1. NHS procurement: the challenges ahead
John Warrington
Deputy Director, Policy & Research

2. Trust procurement teams
Current landscape….
Drug Tariff
Procurement, Investment
& Commercial Division
National
Regional Commercial
Support Units
Regional
Collaborative Procurement Hubs x 8, and LPP
Trust procurement teams
Local

3. Who is influencing what?
National spend
(FT and Non-FT)
Third party influencer
(and % of category covered)
Typical FT (09/10 accounts)
Drugs
£3,745m
Drugs
£17m (24%)
£3,745
DH CMU £1,200m (32% of cat)
CPHs £ minimal
Clinical supplies
and services
£23m (30%)
Clinical supplies
and services
£4,492m
NHSSC £1,000m (22% of cat)
£4,492m
CPHs £500m (11% of cat)
Non Clinical supplies
and services
£5m (7%)
Non Clinical supplies
and services
£1,178m
Premises
£2,450m
Premises
£12m (17%)
NHSSC £400m (5% of cat)
CPHs £500m (6% of cat)
Transport,
establishment
£5m (7%)
Transport,
Establishment
£1,235m
OGC/BS £2,400m (29% of cat)
l £8,289m
Typical FT
FT income is 82% to acute, therefore assumed same expenditure of 82% of the consolidated accounts as Acute expenditure
In 2009/10 – 129 FTs of which 40 are mental health therefore based on 89 Acute sector
So approximately 40% of an FT’s non-pay spend is channelled through third party procurement organisations – the remainder managed by the Trust itself
Temporary/Agency
Staff/Consultancy
£7m (11%)
Temporary/Agency
Staff/Consultancy
£2,592m
Other
£3m (4%)
Other
£834m
Total £71m
Total £15,526m 3

4. A shifting landscape…. NHS Supply Chain – 6 more years
Buying Solutions – caught by ERG
CPHs
2 served notice
3 formed an alliance (EoE, SC and SEC)
1 moving to SBS
1 trying to sell itself to private sector

5. Liberating the NHS….. Putting patients and the public first
Improving healthcare outcomes
Autonomy, accountability and democratic legitimacy
Cutting bureaucracy and improving efficiency

6. Huge changes….

7. Key issues GP Commissioning Consortia can ‘buy in’ support
Ambition to create the largest and most vibrant social enterprise sector in the world – not privatisation but independence…
DH to be more hands off
…. in the meantime, need to release up to £20bn of efficiency savings by 2014 to meet the current financial challenge and future costs of demographic and technological change (QIPP)

8. Procurement in central government
Drive to save £6.2bn this financial year
Efficiency and Reform Group
Head of Government Procurement (John Collington)
Sir Philip Green
Focus on:
Centralisation of commodity procurement (energy, telecoms, IT commodities, professional services, advertising/media/comms, office supplies/solutions, print services, travel, fleet management)
Cutting the costs of existing government contracts
Simplified and standardised processes (lean)
Transparency 8

9. So what does all this mean for NHS procurement?
More questions than answers!
How will GP Commissioning Consortia secure their procurement skills?
Will more independent providers want to take greater control of their own procurement?
Will we see a market emerge for outsourced procurement and logistics services?
Will we see more aspects of procurement be outsourced (e.g. internal processes and logistics)?
Is there a danger this will lead to greater fragmentation of procurement across the NHS, and consequently sub-optimal VFM?
…but in meantime NHS procurement is expected to deliver £1.2bn savings as part of QIPP

10. (David Nicholson, CEO NHS, ‘The Year’, May 2009)
Health budget is protected but….
….. because of growing demand and pressure on staff and running costs…….
“We should also plan on the assumption that we will need to release unprecedented levels of efficiency savings between 2011 and 2014 – between £15 billion and £20 billion across the service over the three years.”
(David Nicholson, CEO NHS, ‘The Year’, May 2009)
The Quality, Innovation, Productivity, Prevention (QIPP) Challenge

11. QIPP Continues to be endorsed by Ministers Emphasised in DN letter
Regional vs national focus
Some misalignment between regional and national plans
Communications launch next month
12 National Workstreams:
Long term conditions
Urgent and emergency care
Right care
Safe care
End of life care
Digital and technology vision
Medicines use and procurement
Productive care
Procurement
Back office efficiency
Clinical support rationalisation (pathology)
Primary care commissioning and contracting

12. National workstream for procurement
PICD picked up stream in July
A number already agreed with Treasury (£1.2bn)
Getting alignment between national QIPP, regional QIPP, regional activity and local buy-in will be difficult!
Our approach has been to do what we can to create the right environment for better procurement …..but realise need CEO support at local level 12

13. Driving out £1.2bn is already tough because…..
Low priority in Trusts – not strategically managed nor does it get Board attention
Capacity and capability limitations
Competing procurement partners – vested interests
Mistrust of NHS Supply Chain
Inability to take commitment to markets
Inability to manage market failures
Poor internal logistics
No meaningful management information
Poor appreciation of value and technology

14. Is procurement important enough for Trusts to consider?
Typically 30-35% of Acute Trusts’ operating costs are attributable to non-pay expenditure (i.e. spent with external suppliers)
How this money is spent can affect both the financial performance of the Trust (through seeking to reduce this expenditure) and the quality and efficiency of the services provided (through purchasing of appropriate goods and services)
In some cases, products used in the delivery of healthcare represent a significant part of the cost of National Tariffs (the bill of materials) – how does this affect your profitability?
Procurement can also impact on the 65-70% that are staff costs
Robust supply chains and logistics are critical to healthcare delivery
60% of the NHS carbon footprint is believed to be in its supply chains
Is non-pay spend a driver for competitive advantage or not?
Tariffs likely to be reduced (and possibly reduced activity) from next year putting pressure on costs

15. Views from FT CEOs…
Acknowledge procurement does not get Board attention (i.e. more than a CIP spreadsheet!)
Procurement will be important as money gets tighter
Need to get a better grip of local policies
Don’t like being taken for a ride by suppliers
Need to tackle difficult medical areas and engage our clinicians
Need better information and need to be able to compare, and market intelligence
Non-pay spend is not a strategic driver yet – its more about survival and therefore we should share information to secure the best prices
Can see landscape can be better managed to leverage NHS collective purchasing power but don’t have visibility of this 15

16. Views from FT CEOs (cont’d)
Don’t know enough about the likes of NHS Supply Chain and BS: simplify the message
What is the role of CPHs?
Acknowledge there is a capability gap: not sure our HoPs have the capability
Acknowledge it’s a leadership issue
Be careful about language and message
Feels cost/price driven when could be more strategic: don’t forget innovation!
Can we have the top 10 things to tackle now….
Can we find a link to governance, Monitor & VFM audits? 16

17. What is DH doing to help? Developing policy/strategy
Engaging FT CEOs/NEDs
Engaging Ministers
Driving key projects to support the delivery of £1.2bn 17

18. Key PICD initiatives
Driving implementation of GS1 and developing catalogue solution for use by the NHS
Drive better value from NHS’ relationship with Buying Solutions
Working with Supply Chain as preferred partner:
Help NHS to rationalise products and suppliers (consumables to medtech)
Improve procurement in Trusts through more control and collaboration (electronic catalogues, brigade demand, more e-auctions, better inventory management, better back-office functions)
Deliver more low-cost sourcing (own brand/direct from manufacturer products)
Explore more intuitive internet based IT systems (e.g. Amazon)
Expose irrational supplier pricing through greater transparency and encourage local competition to drive value for money
Innovation and sustainability (iTAPP and P4CR) 18

19. Summary… Deficit requires procurement to play its part but…..
…profile of procurement still very low
…capacity/capability is still limited
…NHS landscape is changing dramatically
…’procurement support’ landscape also shifting
….Will be no top down strategy – despite move to centralise civil Government procurement