The Carter report – why NHS procurement transformation must accelerate
(Our recent article published in Health Sector Journal)
Lord Carter’s review of NHS efficiency, published in February 2016, says that £5 billion could be saved if hospitals utilised standard procedures, and he explains how a ‘model hospital’ could achieve these cost reductions. The wide-ranging review involving 32 trusts concludes that there are significant variations in the quality of patient care and financial management, which, when applied throughout the NHS, are costing billions. Carter expects that with the widespread adoption of best practice in line with a series of recommendations, the savings should be realised by 2020/21.
The review identifies procurement as a critical area, and with non-pay expenditure accounting for 30-35% of total spend, Carter restates a previous target of at least a 10% reduction in these costs across the NHS by April 2018. Given that trusts have been working towards this target for the last three years – and there is evidence to suggest that non-pay spend is currently increasing – how can the delivery of savings be accelerated?
Carter’s recommendations bring huge challenges for trusts
Firstly, the scale of the challenge should not be underestimated, especially in light of the baseline that most trusts are starting from. Our own experience of working in this area highlights an almost universal lack of essential procurement basics within trusts – from effective contract, category and supplier management, to the use of volume buying power and the aggregation of spend. Achieving the savings detailed by Carter will mean a massive step-change in performance and complete transformation of procurement practices, supply chain management and the entire purchase-to-pay process.
However, it is only when this transformation is examined at a granular level that the true extent of the task emerges. For example, the review recommends that all trusts should be operating with 80% of their transaction volume through an electronic catalogue by September 2017, and that 90% of trusts’ transaction volume is covered by electronic purchase orders by the same date. With many trusts not currently operating any kind of e-catalogue, the amount of work required to simply meet this one recommendation is huge.
At the same time, Carter encourages the building of supply chain capabilities in terms of both inventory management systems and people, with the report referencing the adoption of GS1 and Pan European Public Procurement Online (PEPPOL) standards. Again, the step-up to this level for a large number of trusts is extremely challenging in the timescales recommended by the review. However, significant improvements are achievable given access to the right levels of support and expertise, as our recent work in eliminating over £450k of excess stock for one trust demonstrates.
Modernisation of the purchase-to-pay process in order to deliver efficiency improvements also forms a substantial part of Carter’s recommendations. But for the majority of trusts, switching from a manual system to a best-in-class digitised process with e-catalogues, consolidated invoices and processes for low-value transactions, all underpinned by appropriate governance, is another all-consuming, cross-functional project in itself.
Trusts must take the initiative to deliver results
These examples begin to underline the scale and complexity of NHS procurement transformation, but implementing Carter’s proposals will provide trusts with the foundations to drive organisation-wide savings. For sure, the 10% reduction in non-pay spend that has been targeted is achievable, but ultimately, this level of improvement will require margin to be wrestled back from suppliers. That means addressing every £ of non-pay expenditure through a comprehensive programme that standardises and then aggregates the purchase of products to leverage best value. And while Carter emphasises the importance of increased collaboration between trusts in order to aggregate volumes and leverage scale, the consensus and tight coordination required between all participants makes this an initiative that will deliver benefits over the longer- rather than shorter-term.
Some trusts are already embracing the adoption and promotion of the NHS Standards of Procurement, and with support from the NHS Procurement Transformation Programme, this is helping them improve their procurement function. However, there are clearly many others who have so far made limited progress on their journey to improvement. Carter’s overriding priority is that trusts must make substantial savings – right now. Given the challenges of procurement transformation, perhaps the most important question for many trusts embarking on this process is whether they have the in-house capabilities to successfully deliver such a programme.