NHS procurement leads urged to think more like big businesses and take the lead from US health market in bid to save cash

23-Jun-2011

Improving the procurement of consumables and rationalising the supply chain are just two of the ways the NHS can save hundreds of thousands of pounds without affecting frontline jobs, a new report claims.

Should the NHS rationalise its supply chain and target 15% service cost reduction, this would lead to a potential hard FM saving of £572m per annum

Drawn up by consultancy, EC Harris, the second annual NHS Service and Estate Efficiency Report outlines a number of immediate improvements that can be made to save the NHS in excess of £1billion. In terms of the procurement of goods and services, the report claims efforts can be made to improve purchasing through greater collaboration between trusts.

It adds: "Should the NHS rationalise its supply chain and target 15% service cost reduction, this would lead to a potential hard FM saving of £572m per annum. NHS collaboration targets should be sought given the scale of investment.

"In considering procurement of consumable and equipment items external sources, including the NHS Business Services Authority and the recent NAO report, agree with our view that a saving of around £500m per annum is achievable.

"Overall, EC Harris believes that there is opportunity to secure revenue savings in excess of £1billion annually."

In NHS hospitals the freedom of clinicians sometimes means we cannot even standardise prosthetics and supplies between the same anaesthetists or orthopaedic surgeons in the same hospital group.

The need to improve procurement practices will be even more important following the review of the controversial Health and Social Care Bill, which paves the way for increased competition in the NHS, and as a result provides the potential for trusts to drive down costs.

Report author, Conor Ellis, said: "Like any system undergoing so much change, this is a testing time for the NHS. There may be many months spent fine tuning the current Health Bill, not least due to the intensifying opposition, but this should not stop legitimate and necessary changes being made to reduce expenditure on the NHS estate and to improve service delivery."

Commenting on the potential for savings in the area of procurement, EC Harris health expert, Karen Prosser, said the NHS needed to think more like a big business. She added: "We all know that Sainsbury\'s and Tesco achieve significantly lower prices than your average local shop simply by maximising their purchasing power with suppliers.

Overall, EC Harris believes that there is opportunity to secure revenue savings in excess of £1billion annually

"In an NHS context, there are currently more than 300 organisations using various frameworks with little standardisation. With the changes to the organisation structure increasing, this number is likely to be in the region of 460 when GP consortia are fully formed. This lack of standardised procurement means typically there are only small-scale commercial discounts from NHS suppliers.

"Significant savings based on better and smarter procurement are possible and there are some easy wins for the NHS without any decrease in the quality of the products which are provided."

She suggests a three-pronged approach to improvements, considering evidence-based decision-making, lifecycle cost and improved collaboration. She said: "In NHS hospitals the freedom of clinicians sometimes means we cannot even standardise prosthetics and supplies between the same anaesthetists or orthopaedic surgeons in the same hospital group. Some USA hospitals have achieved substantial double-digit overall reductions in the cost of materials by doing so with no decrease in clinical outcomes for their patients. This is achieved by enabling clinicians and procurement to work closely together, considering evidenced-based outcomes to enable a clear strategy to be achieved for procurement of items across a number of health institutions. Supply chain management arrangements occur on a product level and get agreed based on a generic model in terms of likely required volumes over a multi-year framework. This provides the supplier with a clearer idea of the amount of business which will be received and, therefore, as items are being procured in larger guaranteed numbers, security is provided to both the supplier, who can pass on volume savings, and the organisation in terms of quality and follow-up aftercare including service and training.

With the multiple ways that major medical equipment is procured across the NHS, there is often a little benefit made of the potential to maximise the power of procurement, not just simply of the new equipment, but also of the maintenance services which are required.

"While some UK hospitals have undertaken similar measures, the power of clinical staff to veto on clinical freedom grounds has been all too pervasive. Working together to agree an evidence base to establish the most clinically-efficient method and achieve best value should be undertaken on all major high-cost or high-volume procedures."

On the issue of multiple purchasing, she added: "With the multiple ways that major medical equipment is procured across the NHS, there is often a little benefit made of the potential to maximise the power of procurement, not just simply of the new equipment, but also of the maintenance services which are required.

Our findings demonstrate that greater collaboration between groups of health organisations can generate significant savings in terms of major medical equipment such as CT scanners

"Often, the cost of purchase is removed from the longer-term impact of service costs, which are in effect more onerous over the life of the item. To provide real value for money during any procurement process, a total cost of ownership of an item over its expected life needs to be assessed; that is assessing capital costs plus maintenance and spare parts costs. Savings of between 10%- 20% on capital cost and around 10% reduction in maintenance could be achieved by taking lifecycle costs into consideration when procuring equipment. This could yield around £500m in savings, with a stretch target that could be nearly double."

She said many average-size NHS trusts work with up to 550 different suppliers and the key to ensuring these contracts work efficiently is greater collaboration.

Savings of between 10%- 20% on capital cost and around 10% reduction in maintenance could be achieved by taking lifecycle costs into consideration when procuring equipment.

She added: "For foundation trusts the temptation is naturally to set up their own supply chains. A more realistic route is to buy using existing networks in a collaborative shared service arrangement with several similar or regional organisations, while setting reductions in costs associated on a year-by-year basis. This should be aligned with major penalties in place in the event of non achievement.

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"With an overall spend of £5billion, a significant proportion of the trust\'s annual operational costs are spent on the provision and management of medical equipment, both in terms of maintenance and capital. Our findings demonstrate that greater collaboration between groups of health organisations can generate significant savings in terms of major medical equipment such as CT scanners. Savings on capital in the region of 10%-20% are achievable. However, the greater savings are those of maintenance and service contracts. This is a year-on-year cost which often provides annual increases significantly above inflation. Through longer-term and collaborate procurement across trusts, suppliers are able to maximise the efficiency of service visits, for example supplying spare parts and consequently offer significant discounts."

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