Why Procurement Transformation is Central to the Sustainability and Efficiency of the NHS

Posted 26/01/2015

“There’s a widespread feeling around the NHS that some of the tactical solutions that have stopped the wheels coming off to date, can’t be repeated indefinitely and aren’t going to suffice going forward. It’s time to chart a new course.”
Simon Stevens, Chief Executive, NHS England.

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The Health & Social Care Act handed operational control of the NHS to trusts and clinical commissioning groups, while radically transforming how care was to be delivered. There is broad consensus for change: ensure a universal health service,
free at the point of delivery, while allowing the market to drive efficiency and innovation. Commissioning and procurement are two critical enablers for dramatically improving patient outcomes, while doing so at sustainably lower cost.

Similarly, there is considerable scope to harness advances in medical technology, improve joint working between health and
social care and raise standards of care for older people. These goals will only be attained by unleashing the intellectual capital
of the NHS’s 1.4m staff, and is vital when dealing with the “quadruple pincer” of accelerating demand for health and social care,
escalating costs, a tightened fiscal environment and increasing patient expectations.

The diagram below maps the total health and social care procurement landscape of the UK, and the interface between
commissioning and procurement. At least £108bn is invested through these commercial activities to obtain high quality parcels
of care and the goods and services to support them. The intention of reform was to achieve private, public and social enterprise
competition across the healthcare market-place. While commissioning received substantial attention, procurement was
neglected. There is an assumption that it is a low-level, tactical function dealing with standard goods and services, and it has
never been a major priority for trust boards or clinicians. Prices varied widely, specifications proliferated, inventory accumulated, needless duplication drove unnecessary complexity in the medical supply chain and the only real initiatives were limited attempts to harness some economies of scale through regional hubs or the NHS Supply Chain.

80% of all procurement takes place locally. It is impossible to manage it centrally. But that is not an argument to justify the
absence of best-in-class procurement standards found in large private sector bodies with similar complexities of structure and
geographical distribution. There is considerable opportunity, as shown in the diagram, to apply a much stronger operating and
change model across total NHS procurement. Mandation and imposition will not work, but neither will exhortation. Explicit
improvement plans need to be introduced by trust CEOs, CFOs and NEDs and then implemented through multi-disciplinary
partnerships between clinicians and procurement specialists. Leadership and accountability drive change, and there is a
substantial prize available in terms of accelerated efficiency savings, better integration of care, improved patient outcomes,
supplier development and market innovation.

Transformational procurement focuses on improving outcomes, service delivery and innovative performance improvement. In turn, that drives substantial cash-releasing efficiency savings. Average healthcare funding has risen by 4% a year since 1948. Since the 0.1% increase above inflation cap, the NHS has to make efficiency gains of 4% every year: a level not achieved by any health system in the world. Indeed, forecasts from the Nuffield Trust and King’s Fund indicate that the NHS faces a shortfall of between £28bn and £34bn by 2020, and substantially more if productivity gains are not achieved. A concerted focus
on improving procurement is a potential lifeline for the service. It will drive costs down and value up substantially.


Tagged by topic: NHS , Procurement Transformation , Public Sector Procurement

  by Jon Hughes

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