'A new procurement model could fall foul of inertia'

How should the English NHS go about procuring the nearly £5bn worth of medical supplies and consumable goods it needs each year?

That was the question addressed in May 2011 by the Commons public accounts committee which oversees the value for money offered by all public expenditure. Its report identified a “complex reality, with a profusion of bodies involved in the procurement process” and “a great deal of waste, with trusts being charged different prices for the same goods”.

Highlighting the “risk that trusts will make cuts elsewhere, while at the same time continuing to waste money on inefficient procurement”, it concluded that “there has not been a culture of efficient procurement in the NHS”. It also criticised the lack of data that makes it hard for trust boards to hold managers to account.

Procurement is certainly complex. Trusts can purchase directly from suppliers or they can use the much-maligned NHS Supply Chain, successor to NHS Logistics, and PASA – a service provided by a private company, DHL, under contract to the NHS Business Supplies Authority. Or they can use the regional network of collaborative procurement hubs that still covers part, though not all, of England.

And there’s now another. Group purchasing organisations (GPOs), the American way to maximise collective buying power, are beginning to enter the NHS market. Earlier this year HealthTrust Purchasing Group, which is linked to private hospital chain HCA International, bought out the procurement service provider for NHS West Midlands. The new entity, trading as HealthTrust Europe, also covers University College Hospital in London and has recently signed an exclusive contract to procure on behalf of the Liverpool Women’s Foundation Trust.

Meanwhile a second large American GPO, MedAssets, is being linked to NHS procurement in the South Central region. A third, Premier, has for some years been working with NHS North West on non-procurement issues.

Harnessing the web

GPOs are controversial. Critics observe that many GPOs charge administrative fees to suppliers – typically around 2-3 per cent – and suggest an unhealthily close relationship between large suppliers and GPOs. Advocates point to GPO experience and expertise in securing the bulk purchasing benefits that, as the committee suggests, seem to have eluded the NHS’s traditional procurement vehicles.

Whatever the organisational structure, collaborative procurement aims to take advantage of NHS market dominance and to reduce variation. Larger contracts with a smaller number of suppliers offer greater efficiency.

At the core of the Department of Health response to the report is reliance on improved information, harnessing the power of web-based tools to empower local purchasers. This entails requiring NHS purchasers and suppliers to use a standard barcoding system, making price comparison easier. A statement on the use of GS1 coding, the industry standard, will appear in the 2012-13 operating framework. A broader NHS procurement strategy, with explicit targets and key performance indicators, is promised for the spring of 2012.

However, the DH response is a bit light on immediate action, given the reliance on anticipated savings. Much rests on work with the Foundation Trust Network and improving NHS Supply Chain’s attractiveness. However, even standard coding cannot be mandated.

The issue of procurement stands squarely astride two fault lines within government policy. The first is the familiar tension between foundation trust liberty and central control. If hospital trusts are genuinely independent,they should be free to procure in any way they choose, and be judged on their results.

Ministers tend to view open competition as the key to greater efficiency, whether in the delivery of healthcare or in the acquisition of its supplies. But the public accounts committee report suggests this freedom carries a significant financial cost. Jim Easton of the DH, whose responsibilities include overall system efficiency, has recently written to chief executives stressing the importance of price transparency.

The second is the broader question of how the public sector procures its needs. The government is keen to encourage trade with small and medium-sized enterprises to encourage economic revitalisation. However, the EU procurement regime is viewed by many as expensive and bureaucratic. Whether by chance or design, it favours large firms that can afford to participate.

With a revision to the EU public procurement regime scheduled for early 2012, Francis Maude, minister for the Cabinet Office, is leading the UK government’s quest for rules that “encourage innovative ways of delivering public services such as employee-owned providers”.

But there are suggestions that, in the UK and elsewhere, many take quiet comfort from the apparent safety of the current regime – even if it does support a supplier status quo. Life is simpler that way, and inertia is a powerful force.

With the DH quality, innovation, productivity and prevention programme aiming to find £1.2bn of its savings target from improved procurement, its future is no lightweight issue.