Why trust procurement needs price comparison to be efficient

The benefits of transparent prices have been demonstrated in sectors such as airlines and personal insurance, where greater transparency has led to more informed choices by consumers, and lower, more uniform prices.

But NHS providers facing the demand for procurement savings also face barriers in obtaining comparative price information even for commonly purchased consumables and clinical products.

The Department of Health estimates that trusts could save up to 20 per cent of their non-salary spending by effective procurement and supply chain management. A recent report by the National Audit Office also estimates that NHS trusts could save £150m, or an average of £900,000 per trust, by reducing the variation in the prices paid for the same products.

However, in the current market the lack of price information means that trusts cannot easily compare prices with their peers to see if they are getting a poor deal.

The DH sponsored the Foundation Trust Network to run a pilot study to compare price information for a small group of specified clinical products to provide greater transparency in procurement. The project aimed to assess the level of variation in prices paid, and provide an empirical basis for workshop discussions of the drivers of price variation and how best practice in procurement can help secure the best prices.

A group of 20 trusts participated in this pilot study, with support from trust procurement departments, data leads and board-level sponsors. Volume and price information were collected for April-December 2010 for 11 clinical products, together with information on trust procurement practices – including participation in collaborative buying groups and information on supply sources.

Initial scoping

The 11 products were selected through an initial scoping phase to determine commonly purchased products for the interested trusts. To obtain consistent and comparable prices the product supplier, part and unit of measure were all specified in detail; VAT, carriage, maintenance or training costs associated with the products were all excluded.

Across the 11 products, which ranged from low cost items such as mammography film to high cost goods such as surgical hoods and knee implant components, the difference between the maximum and minimum price paid by trusts varied between 8 per cent and over 100 per cent.

The greatest range in prices was for the adult Bair Hugger [patient warming products] by Arizant, where the highest average price paid by a trust was nearly three times the lowest price paid. For knee implants the highest price was over 70 per cent higher than the lowest price (see graph, attached right).

There was no significant difference in the level of price variation for high cost products (average prices over £700) and low cost products (average prices below £70). There was also no significant correlation between the average prices paid for products and the volumes ordered, with some trusts able to negotiate the best prices for even relatively small volumes. The relationship between volume and price for an individual product will however be affected by other factors, such as the total expenditure committed to the supplier.

Variety of channels

Trusts participating in the study purchase their clinical products through a variety of channels – directly from suppliers, through the national supplies organisation NHS Supply Chain, or through collaborative procurement hubs or other collaborative purchasing arrangements. For some products there was less price variation and lower average prices where the trust sourced the product directly from suppliers rather than through NHS Supply Chain.

Although this study was based on a small sample of products and trusts, the findings show that collaborative procurement is only one of the tools that trusts are using to obtain the best prices. While collaborative procurement can clearly be a highly useful solution, its effectiveness may be limited by trusts’ reluctance to commit to purchasing high volumes of products through collaborative groups.

A benchmarking workshop was held for participating trusts to discuss the data as a group, identify improvement opportunities and share learning resulting from different procurement practices and innovative approaches.

In discussions, participants noted that comparable stripped-down price comparisons were a critical starting point for improving procurement efficiency, but further work is needed to assess the effect on price of value-added services such as direct ward delivery, inventory management, and other factors such as contract length and the trust’s total expenditure over a range of products with any one supplier.

Participating trusts emphasised the need for greater clinical engagement and corporate engagement, and the use of technology to improve procurement efficiency and reduce price variation. Procurement leads said clinical engagement is a vital part of ensuring that clinical needs and good practice are balanced with the efficient use of resources.

For example, trusts managed to reduce prices and price variation by using product review groups or committees chaired by clinical leads. These groups trialled new products and made recommendations that led to standardised procurement across trust sites with clinical buy-in. These groups also regularly reviewed products that accounted for significant amounts of trust expenditure to establish where clinical preference and maverick spending might play a role in inefficient procurement.

Corporate level engagement is also a vital factor in efficient procurement. Trusts that took part in the Foundation Trust Network benchmarking study said that making procurement an organisational priority – for example by increasing the visibility of the procurement department to the trust board through standing committees and reports – would underpin improvements in trust procurement results.

This would allow procurement departments to evolve from mainly operational or transactional units that act purely on requests to purchase products, to more strategic units that add value, assist in business decisions, improve supplier performance and make savings within the trust.

Technological edge

The use of technology in procurement also produced tangible results. Trusts reported successes in implementing and using e-procurement, e-tendering, online catalogues and electronic invoices. These initiatives reduced administration time, highlighted contract opportunities, and helped purchasers to quickly identify the most appropriate products within a range.

The purpose of the benchmarking study was not to quantify the potential savings available from more efficient procurement, or to highlight price variation across a wide range of trusts and clinical products. The focus of this pilot was to give participating trusts a comparable evidence basis to hold candid workshop discussions on how they could improve their own procurement practices.

Greater transparency in the prices of clinical products is needed to enhance trusts’ ability to assess the market and negotiate effectively. This pilot study and workshop were a first step towards engendering this transparency in prices and building the peer-to-peer dialogues that will help trusts secure the best possible prices.

Find out more

FT Network Benchmarking

National Audit Office: the procurement of consumables by NHS acute and foundation trusts