NHS Supply Chain Parliamentary Brief

Response to National Audit Offi ce/Public Accounts Committee Reports

Introduction

Over the past few months, reports from the National Audit Office and the Public Accounts Committee (see background below) have criticised the fragmented and disjointed nature of procurement processes in the NHS, and the resulting shortcomings with regard to value for money at a time when the delivery of efficiency savings has become a pressing issue for all NHS organisations.

NHS Supply Chain has welcomed the reports thorough analysis, conclusions and recommendations, and finds that the solutions it offers are likely to address many of the issues raised in the reports. NHS Supply Chain is keen to contribute to the ongoing debate on identifying ways to improve trusts’ planning and purchasing processes and help make procurement a key area from which to achieve the required savings over the next three to four years.

Background

On 2nd February, the National Audit Office (NAO) published a report into ‘The procurement of consumables by NHS Acute and Foundation Trusts’. Highlighting the complexity surrounding the procurement of healthcare consumables as a result of its fragmented nature, the report found that the current procurement activities did not deliver value for money for the NHS or the taxpayer.

In response to the NAO’s publication, the Public Accounts Committee (PAC) held an evidence session on the NAO report with key figures1 from the Department of Health and NHS. The Committee concluded that whilst the Department of Health was “clearly engaged in improving procurement systems,”2 the nature of the current system was still producing a “great deal of waste”3 and that “a lack of data has limited progress towards more efficient procurement”4 and “standardised products”5 and a lack of spend committed to contracts impeded NHS trusts from getting the best value for their money.

NHS Supply Chain Parliamentary Brief

1 Sir David Nicholson KCB CEB, NHS Chief Executive, David Flory, CBE NHS Deputy Chief Executive, Peter Coates CBE, Commercial Director, DH, Howard Rolfe, Director of Procurement, East of England, NHS Collaborative Procurement Hub

2 Public Accounts Committee: The procurement of consumables by National Health Service acute and Foundation Trusts; 20th May pg. 3

3 Ibid

4 Ibid

5 Ibid – For example, the Committee noted that the NAO found that trusts buy 652 different types of surgical and examination gloves

On 30th March, the NAO published a separate report ‘Managing high value capital equipment in the NHS in England’ which examined NHS trusts’ efficiency around the use of high value equipment e.g. MRI scanners, particularly in relation to planning, meeting demand for services and improving management. One of the report’s key findings was that value for money was not being achieved across all trusts because of their failure to collaborate.

Key Issues

The reports from the National Audit Office and the Public Accounts Committee raised a number of key issues about the procurement system in England which include the following:

• a fragmented system of procurement – The NAO criticised the nature of fragmented purchasing which hampers efficient buying, particularly as individual trusts alone can only make limited improvements in their procurement of consumables. The PAC report also suggested that the structure of organisations whose role it was to encourage collaborative procurement across the NHS was confusing and should be clarified.

• procurement should be a strategic priority – The NAO acknowledged that procurement of goods and services had not been an issue for hospital trust boards to date. It called on Chief Executives to consider procurement as a strategic priority. The PAC report echoed these concerns; the Committee warned that trusts were in danger of ignoring savings achievable from better procurement practices and instead cut elsewhere. It was suggested that boards should require trusts to demonstrate to their boards, staff and patients that they have delivered the “optimum savings from procurement, before front line staff cuts are considered.”6

• suppliers deliberately charge higher prices to NHS Supply Chain – Both the NAO and PAC reports acknowledged there are some products purchased by hospitals direct from suppliers at prices lower than that available through NHS Supply Chain, even though they are purchased from the very same suppliers. NHS Supply Chain’s prices also include the cost of procurement and supply chain services which enable efficiencies to be delivered to hospitals. NHS Supply Chain’s prices also include VAT which is not the case with other supplier’s prices where VAT is shown as separate from the selling price.

• role of NHS Supply Chain – There was recognition that the NHS Supply Chain model was not being used to the extent that was expected when the contract was set up in 2006. The NAO acknowledged that NHS Supply Chain had “great potential as an efficient source of supplies to NHS hospitals,”7 but trusts’ use of the service had been below expectations. The PAC report suggested that the Department of Health should “review the NHS Supply Chain’s operation to ensure that it provides the incentive to capture aggregated NHS demand, develop plans to make NHS Supply Chain’s offer more attractive to trusts and assess regularly whether NHS Supply Chain was subject to the right level of competitive pressure.”8 The Department of Health’s response to the PAC report, states that “The Department does not accept that NHS Supply Chain is not demonstrating its value to the NHS but does accept that more could be done to improve it.” The Department will undertake a review of how the organisation can be incentivised to aggregate NHS demand by the end of 2011 as well as an exercise in benchmarking NHS Supply Chain prices.

6 Public Accounts Committee: The procurement of consumables by National Health Service acute and Foundation Trusts; 20th May, pg. 6

7 National Audit Office: The procurement of consumables by NHS acute and Foundation trusts: 2nd February, pg. 7

8 Public Accounts Committee: The procurement of consumables by National Health Service acute and Foundation Trusts; 20th May, pg. 5-6

• value for money – There was criticism in the NAO report that due to a lack of product standardisation and duplication of procurement processes, trusts incur unnecessary costs.9 The NAO used the example of the Doncaster & Bassetlaw Hospitals Foundation Trust to emphasise how local efforts to standardise point to a wider potential across the NHS. The Trust was formed from a merger of three former separate trusts, who standardised their nurses’ uniforms through NHS Supply Chain, reducing costs for 23,000 garments a year by more than 50 per cent, from £300,000 to £148,000 annually.

• increased price transparency – The PAC report highlighted that there was a lack of information which would enable better benchmarking of products and prices. The NAO reported that there were currently wide variations in prices paid by trusts. It found that if hospitals worked together on purchasing, significant savings could be made and that if all trusts paid the lowest available price on a particular basket of products, where data was available, then on average each trust could each save £900,000.10 The NAO commented that the Department adopt “standard product bar-coding to improve procurement data and enable price comparisons”11 and “assess the use of e-commerce systems”.12

• bulk deals for capital equipment – The NAO reported that trusts were “not making the best use of existing framework agreements which could secure lower prices on the purchase of new machines”13 and that they were “not working together to group demand.”14 The report called on trust boards to again participate in benchmarking activity to compare prices with other trusts and look for opportunities and to group their demand for machines with other trusts to secure savings on the price of machines.

The solution

NHS Supply Chain agrees with the concerns raised by the National Audit Office and the Public Accounts Committee. We particularly welcome their acknowledgement that the current procurement system is far too complex and as a result has failed to optimise value for money for the NHS or the taxpayer.

The NHS Supply Chain model is ideally placed to help trusts achieve savings through better procurement practices:

• NHS Supply Chain operates a national contract – As Agent of the NHS Business Services Authority since October 2006, the NHS Supply Chain model provides a national purchasing structure and a means by which trusts aggregated requirements can be articulated to the supplier market, optimising their purchasing power and delivering value for money. Trusts must become more willing to collaborate and commit their spend. NHS Supply Chain believes this will help alleviate the fragmented nature of the current procurement environment.

• NHS Supply Chain has standardised certain product ranges – NHS Supply Chain already works with clinicians in certain product categories to agree a rationalised range of products against which all spend can be committed; this therefore allows the NHS purchasing power to be leveraged. For example, the paper hygiene tender acheived a 5 per cent cost releasing saving, totaling £1.8 million through reducing the range from 77 to 55 products. NHS Supply Chain also provides a full e-commerce suite free of charge to every hospital including an electronic catalogue, ordering and payment systems. NHS Supply Chain believes e-commerce will improve procurement information and will support further product standardisation and increase contract compliance. We plan to widen our range of standardised products to enable further efficiency savings. It will also allow hospitals to drive compliance to fewer, larger contracts.



11 Ibid pg. 8

12 Ibid pg. 9

13 National Audit Office: Managing high value capital equipment in the NHS in England, 30th March 2011, pg. 7

14 Ibid

• NHS Supply Chain reduces duplication of procurement – Duplication in trusts can be avoided where contracts for products exist with NHS Supply Chain. If trusts buy these products through NHS Supply Chain rather than duplicating contracts, our calculations suggest savings could be achieved across the NHS of £50-£80 million per year.

• NHS Supply Chain can remove unnecessary administration costs – Significant back office efficiencies can be achieved through consolidating orders, deliveries and invoices from multiple suppliers through the NHS Supply Chain supply channel. This also contributes significantly to a more sustainable supply chain in the NHS through reduction in carbon emissions from reducing multiple deliveries.

• collaboration with NHS trusts – NHS Supply Chain cannot deliver the procurement savings needed by the NHS alone, collaboration with NHS trusts is vital.15 NHS Supply Chain advocates that spend commitment is needed from NHS trusts which will give NHS Supply Chain further ability to leverage savings from NHS consumable spend. NHS Supply Chain is also helping trusts to collaborate and coordinate their planning beyond local demands. Our capital equipment team uses trusts’ capital equipment plans to identify aggregation and savings opportunities.

• savings from commitment deals in capital equipment – The NAO acknowledged that 75 per cent of NHS trusts were already utilising NHS Supply Chain frameworks, as a result these trusts are enjoying lower acquisition costs and equipment cost savings. NHS Supply Chain has invested heavily in capital planning and leasing contracts to support trusts. We believe that if this facility is adopted more widely, it will lead to more bulk buying opportunities and increase savings for acute and commissioning sectors as envisaged by the NAO.

• NHS Supply Chain works in partnership with SMEs and encourages innovation – NHS Supply Chain provides a fast-track route for innovative products to be brought to market through the innovation scorecard initiative. NHS Supply Chain provides an opportunity for many new and smaller suppliers to access the NHS market where otherwise it would not be possible for them to sell their products. This initiative encourages suppliers to think creatively and come up with innovative products that are cost effective and high quality – consequently driving competition and improving value for money in the NHS market.

Conclusion

As the Public Accounts Committee highlighted, “at a time when all trusts are required to make efficiency savings of 4 per cent in 2011-12 alone, trusts should seek to achieve as much as possible from improvements in procurement.”16 The NHS Supply Chain model clearly demonstrates its capability to help trusts in this regard and our own calculations reveal that NHS Supply Chain has already saved the NHS over £200 million and is on target to reach £1 billion by 2016.

As the use of NHS Supply Chain is not mandated and hospitals can decide whether to purchase their supplies from individual suppliers, regional hubs or NHS Supply Chain, collaboration is required from NHS trusts as we cannot reach these efficiency savings alone. We welcome the NAO’s call to trusts to reassess their current purchasing practices and collaborate to achieve greater purchasing power.

We urge hospital Chief Executives to consider procurement as a strategic priority and we welcome the opportunity to work with various stakeholders to improve their understanding of the NHS Supply Chain solution. Separately, we are also working closely with the Department of Health to contribute to delivery of the £1.2 billion savings target from procurement as part of the Quality, Innovation, Productivity and Prevention Programme (QIPP).

15 The NAO report states that NHS Supply Chain sales at the end of the contract year 4 as £1.2billion, reflecting only transacted sales. The correct sales figure which includes our capital business is £1.75bn.

16 Public Accounts Committee: The procurement of consumables by National Health Service acute and Foundation Trusts; 20th May, pg. 4

Calls to action

• procurement as a strategic priority – Are the hospital chief executives in your constituency discussing procurement at Board level and demonstrating that the optimum savings have been achieved from procurement as recommended by the National Audit Office report?

• value for money – Are the hospitals in your constituency protecting front line services whilst optimising value for money through demonstrating best procurement practices?

About NHS Supply Chain

NHS Supply Chain is operated by DHL as Agent of the NHS Business Services Authority. It supports the National Health Service (NHS) and other healthcare organisations in England and Wales by providing end to end supply chain solutions.

NHS Supply Chain manages the sourcing, delivery and supply of healthcare products and food for over 1,000 NHS trusts and healthcare organisations. It provides a single point of access to over 600,000 products ranging from bandages to sutures, from gloves to implants, and diagnostic equipment such as MRI scanners.

Contact for further information:

Joanna Morrison, Head of Public Affairs & PR

Tel: 07776 457201

Email: [email protected]

Documents

NHS Supply Chain Parliamentary Brief