27.02.15 – Health Service Journal: Procurement – Get hip, pay less.
Health Service Journal: Procurement – Get hip, pay less. In Association with INVERTO
It has been shown that better procurement could quickly release millions of pounds to an NHS organisation. Why is it still under-exploited? Jennifer Trueland reports
When Lord Carter of Coles was appointed last year as NHS procurement champion, it shone a light onto an often ignored area. As chair of the NHS Procurement and Efficiency Board, Lord Carter’s remit is to help the health service to cut waste, save money and drive efficiencies to release cash to spend on frontline care. Certainly, it’s an area that’s ripe for exploitation. The NHS spends more than £22bn a year on goods and services, accounting for almost a third of the operating costs of each NHS organisation. Critics say, however, that procurement has not been seen as a priority in the health service, although there are great gains to be made if it is done properly.
Nick Gerrard, chief finance officer at Mid Essex Hospital Services Trust, knows first hand that big savings can be made if you have the time and resource to focus on the issue. Back in 2012, his trust developed and implemented a procurement improvement programme that very quickly released millions of pounds in real, sustainable savings. “We knew there was a need to make savings across a whole range of areas of expenditure,” he explains. “We decided to address non-pay procurement and estates to help us get better value for the trust, without having a negative impact on quality and patient care.”
The trust worked with procurement experts Inverto to come up with a plan that started with reviewing all the trust’s non-pay expenditure, from clinical devices to cleaning and waste management. “Having good data is very important, so that you know what you are spending,” says Mr Gerrard. “We found we didn’t have good data, so we were having to contact suppliers to find out what we were spending; obviously that’s not ideal. “We also realised we had to make sure that the right training was in place. If you’re changing clinical products, the staff have to know how to use them.”
Fear of change
One of the challenges was what Mr Gerrard tactfully calls “clinical custom and practice”. In other words, consultants and other senior staff are accustomed to using a particular product or device and have to be convinced of the benefits of changing. This can apply to anything from low-cost stationery to high-cost items such as prosthetic hip or knee joints. “It’s important to invest time in clinician engagement,” he says. Indeed, harnessing the expertise of senior clinicians brought benefits to the procurement process, both in terms of getting suitable products at better prices, as well as ensuring clinical ownership of decisions.
Brendan McVeigh, project manager with Inverto, says that procurement has never been given its rightful place in the public sector, including the NHS. “Procurement is never, or rarely, sat at the top table,” he says. “In the best private sector companies, procurement would be represented at board level: the CPO would sit next to the CFO. But in most NHS organisations, procurement reports into finance.”
In too many cases, trusts have no specific procurement function, he adds: “It’s done at operational level, or it’s an add-on to someone’s ‘real’ job.” Yet, by undervaluing procurement, the NHS is missing a trick, he says, particularly when it comes to making savings. “Most cost improvement plans focus on reconfiguring services and on cutting headcount,” he says. “But good procurement means that you can deliver the same, or better, quality services at lower cost. “My feeling is that the people at the centre – such as Lord Carter – are saying all the right things, but it’s difficult to push that out across the country.” That’s not going to happen overnight, he warns: “The big problem for NHS procurement is a skills shortage. When we go into a trust, one of the first things we do is offer training to upskill procurement, but some don’t even have that function.”
Gains to be made
For those trusts that do bite the bullet, however, there are big rewards. He points to Calderdale and Huddersfield Foundation Trust, which has worked with Inverto to reduce expenditure across a number of areas, including agency spend and purchasing clinical products. By examining agency bills for money already spent, the trust was able to claim back £100,000 in over-payments, before agreeing a better value system for the future. Similarly, it was possible to save some £250,000 by replacing the mattress stock with a better value “hybrid” model, which provided improved quality at a lower overall price.
The trust’s deputy finance director, Chris Benham, says that the process was about changing the way procurement was managed, to get better value for money, while improving the patient experience. “I think the NHS does need to think differently about procurement, and to recognise that it’s important to get clinical involvement,” he says. “I welcome the national drive to improve procurement – there’s a real momentum about it, and I hope that will continue.
“It’s about giving pointers to organisations so that they know the areas where they can take action.” The Department of Health is clear that trusts are expected to up their procurement game. “Ensuring taxpayers’ money is spent wisely means more resources can be invested in frontline care to benefit patients,” a DH spokesman says. “We are supporting the NHS to be more efficient through our new procurement league tables, making it more transparent and ensuring trusts get the best value for money.”
And Mr Gerrard, for one, very much hopes that Lord Carter’s work will provide better information and support for trusts like his, ideally by developing simple metrics that allow him to compare, very quickly, how his trust’s spend fares in a given area. “It’s about giving pointers to organisations so that they know the areas where they can take action,” he says. Mid Essex saw tangible financial benefits during the 12-month “Project Spotlight” programme, conservatively achieving some £3.5m in actual savings by the time it ended in April 2013.
“We’ve got a very good head of procurement now, which really helps,” he says. “It takes time to go through spend profiles and there are still significant opportunities for savings through procurement. I’m sure it’s the same throughout the NHS.”
Richard McIntosh on Buying Better
NHS non-pay spend amounts to nearly £23bn a year and is increasing by 10 per cent every 12 months. Despite intense pressure to cut costs, procurement across the NHS is still underperforming because of insufficient resource, inadequate expertise and a reluctance to challenge conventional buying approaches. In our experience, there’s huge potential for savings.
The strategies in the NHS procurement efficiency programme will help to address major issues – particularly with the centralised purchase of large volume commodities where economies of scale can be leveraged. But there also have to be committed specialists on the ground at trust level to deliver these strategies and improve performance. That’s where professional procurement support can make a big difference and add real value.
A substantial proportion of non-pay spend is handled at local trust level and the procurement profile for each trust can vary dramatically. For example, clinical and non-clinical supplies and services account for more than £6bn of total non-pay expenditure, but the differing requirements of every trust mean that sourcing, negotiating and buying is generally tackled locally.
Inevitably, some trusts buy better than others. In a recent NHS price benchmarking study by Inverto, we found poorer performers were paying up to 200 per cent more than the leaders for identical clinical products. Likewise, a high percentage were buying “market leader” products, when switching to clinically acceptable alternatives would have cost up to 80 per cent less.
The results of the survey reflect the potential for savings and amplify the case for specialist procurement intervention.
By adopting a structured, category-bycategory approach at local trust level, procurement professionals such as Inverto can help in-house teams make rapid, significant savings through utilising centralised framework agreements and optimising independent supplier relationships to meet specific trust requirements.
In the past two years alone, we’ve helped Mid Essex Hospital Services Trust cut more than £3.5m in non-pay spend, Rotherham Foundation Trust £2m and Calderdale & Huddersfield Foundation Trust more than £2m. Best practice procurement also brings a host of other benefits including organisation-wide engagement in the procurement process, improvements in product quality and supplier service, and a positive channel for innovation. Perhaps most importantly, it leaves in-house teams with the tools and skills to continue
driving procurement performance, so they can deliver long term savings.
Richard McIntosh is managing director of Inverto.
Health Service Journal, 27 February 2015