Delivering procurement cost reduction in NHS Community and Mental Health Trusts
Whilst NHS procurement improvement remains focused on Acute Trusts, this doesn’t mean that Community and Mental Health Trusts should not be making significant CIP savings through procurement cost reduction.
The savings are there, the challenge is delivering them.
Unrealised CIP potential
Procurement excellence will ultimately drive CIP savings, no matter what the sector.
Non-pay spend in Community and Mental Health Trusts is typically 22% to 27% of total costs - a significant third-party spend and one which requires professional management.
The recent experience of many Community and Mental Health Trusts demonstrates that there are step-change CIP savings to be realised through programmes of procurement cost reduction. In 2017, a Community Trust based in the south of England focused a targeted programme of procurement cost reduction which delivered an additional £500,000 of CIP, over and above its original forecast. Savings were identified and delivered across a range of categories including agency spend, purchased healthcare services, consumables, IT and Telecoms.
But whilst some Trusts are leading by example - and in some spend categories leading their Acute cousins - for many Trusts savings remain untapped.
Different spend profile – common challenges
Community and Mental Health Trusts have different spend profiles to Acute Trusts. At the highest level, they purchase less clinical products but more services.
Key spend areas include agency, catering, purchased healthcare services, rates, computer hardware & software, facilities management, patient appliances, building & engineering services, utilities and telecoms.
Procurement of services also provides a different challenge to the procurement of products. The experience of many Trusts indicates that services have often been poorly sourced in the past and subsequently suffer from many years of little (or no) supplier and contract management.
Challenges of scale and distribution
Procurement in Non-Acute Trusts does face some challenges.
Firstly, they don’t have the scale of many Acute Trusts. Relative spend with suppliers and by category can be smaller scale which can limit opportunity, supplier interest and potential.
Secondly, distribution is often (very) dispersed. Instead of a single receipt & distribution delivery point, suppliers are often required to deliver directly to many parts of the Trust estate – for example small hospitals, clinics and health centres. This requirement can sometimes ‘de-select’ potential suppliers who don’t have sophisticated distribution capability and/or built in cost-to-serve.
Looking deeper to find opportunities
Simple market engagement by retendering expired contracts is only one lever to achieve cost reduction. However, it is often focussed on almost exclusively by Trust executives, driving the misconception that a hub or shared service provider is the solution.
To get every pound of CIP requires expert resources, on the ground, who know where to look. Each category has its own supply market structures, service requirements and nuances.
Hands-on, thorough and deep work is necessary, but the outputs are well worth the effort:
- Even with a “cap”, significant savings can be achieved from agency spend by focusing on deconstruction, audit and restructure of margins (where ‘hidden’ margin often exists). In 2017, a leading Community Trust recovered significant overcharges and reset margins going forward across its entire agency supply base - delivering rapid in-year CIP whilst also ensuring that it agencies were more effectively managed in the future.
- Stamps, franking machines, post-rooms and internal distribution and collection can be replaced by digital outbound and inbound mail services, taking advantage of technology and innovation in supply-markets.
- Healthcare service contracts can be deconstructed, analysed, assessed and reconstructed to suit changing service requirements, ensuring commercial agreements are aligned to service requirements. In 2017, a Mental Health Trust saved 34% on its beds and mattresses spend when it aligned its commercial structure to match its rental profile.
Whatever the procurement lever, the critical success factor is effective stakeholder engagement. With stakeholders truly on board and effective, on the ground, procurement resources in place the opportunities for long term CIP enhancements can be compelling.
Points to consider
- Non-pay spend in Community and Mental Health Trusts is significant – up to 27% of total costs can be supplier or third-party spend
- Procurement non-pay CIP provides in-year financial impact with no effect on services (in fact, experience shows that services are improved through improved supplier delivery)
- Conducting an Opportunity Assessment is a highly effective way of achieving complete transparency of non-pay spend as well as identifying and quantifying the precise savings potential on a category-by-category basis. Trusts that have used this approach to understand what can be saved, also have a clear workplan of how and when to realise the savings.
- Focusing on improved procurement now puts Trusts in good shape for when NHS Improvement shifts its focus to Community and Mental Health Trusts.
- Where expertise or resource is limited, the use of external support where savings are delivered on a ‘success-based’ fee mechanism can be a highly effective way of delivering significant in-year enhancements.