Better NHS procurement

‘We will put more money into the NHS, but there isn’t a magic money tree we can shake that suddenly provides for everything that people want’.

It’s a comment to a nurse on the BBC’s Question Time programme that Prime Minister Teresa May might reflect upon given the anger it provoked. Salaries for some front line public sector staff like nurses have been flat for years at around 1% per annum.

Despite the pockets of extra cash announced by the Government, the sad truth is that overall the NHS is still being under funded. The King’s Fund, the independent healthcare think tank, reports that – in real terms – the Department of Health budget will only increase by 0.6% on average each year from 2017/18 to 2019/2020. Clearly, this will place significant pressure on the NHS given the demand for medical services continues to increase not least with an ageing and growing population.

Never has the use of money in the NHS come under more scrutiny. It was the focus of Lord Carter of Coles’ reporton operational productivity and performance published in February 2016. Improving the procurement process is clearly a key focus given the £9 billion paid out by the NHS in England: roughly a third of this goes on goods and services, a third on medical consumables and a third on high-cost medical devices.¹ And, the backdrop to this – as Lord Carter points out – is that many Trusts still don’t know what they buy, how much they buy and what they pay for goods and services. Inventory and stock control is woefully inadequate.²

Shifting away from just transaction processing to add more value is a priority

The use of managed service providers in the procurement function is becoming increasingly popular as Trusts seek to deal with these issues and reduce costs, rationalise pricing, improve efficiency, speed up purchasing, minimise administration and invoice processing and ultimately try and achieve what appears mutually exclusive at first glance – doing more with less.

To date, dedicated managed service providers and OEMs³have been very transactional in how they have approached things. Medical equipment, associated maintenance and consumables are provided at a set price over an agreed contractual period. Savings are hopefully made with some services HMRC compliant so that VAT can also be reclaimed by a Trust which then gives them an additional 20% budget boost to invest in patient care. It’s become the minimum standard expected.

But the focus really is too narrow. Managed service providers and OEMs have tended to concentrate on discrete departmental areas in hospitals whether it be pathology, radiology or endoscopy rather than taking a much broader view and providing a much wider, joined up service for the Trusts they serve.

Moving forward, there has to be far more emphasis on value delivery in the context of how and where a Trust works. Managed service providers need to evolve to in effect become managed service partners where they:

Take a wider and closer view of a Trust’s whole operation, their cluster and local challenges;
Review services with an eye on where a Trust is at in its STP planning cycle;
Consider the patient pathway throughout the organisation;
Review how to carefully re-engineer the supply chain, purchasing, inventory and stock control so it works better, costs less and supports clinical service provision much better;
Introducing new technologies like bar coding which ensures GS1 compliance and makes it easier to track and order supplies. This will allow Trusts to look forensically at what they are doing, give greater intelligence about what’s bought and enable them to really get into the detail and review the differences between consultants and what one person spends compared to another. Improvements can then be made if there is wide variability.
Consider how more ‘intelligent’ procurement can then create better ‘linkages’ in the health ecosystem which boosts efficiency and lowers costs. For example, managing blood collections more efficiently on the primary care side means acute labs will only need to run smaller and cheaper analysers, require less space in laboratories, fewer qualified staff to use them and less maintenance;
Work closely with clinicians to ensure product ‘buy in’ and acceptance through well run equipment trials which creates standardisation and rationalisation;
Design, price and deliver managed services which ultimately improve quality to the satisfaction of the CQC.

And there needs to be consideration of all this given the inevitable saving targets and budget issues that will always exist in a publicly funded national health service.

Transaction focused managed service providers and the internal NHS procurement masters they work for may rejoice at saving £400,000 on VAT applied to just departmental equipment and consumables. A more consultative managed service partner – with a closer eye on the wider operational imperatives – could save millions by introducing the right technology at the right price which then avoids additional patient testing, reduces consultant time, lowers the necessity for nursing care and beds, minimises drug costs and attendance at outpatient clinics. Having a macro view and consideration of the broader health economics is paramount with the switched on managed service partner a driving force in looking broadly at the solution specified and its potential for long-term payoff.

Funding is available if you know where to look

While the capital famine in the NHS might appear to make it difficult for Trusts to introduce the new services and equipment desired, innovative funding methodologies are available to address this so investment can be made in surgery, pathology, endoscopy, IT and information management, facilities and legacy medical records digitisation. Trusts can select the vendors they wish without being force fed suppliers or products they don’t want, with costs packaged using an umbrella contract and services billed monthly or quarterly over the contact lifecycle. All project costs are ‘smoothed’ with no big upfront investment therefore required.

This makes Trusts much more responsive to change with some contracts actually ‘self-funding’. For example, we partner with an EDMS¹ vendor, CCube Solutions, to offer a fully managed service for Trusts seeking to shift from paper to digital medical records. All costs can be included in this such as the software, hardware and the outsourced scanning. To close a medical library and go paperless typically costs more than £1 million. Delivering this via a managed service means a Trust can close a library, quickly get rid of the paper and vans required to deliver them, redeploy or reduce staff headcount and the cash saved immediately used to pay for it.

Managed service partnerships are the future

Managed services providers therefore need to offer a wide range of services that are comprehensive, flexible and link together. They need to design services in the context of the hospital as a whole and work in partnership offering true choice so that the right equipment and services are offered in the right place at the right time. And they need to be aligned to current, medium and future requirements – with flexibility in the contracts built in so that change can be catered for along the way. This means that Trusts avoid being locked into contracts which mean change is impossible and medical professionals are stuck with equipment for years that is outdated or which is a compromise.

Above all, the truly effective managed service partner needs to be a strategic thinker, expert in change management, consultative and fully conversant in guiding and helping Trusts to transform as quickly as possible. Only then will the super tanker of the NHS be able to change course for the better so that magic money trees won’t be necessary let alone shaken.

Case studies

Vendor neutral managed services in practice – how two NHS organisations are winning working with a procurement specialist

South West London Elective Orthopaedic Centre [SWLEOC]

SWLEOC performs over 5000 orthopaedic procedures each year specialising in shoulders, ankles, hips and knees. It runs a 17-bed post anaesthesia care unit (PACU) which is unique to the hospital and offers high dependency and critical care facilities.

SWLEOC selected Genmed as its preferred vendor neutral managed services provider for the procurement of all equipment required for the running of the hospital. The focus is source and deliver the best products for the best prices so costs are driven down. This is crucial as the Government has cut the tariff for orthopaedics by 13% resulting in an annual budget reduction for SWLEOC of up to £3.5 million.

Genmed managed services are HMRC compliant for VAT recovery. Based on the scale of its purchasing, SWLEOC has already saved £1 million on VAT. This is then re-invested in providing ongoing patient care. It is expected that in the financial year ending 31 March, 2018, Genmed will procure over £11 million of consumables for SWLEOC.

The engagement is broad and Genmed’s responsibilities cover the following:

Managing the non-clinical activities of SWLEOC;
Proactive contract management to ensure adherence to Key Performance Indicators and Service Level Agreements involving approximately 300 suppliers;
Administration and ordering of all equipment and consumables such as syringes, needles, stockings to paper towels, rubber gloves, sutures, masks, stationary – absolutely everything SWLEOC requires to operate on a day to day basis;
Close engagement with SWLEOC’s Theatre Efficiency Group (TEG). While clinical processes and patient flows work well, an opportunity existed around reducing expenditure. Genmed is working in tandem with the clinical and medical directors to review which products are currently used and test news ones which could work as well but cost less.
Organisation and management of multiple equipment trials which are then evaluated by the TEG group.
Supplier invoice processing and administration;
Organisation of stakeholder days to encourage suppliers to review and offer SWLEOC better pricing on products given the importance and reputation of the hospital.

Another benefit of working with Genmed has been the provision of new equipment – the costs of which are spread over its 7-year contract. SWLEOC has already been able to introduce new anaesthesia and ultrasound machines, new theatre tables, specialised IT and patient monitoring equipment for the PACU – an investment totalling over £770,000.

Genmed recently implemented hTrak, a healthcare information management system, which tracks the usage of consumables and equipment using barcodes. The system will help SWLEOC build a complete catalogue in terms of everything it is currently buying and costs associated so the procurement process and supplier selection can be closely managed and enhanced. This also means SWLEOC will be GS1 compliant well before Government’s target date.

Norfolk and Norwich University Hospitals

Serving a catchment area of about 1 million patients, laboratory medicine in the Norfolk and Waveney area is managed by the Eastern Pathology Alliance Network (EPA) – a joint venture established in 2012 between Norfolk & Norwich University Hospital, the James Paget University Hospital and the Queen Elizabeth Hospital Kings Lynn.

Employing 4o0 staff, the EPA runs laboratories on the three hospital sites with procurement centralised for all and now managed by Genmed who will buy all pathology equipment and consumables. This will also include running mini tenders which allows the EPA to choose best of breed technology from any pathology supplier it wishes to select without the tender and contractual process constraining this. Genmed will work on the EPA’s behalf to drive down costs to achieve greater value for money as well as improving administrative efficiency while maintaining quality of service.

The agreement with Genmed enables the EPA to incorporate any pathology requirement under a managed service contract. This means the scope will now be broadened to not only cover clinical biochemistry and haematology but microbiology and cellular pathology which will include in the region of 40 suppliers.

The type of equipment which will be procured by Genmed for the EPA covers clinical biochemistry and haematology analysers, toxicology analytical equipment such as tandem mass spectrometers, microtitre plate washers and readers, point of care devices such as glucose monitors, as well as all consumables needed like assay kits, tubes, cups, pipettes, diluents and so on.

While the relationship with Genmed is relatively new, five sub contracts have already been signed for equipment which will result in a projected £264,000 cost saving in the first year on reduced consumables prices and VAT recovery with Genmed also negotiating better pricing for the EPA for these contracts.

All Genmed managed service costs are ‘smoothed’ with no big upfront investment required by the EPA. Billing is done quarterly which also helps the finance department with its forecasting. This is important as pathology is seasonal with peaks and troughs of activity. The quarterly billing cycle means the EPA avoids over or under spending during any given month which helps with its cash flow. Genmed also manages all the ordering, invoicing and reconciliation which reduces administrative overhead.

References

Source: See page 41 of Lord Carter of Coles’ report
Source: See page 42 of Lord Carter of Coles’ report
Original Equipment Manufacturers
Electronic document management software

Better NHS procurement

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