NHS procurement: the challenges ahead

1. NHS procurement: the challenges ahead John Warrington Deputy Director, Policy & Research john.warrington@dh.gsi.gov.uk

2. Drug Tariff Trust procurement teams Regional Commercial Support Units Collaborative Procurement Hubs x 8, and LPP Current landscape…. Procurement, Investment & Commercial Division National Regional 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%) DH CMU £1,200m (32% of cat) £3,745 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 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 £2,592m Temporary/Agency Staff/Consultancy £7m (11%) Other £3m (4%) Other £834m Total £71m Total £15,526m

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

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. 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: • Medicines use and procurement • Productive care • Procurement • Back office efficiency • Clinical support rationalisation (pathology) • Primary care commissioning and contracting • Long term conditions • Urgent and emergency care • Right care • Safe care • End of life care • Digital and technology vision

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

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

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?

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

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)

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