Collaborative procurement

Healthcare Purchasing Consortium is a collaborative procurement hub and the main NHS provider of purchasing, supply chain and commercial services across the West Midlands and north central London. In October 2006, HPC merged with the Lifesource collaborative procurement hub and the West Midlands Procurement Alliance. The new partnership has over 180 staff and works on behalf of more than 60 NHS trusts which together spend £2.4 billion a year on goods and services. NHE spoke to corporate director John Parkin

HPC achieved a £20m saving in its first year. Can you please outline the main ways in which this was achieved?

HPC achieves savings by identifying opportunities across its customer base to aggregate spend and tender for products and services. We work with our customers to assess opportunities across the full range of non-pay spend including commissioning of healthcare and clinical support services; commercial services including estates and facilities; medical and surgical products and services; and corporate-wide services including agency staffing, transportation, corporate infrastructure.

To achieve savings in excess of £20m per annum, HPC operates an extensive portfolio of contracts, often in excess of 300 live contracts in any one financial year equating to in excess of 70,000 individual products and services that can be purchased by our customers.

We develop a bespoke plan with each NHS customer that identifies the range of commodities that we will influence on their behalf during any one financial year and agree targets to work with clinicians and managers to standardise and rationalise products and services used in the delivery of high quality patient care.

To what extent has better use of IT contributed to this?

Effective procurement relies upon having comprehensive information about customer expenditure across all areas of non-pay spend and customers ensuring contract compliance when products and services are requisitioned at a department or ward level. We have invested in electronic systems that can capture spend information from customers and produce meaningful information for purchasing professionals to identify cash saving opportunities. Using e-procurement systems which provide requisitioners with an electronic catalogue of products and services that they can purchase, customers can control unauthorised expenditure and ensure maximum use of contracts that have been negotiated on their behalf.

We provide a hosted e-procurement service for a number of trusts which gives full visibility of expenditure and is integrated with their finance systems. This improves the effectiveness and efficiency of procurement within a hospital and enables trusts to reduce the operating costs of the supplies function.

Which is more important-long term or short term savings?

In working with trusts to determine a plan of contracting activity, we identify a range of commercial opportunities that include both single and multi-year benefits. This plan is refined to take account of the clinical activity of the trust and key strategic drivers for their business as the range and volume of services fluctuates to meet the patient needs of the health economy.

Procurement has a crucial role in the successful application of lean methodologies to reduce the overall cost of patient care and we are working with trusts to re-engineer both products and processes to create sustainable savings and improved patient experience.

How much can an individual stakeholder trust expect to save?

The amount of savings that a trust can expect through collaborative procurement varies considerably dependent upon a number of factors including type of organisation (tertiary, acute, mental health, PCT); amount of non-pay spend within the business that can be influenced through collaborative procurement; maturity of procurement activities within the trust; quality of financial information available to procurement professionals, and willingness to engage with us to identify savings opportunities and to ensure a high level of uptake against contracts negotiated on their behalf.

Our primary aim is to create a real benefit to our customers by generating a fourfold in year return of cash releasing savings.

In addition to savings on products and services, HPC delivers savings through improved supply chain efficiency, reduced operating costs for local supplies functions and best value commercial advice related to complex procurement projects including PFI contracts.

What services do stakeholder trusts receive?

Across our customer base, HPC provides a varying range of services from strategic sourcing to achieve cash releasing savings for healthcare organisations through to a fully managed purchasing and supply chain service. We have developed a number of specialist advisory services-supply chain management, capital equipping and PFI performance management- that any trust can procure on a consultancy basis. These services are designed to speed up procurement processes, reduce risks arising from poor procurement and reduce operating costs.

What have been your biggest challenges?

Working across the West Midlands and north central London health economies requires our teams to actively engage with 60 customers in order to identify opportunities across the consortium as a whole whilst providing tailor made procurement and supply chain solutions to customers with very different perceptions of the value of procurement.

We have achieved standardised protocols for customer engagement, reporting and validation of savings with the full commitment of the stakeholder community which has simplified significantly reporting of performance. In addition to regular meetings with stakeholder representatives, trusts can access their workplan and savings performance data online via a secure section of our website.

What effect has the 18 week referral target had on your working practices?

Procurement has a key role to play in the identification and implementation of improved working practices which reduce the overall cost and time taken to provide high quality clinical care.

Within our organisation we have a clinical team, including pharmacy and nursing professionals who are actively working with our customers to deliver improved clinical processes which speed up patient treatment.

In this way, we are increasingly focusing with our stakeholders on reducing the overall time and cost of clinical procedures rather than simply focusing upon reducing the price of a particular product used in patient care

Do you work with any foundation trusts? Does this present any particular problems?

Approximately 10% of our stakeholders are NHS foundation trusts and we would expect this percentage to rise rapidly over the next two years. Our foundation trust stakeholders are willing to consider the broader commercial opportunities arising from procurement including joint ventures to increase their effectiveness in service delivery. In this respect foundation trusts stakeholders represent a real opportunity for HPC to develop and deliver new commercial offerings that add significant value to their business operations.

To what extent has HPC been able to drive down the cost of drugs it purchases?

There is a well established framework for the management of drugs expenditure both nationally through the DH and locally through pharmacy groups. Our own pharmacist, Inderjit Singh, has been working closely with the pharmacy community to identify and deliver additional savings and benefits for hub stakeholders which is likely to deliver in the order of £2m of savings this financial year alone.

Does the conflict between clinical need and the need to drive down prices and achieve savings often manifest itself? How do you address this?

When evaluating potential products and services, we take a number of factors into account including; price, quality and performance. We establish a group of professionals representing the stakeholders who rigorously review the products/services offered and make a recommendation based upon their professional opinion. In the majority of cases, stakeholders are able to select the lowest priced item and achieve the necessary performance requirements.

Our clinical team also engages with stakeholders to identify opportunities for product standardisation and rationalisation that can lead to further revenue savings. In this case, we review a number of opportunities with consultants and members of nursing staff to identify the benefits and issues arising from a reduced range of products available. Where necessary, we will arrange for evaluations to be undertaken and will share the results across the membership which improves stakeholder knowledge of successful standardisation and rationalisation strategies.

Within this financial year alone, we intend to achieve in the order of £1.2m of savings for stakeholders through product standardisation and rationalisation.

Does the pursuit of lower prices discriminate against small suppliers?

SMEs can fail to penetrate the NHS market for a number of reasons primarily through a lack of understanding of the market requirements and the cost of product development/marketing to a wide number of hospitals and healthcare facilities.

We are working with Advantage, the West Midlands regional development agency, and Medilink West Midlands to facilitate improved SME access to the NHS market through awareness raising seminars, assistance with product innovation and evaluation processes and communication of new products and technology across our customer base.

As a large collaborative procurement hub, we manage both large and small scale procurement processes on behalf of our 60 customers. In addition to the procurement covered by contracts, , our teams will on a daily basis handle in excess of 500 low value requisitions, each less than £5,000 in value. We are now working with Advantage West Midlands and the DH to create an information platform through which all procurement requests will be routed to provide SMEs with full visibility of the potential business from our customer base.

What areas do you expect to diversify into in the future?

Service development within procurement will increasingly move away from tactical purchasing strategies based on volume towards best value procurement considering the overall cost of healthcare procedures rather than simply the price of an individual product or service.

Assistance with the commissioning of healthcare services is a new service area for the hubs and will form an increasing part of the service offering to PCTs over the next few years.

Working with our stakeholders, we have had to develop a broader range of commercial solutions within the last two years to meet the needs of the customer base. Given the changes within the health system and the forthcoming Comprehensive Spending Review, we predict that procurement organisations will be set even greater challenges to save public money spent in healthcare involving more strategic procurement and commercial activity.

Do you expect the HPC to remain part of the NHS?

HPC’s mission is to engage with first class strategic partners in order to provide first class procurement and commercial solutions to the health communities it serves. We have been discussing with our stakeholders how to fulfil this mission given the possibility of a more open and commercial market for procurement services within the NHS in the near future.

The DH has commissioned a strategic review of collaborative procurement which is planned to publish its findings in September of this year. This may provide a useful indicator of how national policy in procurement will develop and following completion of this review, we intend to engage with our stakeholders to determine the best service and organisational development strategy for the business to provide sustainable services in a more competitive and dynamic environment.

Procurement has a crucial role in the successful application of lean methodologies to reduce the overall cost of patient care

we are increasingly focusing with our stakeholders on reducing the overall time and cost of clinical procedures rather than simply focusing upon reducing the price of a particular product used in patient care