Half a billion pounds to be withheld from trusts over two years

From April next year, income from tariff payments to NHS trusts will be slightly reduced in order to cover the costs of the incoming NHS procurement model which will be overseen by Supply Chain Coordination Limited, the Department of Health and Social Care owned management company.

The new service is predicted to have running costs of £510m in the first full two years of its operation (2019-20 and 2020-21).

The DHSC hopes the new funding model will incentivise trusts to spend more with NHS Supply Chain because trusts, through having tariff funding withheld, are effectively funding it themselves.

However, trusts will not be mandated to use NHS Supply Chain, meaning they can buy products from elsewhere if they believe they can get better deals.

An NHS document, seen by HSJ, reveals SCCL’s current operating costs are estimated at £180m, but this is predicted to grow to £250m in 2019-20 and to £260m in 2020-21.

The increase in operating costs reflects the “restructured operations” of SCCL, according to the document. It is not clear if the operating costs will continue to increase in the following years.

SCCL’s operating costs include staff salaries, payments to specialist procurement providers, and facilities management.

The proposed percentage of tariff income that will be withheld from trusts to pay for SCCL differs depending on the type of provider:

• Acute trusts will lose 0.4 per cent;
• Community trusts 0.2 per cent;
• Mental health and ambulance trusts 0.1 per cent.

The percentage figure is higher for acute trusts because the sector will access most of the equipment and goods bought through the new model.

It means an acute trust with £500m of tariff income per year will have £2m withheld.

In total, NHS trusts receive an estimated £70bn in tariff payments each year.

The changes are part of the new NHS procurement model, which aims to deliver up to £600m of savings through better procurement of common types of equipment and goods.

The NHS spends an estimated £5.7bn on buying these products every year, but only 40 per cent of this is done through the NHS Supply Chain – which is currently provided by DHL Supply Chain.

The DHSC wants to increase NHS Supply Chain coverage to 80 per cent of overall spend, and has split the new NHS Supply Chain model into a system in which seven companies buy the equipment.

Currently, the NHS Supply Chain funds its operating costs through a “margin” (effectively a service charge) applied to all products purchased.

The percentages have not yet been agreed by NHS England and NHS Improvement, and form part of the discussions for the 2019-20 tariff.

The document also reveals that procurement chiefs are working on ensuring providers are not badly affected if the new model fails to deliver the savings required.

“This is, for example, because there is a risk that the higher running costs for [SCCL] may not be offset against additional product savings (at least not in the short term),” the document states.

Engagement with trusts and clinical commissioning groups is “ongoing”, according to an NHS Improvement spokesman. 

The DHSC and NHS England declined to comment.