Response to National Audit Ofce/Public Accounts Committee Reports

Introduction
Over the past few months, reports from the National
Audit Office and the Public Accounts Committee (see
background below) have criticised the fragmented and
disjointed nature of procurement processes in the NHS,
and the resulting shortcomings with regard to value for
money at a time when the delivery of efficiency savings
has become a pressing issue for all NHS organisations.
NHS Supply Chain has welcomed the reports thorough
analysis, conclusions and recommendations, and finds
that the solutions it offers are likely to address many of
the issues raised in the reports. NHS Supply Chain is
keen to contribute to the ongoing debate on identifying
ways to improve trusts planning and purchasing
processes and help make procurement a key area from
which to achieve the required savings over the next
three to four years.
Background
On 2nd February, the National Audit Office (NAO)
published a report into The procurement of
consumables by NHS Acute and Foundation Trusts.
Highlighting the complexity surrounding the
procurement of healthcare consumables as a result of
its fragmented nature, the report found that the current
procurement activities did not deliver value for money
for the NHS or the taxpayer.
In response to the NAOs publication, the Public
Accounts Committee (PAC) held an evidence session on
the NAO report with key figures
1
from the Department
of Health and NHS. The Committee concluded that
whilst the Department of Health was clearly engaged
in improving procurement systems,
2
the nature of the
current system was still producing a great deal of
waste
3
and that a lack of data has limited progress
towards more efficient procurement
4
and
standardised products
5
and a lack of spend
committed to contracts impeded NHS trusts from
getting the best value for their money.
NHS Supply Chain Parliamentary Brief
1 Sir David Nicholson KCB CEB, NHS Chief Executive, David Flory, CBE NHS Deputy Chief Executive, Peter Coates CBE, Commercial Director, DH, Howard Rolfe, Director of
Procurement, East of England, NHS Collaborative Procurement Hub
2 Public Accounts Committee: The procurement of consumables by National Health Service acute and Foundation Trusts; 20th May pg. 3
3 Ibid
4 Ibid
5 Ibid For example, the Committee noted that the NAO found that trusts buy 652 different types of surgical and examination gloves
On 30th March, the NAO published a separate report
Managing high value capital equipment in the NHS in
England which examined NHS trusts efficiency around
the use of high value equipment e.g. MRI scanners,
particularly in relation to planning, meeting demand for
services and improving management. One of the
reports key findings was that value for money was not
being achieved across all trusts because of their failure
to collaborate.
Key Issues
The reports from the National Audit Office and the
Public Accounts Committee raised a number of key
issues about the procurement system in England which
include the following:
a fragmented system of procurement The NAO
criticised the nature of fragmented purchasing which
hampers efficient buying, particularly as individual
trusts alone can only make limited improvements in
their procurement of consumables. The PAC report
also suggested that the structure of organisations
whose role it was to encourage collaborative
procurement across the NHS was confusing and
should be clarified.
procurement should be a strategic priority The NAO
acknowledged that procurement of goods and
services had not been an issue for hospital trust
boards to date. It called on Chief Executives to
consider procurement as a strategic priority. The PAC
report echoed these concerns; the Committee warned
that trusts were in danger of ignoring savings
achievable from better procurement practices and
instead cut elsewhere. It was suggested that boards
should require trusts to demonstrate to their boards,
staff and patients that they have delivered the
optimum savings from procurement, before front
line staff cuts are considered.
6
suppliers deliberately charge higher prices to NHS
Supply Chain Both the NAO and PAC reports
acknowledged there are some products purchased by
hospitals direct from suppliers at prices lower than
that available through NHS Supply Chain, even
though they are purchased from the very same
suppliers. NHS Supply Chains prices also include the
cost of procurement and supply chain services which
enable efficiencies to be delivered to hospitals. NHS
Supply Chains prices also include VAT which is not
the case with other suppliers prices where VAT is
shown as separate from the selling price.
role of NHS Supply Chain There was recognition
that the NHS Supply Chain model was not being used
to the extent that was expected when the contract
was set up in 2006. The NAO acknowledged that NHS
Supply Chain had great potential as an efficient
source of supplies to NHS hospitals,
7
but trusts use
of the service had been below expectations. The PAC
report suggested that the Department of Health
should review the NHS Supply Chains operation to
ensure that it provides the incentive to capture
aggregated NHS demand, develop plans to make NHS
Supply Chains offer more attractive to trusts and
assess regularly whether NHS Supply Chain was
subject to the right level of competitive pressure.
8

The Department of Healths response to the PAC
report, states that The Department does not accept
that NHS Supply Chain is not demonstrating its value
to the NHS but does accept that more could be done
to improve it. The Department will undertake a
review of how the organisation can be incentivised to
aggregate NHS demand by the end of 2011 as well as
an exercise in benchmarking NHS Supply Chain prices.
6 Public Accounts Committee: The procurement of consumables by National Health Service acute and Foundation Trusts; 20th May, pg. 6
7 National Audit Office: The procurement of consumables by NHS acute and Foundation trusts: 2nd February, pg. 7
8 Public Accounts Committee: The procurement of consumables by National Health Service acute and Foundation Trusts; 20th May, pg. 5-6
value for money There was criticism in the NAO
report that due to a lack of product standardisation
and duplication of procurement processes, trusts
incur unnecessary costs.
9
The NAO used the example
of the Doncaster & Bassetlaw Hospitals Foundation
Trust to emphasise how local efforts to standardise
point to a wider potential across the NHS. The Trust
was formed from a merger of three former separate
trusts, who standardised their nurses uniforms
through NHS Supply Chain, reducing costs for 23,000
garments a year by more than 50 per cent, from
300,000 to 148,000 annually.
increased price transparency The PAC report
highlighted that there was a lack of information which
would enable better benchmarking of products and
prices. The NAO reported that there were currently
wide variations in prices paid by trusts. It found that if
hospitals worked together on purchasing, significant
savings could be made and that if all trusts paid the
lowest available price on a particular basket of
products, where data was available, then on average
each trust could each save 900,000.
10
The NAO
commented that the Department adopt standard
product bar-coding to improve procurement data and
enable price comparisons
11
and assess the use of
e-commerce systems.
12
bulk deals for capital equipment The NAO reported
that trusts were not making the best use of existing
framework agreements which could secure lower
prices on the purchase of new machines
13
and that
they were not working together to group
demand.
14
The report called on trust boards to again
participate in benchmarking activity to compare prices
with other trusts and look for opportunities and to
group their demand for machines with other trusts to
secure savings on the price of machines.
The solution
NHS Supply Chain agrees with the concerns raised by
the National Audit Office and the Public Accounts
Committee. We particularly welcome their
acknowledgement that the current procurement system
is far too complex and as a result has failed to optimise
value for money for the NHS or the taxpayer.
The NHS Supply Chain model is ideally placed to
help trusts achieve savings through better
procurement practices:
NHS Supply Chain operates a national contract
As Agent of the NHS Business Services Authority since
October 2006, the NHS Supply Chain model provides
a national purchasing structure and a means by which
trusts aggregated requirements can be articulated to
the supplier market, optimising their purchasing
power and delivering value for money. Trusts must
become more willing to collaborate and commit their
spend. NHS Supply Chain believes this will help
alleviate the fragmented nature of the current
procurement environment.
NHS Supply Chain has standardised certain product
ranges NHS Supply Chain already works with
clinicians in certain product categories to agree a
rationalised range of products against which all spend
can be committed; this therefore allows the NHS
purchasing power to be leveraged. For example, the
paper hygiene tender acheived a 5 per cent cost
releasing saving, totaling 1.8 million through reducing
the range from 77 to 55 products. NHS Supply Chain
also provides a full e-commerce suite free of charge to
every hospital including an electronic catalogue,
ordering and payment systems. NHS Supply Chain
believes e-commerce will improve procurement
information and will support further product
standardisation and increase contract compliance. We
plan to widen our range of standardised products to
enable further efficiency savings. It will also allow
hospitals to drive compliance to fewer, larger contracts.
9 National Audit Office: The procurement of consumables by NHS acute and Foundation trusts: 2nd February, pg. 5
10 National Audit Office: The procurement of consumables by NHS acute and Foundation trusts: 2nd February, pg. 5
11 Ibid pg. 8
12 Ibid pg. 9
13 National Audit Office: Managing high value capital equipment in the NHS in England, 30th March 2011, pg. 7
14 Ibid
NHS Supply Chain reduces duplication of procurement
Duplication in trusts can be avoided where contracts
for products exist with NHS Supply Chain. If trusts buy
these products through NHS Supply Chain rather than
duplicating contracts, our calculations suggest savings
could be achieved across the NHS of 50-80 million
per year.
NHS Supply Chain can remove unnecessary
administration costs Significant back office
efficiencies can be achieved through consolidating
orders, deliveries and invoices from multiple suppliers
through the NHS Supply Chain supply channel. This
also contributes significantly to a more sustainable
supply chain in the NHS through reduction in carbon
emissions from reducing multiple deliveries.
collaboration with NHS trusts NHS Supply Chain
cannot deliver the procurement savings needed by the
NHS alone, collaboration with NHS trusts is vital.
15

NHS Supply Chain advocates that spend commitment
is needed from NHS trusts which will give NHS Supply
Chain further ability to leverage savings from NHS
consumable spend. NHS Supply Chain is also helping
trusts to collaborate and coordinate their planning
beyond local demands. Our capital equipment team
uses trusts capital equipment plans to identify
aggregation and savings opportunities.
savings from commitment deals in capital equipment
The NAO acknowledged that 75 per cent of NHS
trusts were already utilising NHS Supply Chain
frameworks, as a result these trusts are enjoying lower
acquisition costs and equipment cost savings. NHS
Supply Chain has invested heavily in capital planning
and leasing contracts to support trusts. We believe
that if this facility is adopted more widely, it will lead
to more bulk buying opportunities and increase
savings for acute and commissioning sectors as
envisaged by the NAO.
NHS Supply Chain works in partnership with SMEs
and encourages innovation NHS Supply Chain
provides a fast-track route for innovative products
to be brought to market through the innovation
scorecard initiative. NHS Supply Chain provides an
opportunity for many new and smaller suppliers to
access the NHS market where otherwise it would not
be possible for them to sell their products. This
initiative encourages suppliers to think creatively and
come up with innovative products that are cost
effective and high quality consequently driving
competition and improving value for money in the
NHS market.
Conclusion
As the Public Accounts Committee highlighted, at a
time when all trusts are required to make efficiency
savings of 4 per cent in 2011-12 alone, trusts should
seek to achieve as much as possible from improvements
in procurement.
16
The NHS Supply Chain model clearly
demonstrates its capability to help trusts in this regard
and our own calculations reveal that NHS Supply Chain
has already saved the NHS over 200 million and is on
target to reach 1 billion by 2016.
As the use of NHS Supply Chain is not mandated and
hospitals can decide whether to purchase their supplies
from individual suppliers, regional hubs or NHS Supply
Chain, collaboration is required from NHS trusts as we
cannot reach these efficiency savings alone. We
welcome the NAOs call to trusts to reassess their
current purchasing practices and collaborate to achieve
greater purchasing power.
We urge hospital Chief Executives to consider
procurement as a strategic priority and we welcome
the opportunity to work with various stakeholders to
improve their understanding of the NHS Supply Chain
solution. Separately, we are also working closely with
the Department of Health to contribute to delivery of
the 1.2 billion savings target from procurement as part
of the Quality, Innovation, Productivity and Prevention
Programme (QIPP).
15 The NAO report states that NHS Supply Chain sales at the end of the contract year 4 as 1.2billion, reflecting only transacted sales. The correct sales figure which
includes our capital business is 1.75bn.
16 Public Accounts Committee: The procurement of consumables by National Health Service acute and Foundation Trusts; 20th May, pg. 4
Calls to action
procurement as a strategic priority Are the hospital
chief executives in your constituency discussing
procurement at Board level and demonstrating that
the optimum savings have been achieved from
procurement as recommended by the National Audit
Office report?
value for money Are the hospitals in your
constituency protecting front line services whilst
optimising value for money through demonstrating
best procurement practices?
About NHS Supply Chain
NHS Supply Chain is operated by DHL as Agent of the
NHS Business Services Authority. It supports the
National Health Service (NHS) and other healthcare
organisations in England and Wales by providing end to
end supply chain solutions.
NHS Supply Chain manages the sourcing, delivery and
supply of healthcare products and food for over 1,000
NHS trusts and healthcare organisations. It provides a
single point of access to over 600,000 products ranging
from bandages to sutures, from gloves to implants, and
diagnostic equipment such as MRI scanners.
Contact for further information:
Joanna Morrison, Head of Public Affairs & PR
Tel: 07776 457201
Email: Joanna.Morrison@dhl.com