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Government responds on procurement of consumables

 As the Houses of Parliament slipped into the summer recess dominated by the phone hacking scandal, much of industry will have missed the Government’s response to the Public Accounts Committee (PAC) report on the Procurement of Consumables by the NHS, published in May. The remit of the PAC is to scrutinise Government spending, focusing on “value-for-money criteria which are based on economy, effectiveness and efficiency”.

The May report highlighted that £4.6bn is spent by the NHS on ‘medical supplies and other types of consumable goods’ and that each trust had control of its own purchasing. There was acknowledgement that the Department of Health (DH) is engaged in its procurement strategy, but there were also questions about how close the DH’s theoretical model of a ‘pyramid’ structure for procurement (procurement at national, regional and local levels depending on the product) is to the ‘current complex reality’, which has a ‘profusion’ of bodies involved in the procurement process.

The report goes on to question how effective this landscape will be following the NHS reforms, which will give Foundation Trusts increased autonomy and less incentive to co-operate. Also highlighted are the problems faced by the DH as, despite being responsible for procurement across the NHS, it “has no control over the actions of the individual trusts”. This situation is described as having “produced a great deal of waste”.

The report concludes that there has not been an efficient process for procurement in the NHS and that boards have lacked the data to challenge managers. There is a danger, it states, that trusts will fail to get to grips with this situation and waste money through poor procurement while making cuts to treatment of patients.

The Government responded to this report in July, and was broadly supportive of the recommendations made by the PAC. Following the PAC report the Government:

• Intends to “strengthen trusts’ accountability to their boards” and “strengthen the way hospital procurement is supported at national and regional levels”.

• Has proposed the establishment of a set of Key Performance Indicators to judge the improvements made by trusts.

• Has highlighted a new, joint DH and NHS procurement strategy that is due to be launched in April 2012 – there is little detail on this, however.

• Has highlighted the role of the National Procurement Council in helping trusts to effectively utilise the support offered by regional and national procurement organisations.

• Supports the move for procurement savings to be included in KPIs as a way of persuading trusts to monitor this area of saving better.

• Has agreed that better information on what trusts buy and the prices they pay is necessary.

• Refers to the announcement by Ministers in June that GS1 coding would be adopted as the standard product coding system for the NHS.

• Refers to the establishment of a Foundation Trust Network ‘price benchmarking club’ and the exploration of potential web-based solutions.

The Government does not, however, agree that NHS Supply Chain is not demonstrating value. Its response states that the DH has invested considerable time making the offer more attractive, but needs to do more to improve value. It goes further and argues that simply looking at the prices NHS Supply Chain charges does not give a true picture of the total cost of the service it provides. The Government makes a series of recommendations around publishing better evidence of areas where NHS Supply Chain represents best value.

The final part of the response deals with ‘regional purchasing structures’, describing them as confused and lacking transparency. The Department of Health agrees with the PAC that it should work with Foundation Trusts to ensure that they are “used wisely, adding value and avoiding duplication”.

While scrutiny of the procurement system is welcomed by ABHI, the Association is disappointed by the Government’s response to the PAC report. There is widespread acknowledgement of the failings of the system, describing it as “fragmented” and suggesting it that has led to a “great deal of waste” with trusts “ordering in inefficient ways” and recognition that there has been “limited progress towards more efficient procurement”. However, the report does not offer a clear view of how the system should work, referring only to a new strategy in spring 2012. Readers may recall the launch of Necessity not Nicety in 2009 as a previous such strategy, following a similarly critical review of DH procurement capability by the Office for Government Commerce.

Coming through the Department of Health’s response is a message that there will be more emphasis in future on NHS providers being able to demonstrate that they have taken the necessary steps to get better value for money from their supply chains. The DH “will explore with Monitor, National Audit Office and any emerging NHS Provider support functions in the system, ways in which this can be achieved… include the drafting and agreement of Key Performance Indicators which can successfully measure improvements made by trusts in the management of their non-pay spend, by April 2012.” All this will mean more emphasis on providing data to the NHS about available products and prices – which are currently highly obscured by the various intermediaries, and different trusts have highly varied contractual requirements. In this regard, the Department acknowledges a potential “market for software and web-based solutions for NHS procurement to increase penetration of tools and technologies which improve transparency of spend and price information.”

However, the response fails to explore fully the role of intermediaries and their related practices, such as NHS Supply Chain’s ‘Direct from Manufacturer’ programme or the increasing frequency of Activity Based Income charges that are levied by regionally based purchasing organisations which are increasingly competing with each other. These are key issues for industry, and only result in additional cost to serve.

ABHI will continue to work with Government and with NHS leaders. The aim must be a commercial landscape that allows the NHS to get the best that medtech can offer for patients at the best value, with a reduced cost to serve. This is a big challenge, given the complexity of logistics and support and the ‘just in time’ nature of much NHS activity. While the PAC report highlighted many of the issues we deal with every day, it is not yet clear from the Government’s response how the key elements of NHS procurement will work together in future and how the various trusts and intermediaries should interact. Through our involvement in the National Procurement Council and our contact with Government and the NHS, ABHI will continue to lobby for a more efficient procurement system in the NHS.

For more from ABHI visit: www.abhi.org.uk.