01.03.11
How NHS trusts are ‘failing’ at smart procurement
NHE speaks to Mark Davies and Grace Beardsley of the National Audit Office to discuss their landmark report on consumable procurement at NHS trusts.
The NAO made a lot of health managers sit up and take notice when it suggested the NHS could save half a billion pounds simply through buying its consumables in a more intelligent way.
This would go a long way to meeting the £1.2bn in savings from procurement the NHS must make over the next four years, without having to actually reduce spending on anything except unnecessary items.
Newspapers were particularly interested in the startling variety of similar items that various NHS trusts buy in – including 652 types of glove and 1,751 types of cannula. Margaret Hodge, who chairs the House of Commons Public Accounts Committee, called some of the buying practices “ridiculous” and “unacceptable”.
The NAO report, published in February 2011, says procurement should become a “strategic priority” for the NHS as it seeks to make efficiencies – but that it is currently “failing” at this.
Value for money
Mark Davies, director of health value for money at the NAO, told NHE: “We’ve always been very conscious of the scale of public money spent on goods and services across government, and in this case across the NHS.
“Being public sector auditors, we’re very keen to see what sort of value is being secured from that, particularly at this time with the current state of the economy and the public finances. The NAO has done a range of procurement studies across government – it’s one of the areas we look at on a regular basis.
“In the NHS you have a large number of hospital trusts who buy something like £4.6bn worth of consumables a year. One of our key findings is that the quality of the information out there, in terms of what is bought by individual trusts and what they pay, is not good; it’s pretty poor, to say the least.
“There is quite a range of prices paid by individual trusts for what are exactly the same commodities.
“There’s a wide range of things being bought by different trusts and there’s a question mark around whether the variety in the things being bought is necessary. With some sensible engagement between trust management and clinicians, there’s an opportunity to considerably standardise and therefore reduce the range of things being bought.
“There is a key opportunity being missed at the moment for trusts to actually go into the marketplace with committed volumes, across different trusts. They’re all going to the same suppliers to buy the same sorts of things. If they engage with the marketplace in a more thought-through way, looking at annual volumes of consumption, what neighbouring hospitals are doing, how demand can be amalgamated, they can go to the market and say ‘we need this volume of this commodity in this year’.”
Routes to market
“There are various routes to market, including NHS Supply Chain and procurement hubs,” Davies continued. “It looks a bit of a muddle out there; the nine hubs are all doing good work, but when you take them in the round, they’ve been set up under different arrangements, and it’s a bit of a free-for-all. Some are competing with each other for the same goods and there’s not complete coverage of every hospital in their region, for example.
“Somebody needs to take a good long look at the hubs; they don’t look very coherent at the moment and there must be a better way and a more rationalised approach to join up trusts and the market.”
“The NHS is missing the opportunity to exploit its purchasing power.”
Report co-author Grace Beardsley, an audit manager at NAO, said: “We also found lots of low-value, small-scale ordering going on, with a lot of inefficiency. Anecdotally, we’re hearing that a lot of these orders are in response to trusts simply running out of things – we didn’t look closely at inventory management, but we did hear about this problem with short-term ordering.”
So is the whole system to blame, or is it up to individual trusts to buy smarter?
Davies said: “This report should be aimed at trust chief executives. Procurement is not the most exciting thing on a trust’s management agenda, and one can understand why. You have a lot of people with a lot of procurement experience within trusts, but the problem is that there sometimes isn’t a management grip on this. What you then get is the risk of a lot of people being able to just pick up the phone because the box or the shelf is empty and buy small amounts of stuff in low volumes.
“Look at supermarkets; a very much more simple operation than a hospital, of course, but there is management control over the way individual stores purchase, when things are purchased, and just more intelligent procurement.
“If you don’t have a board-level commitment to this, the sorts of things we’ve found can easily happen. There’s a very big responsibility on individual trusts to put their own house in order.
“There is the challenge across the NHS to secure up to £20bn of savings in the next four years. Within that, that’s a target of £1.2bn of procurement savings. If I were a trust chief executive, I’d be looking closely at this report – there are some very quick wins.”
He said the NHS more widely does have a role in improving benchmarking, transparency and performance indicators around procurement to aid trusts.
Case studies
Davies added: “Our case studies illustrate that where there’s a will, you can get clinicians round the table, show them what’s being done at the moment and the current spend and the variety of commodities being ordered, then do something about it.”
Some procurement managers have contacted NHE with thoughts on the report’s recommendations. Some made the point that having a variety of suppliers is healthy for the NHS, as it ensures they have to compete on price – that excessive consolidation could drive smaller suppliers out of business, leaving the largest ones freer to hike prices.
But Davies said: “I think you can cover a lot of ground in terms of procurement efficiency before you get into any of these potentially difficult trade-offs. Remember, the current situation doesn’t really work for suppliers either – they may be doing a good trade with the NHS by selling to individual hospitals, but that means they have to invest an awful lot in their customer management to engage with so many individual trusts.”
Beardsley added: “It also depends on which market you are thinking about – there is a big difference between the markets for A4 paper and those for stents and hip joints, for example, as some are commoditised and some are specialised. The market structures mean it’s difficult to generalise.”
Checking the figures
Some procurement managers also questioned the prices offered by NHS Supply Chain.
Beardsley said: “As we did our fieldwork, we did come across this perception or allegation about NHS Supply Chain being more expensive and not a good deal, so we mined the data on what trusts actually paid to see whether the numbers stacked up.
“We found that overall, it’s about half and half – sometimes more expensive, sometimes cheaper – so it’s not justified on the numbers to say it’s consistently more expensive.”
There is also an allegation that suppliers raise their price to NHS Supply Chain and undercut that price through other routes, she said, and added: “What would really aid NHS Supply Chain is getting committed demand from trusts, which would really help it drive good deals, but at the moment all of its incentives are around variety.”
One way some trusts drive down prices is through e-auctions, where various bodies get together to ask suppliers to name their best price for supplying a set amount of a certain commodity.
Davies explained: “I’ve been at one of these e-auctions for IT equipment; you’ve got people committing themselves to the outcome of the auction. You’ve got local authorities, central government departments, health bodies, all putting their ‘demands’, their volumes, into a pot. It’s a ‘reverse auction’, because the price ticks down, and it was quite impressive to see you’d have this coming together of public bodies, putting their demands together and going out to global suppliers.
“Doing better deals is at the heart of this. The current situation isn’t good in anybody’s book. The NHS really has a duty to make these savings. This is about win-win, not about closing wards – it’s spending less on what you’re already buying by doing sensible things.”
The full report is available at www.nao.org.uk/publications/1011/nhs_procurement.aspx