In Future Purchasing we have been arguing for a number of years that NHS procurement transformation remains one of the most important requirements across the whole of the public sector. We have been following the work of Lord Carter closely, made inputs from a strategic and change management perspective and summarised the interim outputs of his team in our blog. On Friday, 5th February 2016, the main report was published, Operational productivity and performance in English NHS acute hospitals: Unwarranted variations . It is a detailed and dense document of 85 pages, so we have produced our own summary of its 15 recommendations which, if implemented systematically, will save £5bn a year by 2020. We have also made an assessment of the likely impact that these recommendations could have on procurement, particularly from a leadership, structural, process and capability perspective.
The report contains numerous excellent case studies that bring to life what “good” looks like. Alas, it also highlights eye-wateringly high levels of variation that exist between the best and the worst trusts: a patient can be eight times more likely to get an infection at the worst, and staff are 60% more likely to be absent due to sickness; floor space utilisation for non-clinical purposes can be 69% of total vs. 12%; the average cost of in-patient treatment can vary by 20%; while a hip replacement can cost as little as £788 or as much as £1,590. Waste on a massive scale!
One of the 15 recommendations (#5) specifically focuses on procurement, and this has been highlighted at the top of our chart (see below), with the rest of the recommendations below it in part 2 of our 3 part series. Despite acknowledging the excellent work done in some trusts, the Carter team is highly critical: “Most trusts still don’t know what they buy, how much they buy and what they pay for goods and services”; “Very few trusts are able to demonstrate even a basic level of control or visibility over total inventory or purchase order compliance”; there is a “systematic failure to capitalise on the national nature of the NHS”, so “if we are to truly capitalise on the benefits of scale, all procurement activity needs to be joined up and orchestrated across the whole of the NHS”; and “we need to empower those procurement staff who are keen to modernise, and we need to remove the freedoms from those who are not performing”.
As a stark illustration of the deficiencies in procurement the report states that “the sheer amount of variation in products used across the NHS makes it almost impossible to make meaningful comparisons. For example, a sample of 22 trusts covering approximately 16% of NHS spending revealed that in one year they used 30,000 suppliers, 20,000 different product brands, more than 400,000 manufacturer product codes with more than 7,000 people able to place orders”. Without doubt “Product variety (is) the root cause of hospital supply chain waste such as high inventories, expiration and obsolescence, and low value orders and delivery charges.”
Procurement transformation is clearly now going to be on the agenda of trusts, particularly as a recently constituted body, NHS Improvement (which goes live in April 2016), will be providing a much stronger and more rigorous focus on national, regional and local accountability and performance delivery across all 15 of the recommendations. Finally there is an element of impatience within the report, and a strong desire to see action now, not postponed into the future. Indeed, there need to be three waves of procurement transformation, over one year, 1-2 year and 3-5 year time horizons. More about that in part 3 of this series.
Trusts to Report Procurement Information Monthly to NHS Improvement (NHSI) and Commit
to the NHS Procurement Transformation Programme Commencing April 2016.
Spend: £6.5bn (acute sector) & £9bn overall. Saving: £750m - £1bn & at least 10% reduction in non-pay costs across the NHS by April 2018.
While two-thirds of hospital costs are on staff, NHS trusts spend £9bn p.a. (excluding
agency staff, medicines, estates and FM), with £6.5bn spent by the acute sector.
A third is on common goods and services (e.g. transport, stationery), a third on
medical consumables (e.g. dressings, syringes) and a third on high cost medical devices
(e.g. hip joints, cardio devices). There are 5,000 staff in procurement and supply
chain, costing £250m per year. There is considerable variation between trusts on
the value they secure from non-pay spend; a lack of understanding on the hidden costs
and inefficiency caused by weak compliance in purchase to pay systems; and poor engagement
with the industry on cost containment. 9.5% cost savings are readily achievable,
and there is a bigger prize beyond that in actually reducing the £9bn spend.
Impact on Procurement: Act now! All trusts to implement a new Purchasing Price Index (PPI) on a basket of 100 products from April 2016. All trusts to report monthly on this (and three sub-indices); collaborate with other trusts and NHS Supply Chain with immediate effect, and commit to the Department of Health’s NHS Procurement Transformation Programme (PTP). Deliver the 10%+ reduction in non-pay costs by:
The Carter team has emphasised the requirement for a systems-wide and holistic approach to achieve the necessary cost and variety reductions. It is necessary to relate recommendation 5 to the other 14 recommendations to understand the totality of the transformational changes needed.
by Jon Hughes