NHS Supply Chain considered surcharge for trusts

Documents leaked to HSJ show the company that runs NHS Supply Chain explored applying a “skinny margin” to products sold to the NHS, but ditched the option partly because it was concerned about an “adverse reaction” from trusts.

The option appeared to contradict previous statements from national procurement chiefs, who said the new model would increase NHS Supply Chain’s price transparency. The increased transparency would be achieved through NHS Supply Chain buying products via specialist companies, and selling them to the NHS at the same price. 

The new NHS Supply Chain model will be fully implemented by April 2019, but several issues around the model’s operating costs and funding have yet to be agreed.

The “skinny margin” was considered because it would help Supply Chain Coordination Ltd, which runs NHS Supply Chain, achieve financial balance – according to an internal briefing paper obtained by HSJ.

SCCL’s operating costs will be funded mainly through tariff payments withheld from trusts, but its costs, which are currently £180m, will increase to at least £260m in 2020-21.

The “skinny margin” would have created an extra income stream, but a report for SCCL concluded there was “no system issue that requires a margin of any kind”, and that trusts “may react adversely to the idea of being charged a nominal margin on NHS Supply Chain spend”.

SCCL’s income sources will include non-NHS customers, who will pay a margin for products, and rebates or retrospective discounts from suppliers applied after transactions have been completed.

The report, presented in early September, recommended further analysis be undertaken before a final decision was made.

However, SCCL confirmed this week to HSJ it had decided not to apply the “skinny margin” to NHS Supply Chain products.

The paper twice stated SCCL’s operating costs would rise to £335m by 2020-21, but a spokeswoman for the company said this was an “error” in the report.

She said the operating costs would be £250m in 2019-20 and £260m in 2020-21. This increase is expected due to NHS Supply Chain growing its market share, which will add further costs to its logistics service.

The spokeswoman said the additional £10m would not be a new cost – merely a “move of spend” by trusts from suppliers to NHS Supply Chain.

Meanwhile, negotiations continue between regulators and trusts over the exact amounts that will be withheld from trusts to pay SCCL’s operating costs. The withholding of tariff payments will start on 1 April next year.

In addition, it is still unclear if NHS organisations not contributing funding allocations towards SCCL’s operating costs, such as clinical commissioning groups and arms length bodies, will pay a margin on NHS Supply Chain products.

The procurement model aims to save the NHS more than £2bn over five years through more efficient procurement of hospital equipment and common consumables.