The Department of Health has pinpointed five key areas where it wants the health service to cut costs in a bid to slash £2bn from the 2015-16 budget, HSJ has learned.

The areas were laid out in a presentation by John Warrington, DH deputy director of procurement, policy and research, to senior NHS figures and seen by HSJ, in which the DH estimated it could achieve up to £1.8bn worth of savings across five main categories.

Up to £530m of savings could be made on clinical procurement and a further £450m through the better use of temporary staff, he said.

The remainder of the saving are expected to come from drugs, everyday consumable hospital goods and services and property budgets (see table 1, below).

The presentation - given to officials from NHS Supply Chain and other senior figures - also identified five “initiatives” that will play a key role in setting the savings agenda (see table 2, below).

National categories are defined as “complex, high spend, multistakeholder categories requiring coordinated national approach”.

They include a “national categories programme” which aims to deliver savings of up to £1.1bn.

The DH is also planning to create national strategic frameworks and targets for all the national strategy areas.

The first will be orthopaedics, a market worth an estimated £1.3bn. This is likely to be followed by cardiovascular and renal.

Orthopaedics has long been viewed by the DH as an area in which the NHS overpays for goods such as replacement knees and hips. It is being used as a blue print which could form the basis of future category strategies.  

NHS Supply Chain has an official target of £150m worth of savings.

However, DH estimates it could achieve up to £400m of savings, depending on whether it increases the number of contracts it oversees.  

The targeted savings programme follow the department’s release of procurement strategy Better procurement better value better care in August last year.

This sets out a target that by the end of 2015-16 trusts should spend no more than they do in 2013-14 on non-pay expenditure. 

Table 1: £1.8bn of targeted savings over five categories

CategoriesSpend 2012-13 (£m)Savings target (£m)
Pharma/inventories consumed6,510400
Common goods and services3,529227
Temporary staffing3,471450

Source: DH presentation April 2014

Table 2: DH savings targets divided into five initiatives

InitiativeSavings target (£m)
Key supplier management programme200 – 300
NHS Supply Chain150 – 400
Common goods and services227
National categories strategies1,130
Commercial medicines unit400

Source: DH presentation April 2014

To freeze spending and counteract inflation in healthcare supply prices, trusts will be required to find real terms savings of £1.5bn.

Ministers have since increased the target to up to £2bn.

A senior source from the medical technology industry told HSJ the savings targets were “unrealistic” because they had been “driven by politicians and not properly costed”.   

A DH spokeswoman said procurement savings would allow more resources to be put into “frontline patient care”.

She added: “We are delivering on our promise to improve the way our NHS buys goods, equipment and services to make sure taxpayers’ money is spent efficiently and more money is available to look after patients.

“Our changes will also make the NHS a more open and better place in which to do business, helping us win the global race.”