NHS Procurement Review Call for Evidence

27th July 2012

NHS Procurement Review Call for Evidence

Executive Summary
NHS procurement is a complex and fragmented system. For many years it has not been seen as a priority. As such, its potential to drive quality and value in the NHS has not been fulfilled. This is reflected in the many publications that have expressed the need for change from the Cabinet Offices 1998 review of NHS procurement to the National Audit Office publication in 2011, The Procurement of Consumables by NHS Acute and Foundation Trusts and the Public Accounts Committees ensuing report. To that end, ABHI applauds the intent in the publications NHS Procurement: Raising Our Game and NHS Standards of Procurement which set out the first steps in the change programme for NHS procurement. The medical technology industry has long sought constructive engagement with senior leaders of the NHS and the Department of Health on this issue. This is a solid stepping stone upon which NHS procurement can build and ABHI looks forward to continued engagement throughout this journey. ABHI welcomes the opportunity to contribute industrys views on how a sustainable procurement function can be created in the NHS that is among the best in the world. Below we outline several elements which we believe need to be given consideration as part of shaping NHS procurement: Purchasing for outcomes and value Creating efficiency gains by reducing duplication Improving the transparency of procurement processes Strengthening central oversight and coordination of procurement

Purchasing for outcomes and value should involve: o o o o o o Aligning to strategic imperatives Clinicians in the development of specifications which inform a stratified and segmented approach to procuring medical technologies Pre-tender engagement with suppliers Ensuring continuity across care settings A better understanding and application of Most Economically Advantageous Tender (MEAT) Greater engagement with commissioners

Creating efficiency gains by reducing duplication warrant that: o o o Centralised procurement needs to be re-thought Collaborative procurement needs to adapt to focus on adding real value to suppliers and NHS customers NHS procurement activities need to align to the Cabinet Offices procurement pledge and the remit of the Government Procurement Service

Improving the transparency of procurement processes requires remedies that: o o o Deliver a consistent approach to data collection and information management Measure more than just prices paid and volumes purchased Improve the quality of patient-level and reference costing systems

Strengthening central oversight and coordination of procurement include the following: o o Performance benchmarking Oversight of procurement intermediaries
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Introduction
ABHI welcomes the opportunity to convey the views of its members in response to the Open Call for evidence on the elements needed to transform procurement in the NHS. We understand that the objective is to build on the publications NHS Procurement: Raising Our Game and NHS Standards of Procurement by taking into account observations and findings from the Call For Evidence to inform the publication of the World Class Procurement in the NHS report. As the industry association for the medical technology sector, ABHI represents over 200 companies that develop, manufacture, distribute and market medical technologies and related services to the NHS and other healthcare systems in the UK. These are clinical products and services that the NHS uses day in/day out to deliver care to patients. The procurement of medical devices and associated technologies is complex. NHS procurement is a topic that has seen many efforts to do differently over the past years. In all these efforts, the common goal has been to define the strategic approach to developing effective procurement that not only drives efficiency gains but also supports clinical teams to deliver improved outcomes and quality. This has been the intent in many documents going as far back as the Cabinet Offices 1998 review of NHS procurement, the Audit Commissions 2002 publication, Procurement and Supply, 2004s Supply Chain Excellence Programme and most recently the National Audit Office publication, The Procurement of Consumables by NHS Acute and Foundation Trusts and the Public Accounts Committees ensuing report. It is ABHIs view that to transform NHS procurement there needs to be consideration of the following elements: Purchasing for outcomes and value Creating efficiency gains by reducing duplication Improving the transparency of procurement processes Strengthening central oversight and coordination of procurement

We address these elements in the next pages with specific recommendations.

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1. Focus on purchasing outcomes and value

Medical technologies are a key element in the achievement of high quality clinical outcomes and modern healthcare is based partly upon the convergence of clinician skills with an extraordinarily diverse and specialised base across every aspect of engineering. The diversity of products and services that constitute medical technologies means that the mechanism by which they impact on outcomes varies. Some do so through their direct application, for instance cardiac implantable devices, and others indirectly, for example those technologies that reduce the amount of time taken to conduct a procedure or intervention. Taken together, changes in healthcare delivery have complemented and supported those in demography and public health, supporting people to continue to live active lives despite increased prevalence of long-term disease conditions.

Purchasing for outcomes Determining the outcomes being sought and how medical technologies can aid their achievement requires analysis across the care pathway to identify the extent by which care needs to improve, and an objective process to distinguish and purchase the technologies that may aid that improvement. The prospect of considering a holistic care pathway approach to strategic procurement may seem complicated but there is already an application of this style of analysis in the development of best practice tariffs. For instance, the clinical best practice pathway for cataract surgery is the basis of that best practice tariff. And the design of a set of new HRGs that form the components of the best practice tariff for haemodialysis and peritoneal dialysis of adults with chronic renal failure is based on an understanding of high quality renal dialysis care across settings, age groups, and complexities to incentivise vascular access via a fistula or graft over other forms of access (as these have infective and thrombotic complications). Executing the whole pathway approach should involve: i. Aligning to strategic imperatives The Quality Standards and new NHS performance management frameworks (Outcomes, Commissioning, and Choice) will provide a new opportunity for clinicians to engage with service commissioning through the arrangements set in place by the Health & Social Care Act, in order to align local approaches to delivering high quality patient care with overarching national imperatives. This is an important first step as it allows the Centre to benchmark and audit achievement against national priorities. It also assists NHS organisations to define the strategic targets against which investment and purchasing decisions can then be made. ii. Clinicians in the development of specifications which inform a stratified and segmented approach to procuring medical technologies The NHS has often deferred to a one-size fits all approach for the procurement of medical technology products and services. This is not practical given the range of items NHS organisations purchase in order to carry out their day-today activities. When strategic goals are cascaded into operational requirements these should consider, in a broad sense, the medical technologies required to help address any improvements in care. In that context, these operational requirements must then be translated into specifications that can be used as a design for a purchasing function to procure against. Given that clinicians are ultimately accountable for the attainment of outcomes, they must lead the development of these specifications as well as owning the final outcome. It is alarming to note the many procurement exercises that still do not involve clinicians, in this fashion, from the outset.

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Additionally there may be significant commonality from one NHS organisation to another in how specifications are derived. Therefore, accomplishing this through collaboration with clinical peers from different parts of the NHS has merit. iii. Pre-tender engagement with suppliers The process of designing specifications is one of identifying need, then defining and refining user requirements. This will typically include market analysis and should be expanded so that it always includes pre-tender discussions with suppliers to aid market assessment and not, as is the current norm, once the specification is set. The principal reason why this does not happen as a matter of course is the concern amongst purchasers that suppliers may unduly influence specification development. Provided that there are sufficient governance arrangements in place then there is no reason why this interaction cannot occur in a robust, transparent and effective manner. A number of NHS organisations are engaged in this fashion of working. Some are working through clinical and industry associations to ensure governance and appropriate representation for clinicians and industry to engage early in the purchasing process. iv. Ensuring continuity across care settings It is recognised that a vast cohort of patients who use the services of the NHS have 2 or more long term conditions and that the current care model and financial systems are not fit for purpose. Whilst this review has an acute sector slant, it is important to note that, as more service, treatment, activity moves to the primary and community settings, then procurement activity within that arena should also be addressed. In these settings, payment mechanisms are not based around a Payment by Results tariff system. There is more diversity than in acute settings and less process around formal procurement activities. Greater clarity is required as to how medical technologies will be made available and procured through routes such as the Drug Tariff and the proposed Year of Care tariff.

Purchasing for value In public procurement, contracts are let by contracting authorities through a process of competitive tender. The aim is to achieve best value for money by opening-up public procurement to competition. What is sought is a balance between price and value the Most Economically Advantageous Tender (MEAT). As anyone who has ever made a purchasing decision knows, the cheapest product or service is rarely the best, or even the best value. A range of factors other than cost is taken into consideration, from reliability to training and support. Total Cost of Ownership and Life-Cycle Costing are vital considerations and in the private sector are typically used to compile a return on investment (RoI) calculation or other cost-benefit analysis to inform a business case to support the investment strategy. These concepts are known to NHS purchasers but they are not embedded in MEAT. The de facto application of MEAT is a system which places greater significance on unit cost of a product/service above quality and long-term benefits, though the MEAT principle was developed to level the price-value equation. This means that the benchmark for decision-making generally defaults to lowest acquisition price. Purchasing for value will mean: i. A better understanding and application of MEAT In a publicly funded healthcare system the concept of economically advantageous must address whether public money is put to good use and primarily from the perspective of the taxpayer. In this context, buyers, and sellers, often stumble with cost-benefit equations, the quantification of benefits and the creation of ROI.
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Suppliers develop economic models to convey value, taking into consideration elements such as opportunity cost and long-term benefits realisation, but are not able to convey their message to the correct decision maker. From the buyers perspective, the focus on current year savings leads to decisions that forsake the long-term. To overcome these scenarios, an investment model needs to be jointly developed that: underpins the procurement of medical technologies across the medium/long-term horizon; can withstand the scrutiny of a variety of stakeholders; and is capable of informing value for money decisions.

This would be a significant development for the management of NHS resources. In the current climate, the historical approach in the NHS - to improve quality more money has to be spent - is redundant. The complex relationship between clinical improvement and finances has to be unpicked, to ensure that achieving quality and outcomes gains are routinely seen as returns on investment, gained from the use of scarce resources. ii. Greater engagement with commissioners

Attainment of NHS strategic goals, that requires an understanding of the clinical and cost drivers across care settings, needs to be led by commissioners. They are ideally placed to focus on improving value for money across a care pathway and to break down the obstacles that constrain the drive to provide care in non-hospital settings wherever possible. The best practice tariff example given above is an example of this. If there is evidence that a particular procedure is more effective than older treatments, why would the latter still be commissioned?

2.

Creating efficiency gains by reducing duplication

The concept of localism and autonomy on the part of NHS organisations manifests as choice to reflect local population need. This choice is satisfied by a market. Yet, independent organisations also want suppliers to behave as though they operate as one national body when purchasing goods. That leads to a tension causing perverse behaviours in the operation of the market. This tension is exacerbated by the notion that NHS procurement can be accomplished in a fashion that retailers adopt in bringing products and services to their customers. This nonsensical idea is predicated on the basis that the NHS operates as a single organisation, and that its users act as consumers with the ability to exercise choice in their purchasing behaviour. The reality is very different with independent NHS providers, each with their own strategies and operational requirements (with a real risk of further fragmentation in the commissioning landscape), and users patients and clinicians with strong habitual purchasing behaviours. That said, with its scale and sheer volume of transactions it is not hard to imagine the efficiency savings that can be gained by the NHS through a better system of coordinated procurement. This is much more than just leveraging buying power to gain a better price. Much of the system efficiency can be gained by reducing duplication and variation. For instance, separate formal procurement exercises are undertaken by Trusts, as well as the various types of intermediary procurement organisations. Indeed individual hospitals within Trusts, and at times departments within hospitals, conduct their separate procurement negotiations. However, these should be mutually reinforcing rather than stand alone. Standardised processes and documentation should be used, and in some aspects done once only, e.g. Pre-Qualification Questionnaires. Tender processes from specification development to evaluation methodologies should, where possible, be consistent across contracting authorities. Many of these elements are articulated in the documents Raising our Game and NHS Standards of Procurement. Aspects that warrant further attention include: i. Centralised procurement needs to be re-thought The process by which the NHS Supply Chain organisation was created almost 6 years ago was deeply flawed.
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It was decided to outsource a logistics function operating effectively (NHS Logistics) to a market-leading logistics and supply provider. Then by bolting-on to that arrangement the management of national procurement arrangements, and wrapping the commercial operations within a contractual framework that is over-complicated and which many do not understand, has proved to be a flawed approach. NHS Supply Chain is private commercially orientated business. Its profits are capped and visible and major strides have been taken to ensure that the mark-up applied to products, a significant component of the selling price, is done so in a transparent and uniform manner across product ranges. However, many suppliers continue to query how price reductions they make to product and services flow through as savings to NHS customers. A further aspect is the activity NHS Supply Chain continues to engage in which leverage its position as a market leading operator. For instance, its actions in regard to developing its own range of products - Choice for Health clearly conflicted with its role as an organisation that administers procurement exercises and awards contracts. The initial iteration of Choice for Health was halted but ABHI understands that there is continued interest in producing an NHS own brand as a no frills entry-level offering. We question the motive behind an entry-level brand strategy. If this is something that the NHS truly wants and needs then many organisations, particularly British-based SMEs, already offer such services which through competitive tendering can generate value for money to the NHS. NHS Supply Chain is one of a number of private third party intermediaries operating in the procurement services market. Greater plurality in the market is welcomed, provided that a system is created that provides a level playing-field for all participants in the market new and incumbent. ABHI strongly recommends an early review of the NHS Supply Chain contract. ii. Collaborative procurement needs to adapt to focus on adding real value to suppliers and NHS customers The potential for collaborative procurement has not been realised. The original vision of regional procurement (collaborative procurement hubs aligned to Strategic Health Authorities) is unravelling as many consolidate into larger organisations both private and public that are increasingly national in remit, reach and avowed strategic intention. The business models set in place by intermediaries makes it clear that each will compete, rather than collaborate, with one another on a differentiated basis in a bona fide market. The role of the NHS and of NHS organisations in shaping these strategies is rapidly diminishing with new forms of partnership and escalating investment from outside the public sector. In this context, the collaborative procurement hub model promoted under the Supply Chain Excellence Programme no longer provides a blueprint for NHS-led procurement. Collaborative procurement could be delivered through alternate organisational forms. For instance, via the emerging Commissioning Support Services functions to support the delivery of locally relevant commissioned services through the purchasing of appropriate products and associated services. Alternatively it could be by aligning to clinical specialities to support NHS provider organisations that are specialist experts and assist them with the purchasing of appropriate products and associated services.
iii. NHS procurement activities need to align to the Cabinet Offices procurement pledge and the remit of the

Government Procurement Service Here ABHI is grateful for the perspective from the Confederation of British Industries. The Governments Procurement Pledge takes aim at the shortcomings of procurement in the wider public sector, and is a vehicle through which public bodies can be held to account for their procurement processes. While the unique challenges of NHS procurement perhaps warrant a separate procurement work stream, the NHS should not create from scratch programmes that mirror those underway via the Procurement Pledge, e.g. target completion times for a procurement exercise.
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In regards to standardised process and documentation, those that can be replicated from the Government Procurement Service should make the experience of working with the NHS easier and more predictable for suppliers, and reassures procurement teams that their processes will be effective.

3.

Improving the transparency of procurement processes

Many elements in regard to improving transparency of procurement processes are reflected in Raising our Game and NHS Standards of Procurement. The National Audit Office report The Procurement of Consumables by NHS Acute and Foundation Trusts highlighted that: There is variation in prices being paid by different trusts, across England, for the same items but there is no practical way of examining this variation, and There is limited data on what is purchased by individual trusts.

Two further National Audit Office reports Delivering the Cancer Reform Strategy and The Management of Adult Diabetes Services in the NHS - highlight that the lack of information on what drives costs and clinical outcomes is inhibiting further substantial improvements. As such, these reports noted that commissioners in particular were not able to focus on improving value for money by, for instance, transferring the provision of care to non-hospital settings where possible. Furthermore, current mechanisms for assessing what the NHS pays for products and services are crude. They do not take into account how a product/service is purchased nor additional elements that make up the totality of the purchase, such as technical support, which may be provided free of charge or indeed charged separately. It is clear then that the lack of information underpinning the clinical and cost drivers of healthcare is limiting the ability of NHS procurement to reach its full potential. The following aspects are required to remedy this: i. Deliver a consistent approach to data collection and information management The NHS is data rich but information light. ABHI supports the need for better use of data to make informed decisions. There is a clear need for the development of a consistent approach to data collection in order to populate management and executive information systems on all relevant aspects that will aid patient-level costing and outcomes measurement. The adoption of GS1 standards is just one element of this and even that, especially in regard to the IT requirements and architecture required to deliver adoption, is not in itself straightforward nor clear. For instance, where funding for the investment in systems technologies to implement GS1 consistently across England will come from is not clear. ii. Measure more than just prices paid and volumes purchased As important as it is to assess what is purchased and for how much, given the fragmented nature of NHS procurement, it is critical to know how an item was purchased. For instance, which procurement channel was used, was the item sourced through an existing contract or framework agreement, was it purchased through eCommerce? Additionally, when contracting authorities conduct procurement exercises there should be a focus on how transparency can ensure fairness. This applies to many areas from how an award is made to ensuring that lotting strategies encourage supplier diversity. Furthermore, the cost of running procurement exercise should be measured and reconciled to the savings generated through that procurement exercise. Capturing these elements will add a significant level of granularity to help inform a detailed picture of NHS procurement.
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iii. Improve the quality of patient-level and reference costing systems The quality of data used to set reference costs must be improved by focusing on a cohort of accredited hospitals with the expertise in bottom-up costing, rather than utilising data from all NHS hospitals. As a significant level of activity occurs in primary care and community service settings, where there is a lack of good-quality cost data, it is feasible that a similar process can be overlaid in these care settings so that the collation of programme budgeting data is improved.

4.

Strengthening central oversight and coordination of procurement

The NHS is a decentralised organisation and as such has limited direct control from the Centre. In any devolved business the role of the Centre is to identify and support achievement of common goals. In the case of NHS procurement the common goal is in defining the long-term approach to developing effective procurement that not only drives efficiency gains but also supports clinical teams to deliver improved outcomes and quality. In this context, ABHI is strongly encouraged with the creation of the Improvement Body as a function of the NHS Commissioning Board. We strongly suggest that its remit includes the following: i. Performance benchmarking This refers to the setting of performance management metrics - that are relevant for the needs of devolved local organisations monitored to assess achievements of milestones towards long-term effective procurement across the entire NHS. This will mean, amongst other things, assessing the use of eProcurement, effective order management, collaboration, and transparency. The intent is the establishment of a compliance regime to measure and monitor achievement against the long-term strategy. In the world of fully devolved providers intended by the Health & Social Care Act, any compliance regime must be realistic and will need to be mix of loose/tight elements. By that we mean a combination of specific nonnegotiable elements, and others which allow latitude in recognising that there is a variety of ways in NHS organisations achieve success. It is important to note that procurement is an enabling function (albeit a strategic one), and thus one component in a balanced performance dashboard. ii. Oversight of procurement intermediaries In public policy terms, the emergence of private intermediaries to conduct NHS procurement is a new form of outsourcing, with implications that need to be worked through. The report A Review of Collaborative Procurement Across the Public Sector published in May 2012 by the National Audit Office and Audit Commission said that The funding models of some professional buying organisations require them to produce revenue by charging suppliers a fee based on customer spend. This reduces the incentive to collaborate with other professional buying organisations and to limit brand choice. A number of private intermediaries providing procurement services to the NHS operate these funding models. Some provide a service for that fee, with others it is difficult to pinpoint the service offered. Indeed, whether the service offered is commensurate with the level of fee is also questionable. Suppliers are obligated to participate in these arrangements as not doing so often means that they cannot then sell their products and services to those NHS provider organisations that utilise those types of intermediaries. Given the size involved, such payments are potentially likely to be prohibitive for many SMEs. There is a tendency then for these intermediaries to favour suppliers of a certain size who may have higher volumes or greater capital and can therefore better withstand demands for such payments. This has a knock-on effect both in regards to choice that NHS organisations have available to them for products and services, and on effective demand from SMEs the engines of the UK economy and sources of innovation.

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For these reasons therefore: added cost, uncertain benefit, barriers to entry, lack of transparency and potentially limiting patient choice or access to care by reducing the choice available to service providers, private intermediaries may not serve the best interests of a publicly funded health care system like the NHS or of patients generally. These are similar criticisms levelled at group purchasing in the United States where legislation has been enacted to set limits on their operations. ABHI is particularly concerned with the trend for such arrangements to enable the NHS to transfer the costs of its procurement to suppliers. These aspects need to be scrutinised to ensure intermediaries deliver value for money to the tax payer and that risks are itemised and mitigated. This must be a role for the Improvement Body with involvement, crucially, from the Cabinet Office in developing the rules of engagement.

Conclusion
In compiling this response to the Procurement Review Call for Evidence survey ABHI proposes a number of recommendations based on the experience of member companies in their day-to-day interactions with the NHS. These recommendations should be taken together with those highlighted in NHS Procurement: Raising Our Game and NHS Standards of Procurement to ensure procurement is central to driving quality and value in the NHS. We look forward to working with the Review Team to provide further examples and evidence to substantiate our recommendations.

ABHI 27 July 2012

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