NHS Trusts targeting savings ahead of procurement shake-up
A new ‘future operating model’ for procurement – but no savings until 2019/20
NHS Trusts have been advised not to start planning for savings through the new national procurement model until 2019/20. Jim Craig at the Department of Health confirmed that the new operating model would be rolled out in October 2018 but that it would be unlikely that Trusts would begin capturing savings until the following year.
With improved efficiency opportunities highlighted in the 2016 Carter Report, the new model aims to bring these to life by replacing the existing NHS Supply Chain with ‘category tower providers’. These providers will have a remit to purchase up to 80% of all common goods and consumables in the healthcare sector – a substantial increase from the current 40% level.
The Department of Health forecasts culminative savings of £615 million on an annual basis by 2022/23.
Mr Craig said: “For planning purposes, Trusts should be thinking 2019/20 in terms of (CIP Cost Improvement Plans benefiting from) this model."
The ongoing and relentless focus on cost control
With many Trusts operating substantial deficits, a relentless focus on cost reduction continues. Even with several years of significant CIP savings being successfully delivered the financial challenges facing the NHS are well documented.
For Community and Mental Health Trusts, the challenge is even more profound with smaller overall spend levels but equally daunting financial numbers and limited internal procurement resource available.
Deputy Finance Director, NHS Community Trust
We need to achieve savings right now. Any collective initiatives are of course of interest but the need to examine every pound of expenditure in the ‘here and now’ is as intensive as it’s ever been
Examining all areas of non-pay spend
Most NHS Trusts have only addressed the straightforward spend areas. These include commodity products - the traditional medical and surgical products and consumables used in everyday activities.
However, this emphasis on products – with services usually overlooked - has often only occurred where the actual sourcing work has already been undertaken by the NHS Supply Chain or another framework in the first place.
Even if this work has been done thoroughly and every last pound of benefit has been driven out, these mainstream procurement areas only account for part of the overall addressable spend (typically 60% for an average NHS Trust).
The implication of this is that 40% of addressable non-pay spend continues to be untouched by procurement. In short, it remains as spend which sits outside of professional procurement management.
Savings in the ‘less targeted’ areas
Purchased Healthcare typically forms a significant spend area but is often left to specialist departments to organise. There is no reason these should be “off-limits” to procurement and in fact they should be subject to the same rigorous, professional sourcing and spend management as other spend areas.
Agency Staffing is always one of the largest spend areas and is very rarely under full spend management. In recent years NHS Trusts have relied on the spend cap to control this area and have considered that the box has been ticked. But there are huge, non-leveraged, cost benefits to be driven from professionally sourcing and managing this area, from selection of the best agencies for service, to minimisation of rates (just because there is an upper cap this doesn’t mean it should be the expected level) and volume-based discounts as well as softer benefits in rostering and bank management.
Medical Equipment Maintenance is another area which the NHS usually approaches without sophistication and significant service benefits and cost reduction are achievable.
Finally, certain ‘sacred cows’ don’t have to remain out-of-scope.
Just because a product is available on the NHS Supply Chain catalogue (or future ‘tower providers’), doesn’t mean it is the best choice of supplier. Alternatives exist and rigorous sourcing and decision-making process can define the optimum channels.
Similarly, services from other NHS bodies need to be subject to the normal rules of commerce.
Additional opportunities for non-acute providers
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 in the here and now.
Where to start?
Undertaking a Spend Analysis across all areas on non pay spend and completing an Opportunity Assessment to provide spend transparency and define savings potential is an excellent way of identifying additional efficiencies.
A leading NHS University Trust identified an additional £3.1 million in savings (over and above planned CIP activity) by utilising this method.
Points to consider
- With savings beginning to materialise in 2019/20 there are still excellent opportunities to deliver procurement cost reduction prior to that
- Examining all areas of non-pay spend with a thorough spend analysis and opportunity assessment can uncover big savings (over and above planned CIP activity)
- The existing NHS Supply Chain does not guarantee the best value for money and future changes will not address all of this issue
- External on the ground support can be tailored to deliver immediate cost savings