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What is actually the problem with procurement in the NHS?

by Owen Inglis Humphrey

Much has already been written about the state of Procurement across NHS England and more will be written as a direct consequence of the government plan (“Better Procurement, Better Value, Better Care: A Procurement Development Programme for the NHS” – August 2013). The question here, however, is whether procurement capability is really lacking or, is it actually a case of having some of the best tools but a misguided set of directions?

Malcolm Preston (Associate Director of Procurement at County Durham and Darlington NHS Foundation Trust), published an interesting article in The Guardian on 4th September 2013. He makes the point that, if pooled, we would have one of the most capable and best-equipped procurement teams in the world. Unfortunately, as the article goes on to explain, that is the crux of the problem. We do not pull together the capabilities, instead we actively force them apart. The prevalent culture is one of almost isolationism tantamount to mistrust and of in-fighting ingrained at nearly every level and discipline across Health. The consequences? Lost opportunity, higher than necessary costs, frustrated staff and some suppliers seeing NHS as a cash cow.

Most of the column inches written on the subject of procurement in Health highlight common threads of public misunderstanding and misdirection which lie at the heart of the challenge:

  • Value is first and foremost about the individual unit price paid for products and services
  • Aggregating demand means buying in bulk from a single supplier
  • Keeping information to yourself is a strength

Sadly, these couldn’t be further from the truth yet they are believed by many to be policy and ‘the way we work’. For as long as they persist we will always get less than we deserve.

Value is more than the ticket price

The differences between price paid and value are regularly forgotten about, especially by the popular media. It talks loudly about the ‘cost to the taxpayer’ as if it understands what that really means. Procurement teams the length and breadth of the country are targeted with making savings yet most have little or no influence on the level of consumption or true visibility of the resulting on-costs or impact on delivering the service. A similar perspective can be seen, albeit from a different viewpoint, between Trusts where the focus appears mainly about cost of delivering service. Surely the more important differentiating factors are how well the patient is treated, both clinically and as a human being. That is real value and competitive advantage but that requires a more holistic approach.

Is it better to pay 5% less for a rubbish bag just to find that it only holds half the amount before it splits open? With staff either double bagging or taking time out to empty bins twice as often? Both actions result in needing to buy more bags than before and staff having to spend more time away from front line patient care, but not to worry, at least the NHS saved about 1p per bag which is after all what is actually reported.

Does procurement of lower cost surgical implants save the NHS money? Not if the ‘reduced’ cost supply comes without any support during the introduction of the new product. The result, time away from operating lists, additional investment and training required in new equipment, and more money spent on additional services. There may be immediate unit savings but what is the overall cost to the NHS?

The same can be seen in domestic settings. Many people complain about the use by companies of foreign call centres. In the case of low cost air lines, there are all the ‘extra costs’ chargeable for what are perceived to be pre-requisites such as luggage or even checking-in. We are guided to go for the cheapest offering but do we consider the full cost?

When is aggregation not about buying in bulk?

There is an idea that bulk buying from a single supplier guarantees best value. This is once again an outdated, misguided or possibly even dangerous assumption and not one that the recent strategy promotes. The world is littered with stories of major suppliers hitting problems that then affect the whole market.

In early September a fire at a Chinese factory of SK Hynix, the world’s second largest supplier in its field, sent computer memory prices soaring by 19% to a three year high. The expectation being that the effects would be felt for months to come.

The warning dates back to biblical times with parables telling of aptly named ‘fools’ building ever larger stores for produce, only to see them utterly destroyed in one incident. Still, 2,000 years later we see people assuming that bigger is always better.

It’s about opening up the market rather than restricting it

Here is where the essence of the recent strategy lies. Aggregating demand and bringing alignment to the requirements (harmonising what you actually need) means that more suppliers could come into the market, not fewer. The adage that there is strength in numbers has never been more relevant not least with the focus on sustainability. Now is the time for smaller companies to flourish, not because they can necessarily sell a particular product cheaper, but instead they can compete on the service they deliver, having already agreed on acceptable quality and unit price. In the same vane Mark Hall (HMRC CIO) recently stated that the most innovative services were coming from SMEs, and that large multinational firms were getting tied up in knots.

A British based manufacturer of mobile phone covers is winning business from Far Eastern competitors. Whilst they may not be able to deliver millions of units at a time, and their unit costs might be very slightly higher, they can deliver the units much faster and in more manageable quantities than their Far Eastern-based competitors. Similarly, they can react to changes in fashion and buying habits much better.

Solution

Clearly much thought and direction has gone into the recent strategy but here are a few observations and thoughts:

  • Educate those involved in decision-making about what competition, value and aggregation really mean.
  • Increase the focus on output-based specifications – it is surely more important to say what you want something like a bin liner to do than to define exactly how it is made.
  • Promote the benefits of sharing information rather than forcing it – information given freely is always more complete and meaningful than if it is forcibly instructed.
  • Lets celebrate the success and opportunities rather than just highlighting the failures – we already have some real expertise around NHS in procurement, so lets show how they add value.
  • Recognise that procurement involves everyone and not just a single department – success comes from working together.

Does this mean we need yet another new IT system?

Rarely does a new system represent the answer yet it often seems to become a significant part of the solution. There is already a wealth of systems available throughout the NHS and considerable investment has historically been made. It is clear that rather than replacing what is there attention should be on how it is used, how it is fed and how the information is extracted. The recent publication sums it up nicely – the focus should be on improving data, information and transparency. Drive the common approach to the way that products, services and suppliers are defined and do this by everyone adopting GS1 (an internationally recognised set of standards for defining products, companies and locations – www.gs1.org). Look closely at how systems are being used and if necessary change. Having done that, make sure that existing systems conform to interoperability standards – can they talk to each other? Only after all of that should there be discussions about replacing systems that still don’t fit.

What about innovation?

Having clarity on what the true competitive aspects are and focusing on the output rather than being prescriptive about the inputs enables suppliers, manufacturers, commercial partners and in-house experts to get on with job of looking at how to deliver the services better. The issue then moves from the statement ‘you need to make it for less!’ and instead shifts to questions like ‘how do we make it easier to use?’, ‘how do we reduce the amount of waste generated?’, ‘how can we improve the patient experience?’ and ‘how can we reduce the time a patient spends in hospital?’. That is how innovation is bred.

Where do we start?

With a re-emphasis of the key points:-

  • Value is not all about the price on the ticket, it must instead be about the full cost of getting and using and disposing of something;
  • Bigger is not always better (and most of the time the opposite is true);
  • Transparency, openness and working together should be the norm in order to deliver the best possible outcomes for the general public as a whole; and
  • New IT systems are often not needed and are never the answer on their own.

With these principles it should be possible finally to pool together the vast expertise already available across Health Trusts to find really meaningful savings. At the same time we will dramatically improve services for the good of both patients and taxpayers.

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