positive signs. ‘We are not as far on as we would like, but

e-procurement and the use of supply chain technology is now accepted. It is not seen as a separate workstream but as an integral part of the procurement strategy as a whole.’

He says that there are pockets of good practice, but adds: ‘There are very few instances where there is a full-blown strategy applied across the trust which is being managed by the executive team.’

E-procurement, however, appears to be a firm part of most trusts’ strategies and increasingly covers the whole process – from choosing the product, through ordering and approval to invoicing and payment. Derby Hospitals NHS Foundation Trust is developing a full electronic purchase to pay system and 85% of its order lines are currently ordered electronically. Its initial target was 80%, but it wants to continue to increase this proportion.

It has used the purchase order (e-requisitioning module) in its existing Agresso finance system for some time, but has increased its use since 2009. The module has now been allied to an electronic catalogue and an e-connect module to complete the e-procurement cycle. Both e-connect and catalogues are provided by Health Logistics, which has 20 acute trust clients. In 2010, the catalogue in Agresso had 10,000 product lines, but now has 81,000 lines of contracted products with 149 suppliers.

E-connect system

The e-connect system, which was piloted from last October and is due to go live with a first wave of suppliers this month, accepts orders directly from the trust’s purchase order system. Orders are sent to the suppliers’ systems and, like many online shopping sites, the trust can track the status of an order. An e-invoicing module matches orders to supplier invoices and, once approved, sends them to accounts payable for payment. Tim Barker, the trust’s head of financial strategy, costing and procurement, says the next stage is to develop suppliers’ use of e-invoices.

‘One of the main benefits is [this would] reduce the number of transactional interactions in procurement and in finance,’ he says. Accounts payable staff will no longer have to scan invoices or process post, for example – the vast majority of suppliers submit invoices by post. He adds: ‘We’ve not had to replace two whole-time equivalents in procurement, partly because of the reduction in transactions.’

Savings are expected to be in line with the Audit Commission’s estimate of £27 per purchase order processed across the requisition-to-pay process.

Health Logistics director Peter Elwin insists e-procurement is vital to the delivery of procurement savings. ‘It is attracting significant attention because of the opportunities for improvements in processes, contract management and availability of data,’ he says.

James Mayne, Derby Hospitals’ e-procurement project manager, adds that the system gives the trust up-to-date information in Agresso. ‘It gives us total visibility on what we are buying and puts the buyer in control when negotiating contracts,’ he says. ‘Further benefits are linked with the use of electronic tendering and e-sourcing solutions.’

Standard bar codes, based on the GS1 system, which is used widely by retailers across the world, will be important in ensuring the NHS has the information needed to compare the price of like-for-like products and get the full benefits from e-procurement and inventory management systems.

Mr Elwin says his firm studied prices across 10 trusts and found they would save 10% of their procurement spend if they all paid the lowest prices.

While disappointed with the progress to date, systems suppliers recognise there is a strong will in the Department’s procurement team to make progress on standardising product codes. Indeed, Raising our game urges trusts to require suppliers to provide GS1 data in the procurement process. This would become mandatory over time.

Mr Kempster says the strategy in development will reflect the use of standard coding from the point of ordering to the point of consumption. ‘If you’ve identified the product you are using and negotiated a deal with the supplier, that description of the product should flow through all the systems,’ he says. ‘You should not have to rekey it – why would you deliberately choose to introduce errors? That’s a message people haven’t really grasped, but we are raising awareness.’

The Department is trying to encourage trusts to adopt standard coding as a starting point. ‘The intention is that the data will flow into an inventory management system and link to patient records so information flows through all the systems. But that is the vision, rather than what the majority of acute trusts are actually doing.’

Some trusts, such as Portsmouth Hospitals NHS Trust (see box, page 18), are starting to use inventory management and have developed ways around the lack of standard coding on individual products. Mr Kempster says a significant number of suppliers, including the big med-tech suppliers, have committed to using GS1 codes on their products. However, he warns: ‘Suppliers can categorise their products using GS1, but if the NHS doesn’t use them, suppliers will see it as a cost. At this point in time we want the suppliers to start applying the codes and the NHS to start asking for the codes and ratcheting up the pressure on the suppliers.’

Mandating GS1 would exclude many suppliers, but the NHS should work with suppliers to increase the range of products for which codes are supplied, he adds. ‘Ultimately, as part of the pre-qualification process, trusts could be asking: “Is your product coded using GS1 product codes and can you supply those codes as part of your submission?”.’

Ultimately, the level of savings made in procurement spending will not rely on the Department’s latest strategy or the adoption of e-procurement or GS1 codes but on management and staff willingness to get the most from the procurement budget.

As with all cultural shifts, it will be vital to involve  all those who use the products in the decision-making about those products.