Lord Carter’s review: what does this means for NHS procurement?

The Government’s efficiency review into operational productivity across the NHS identifies £5 billion of potential savings to be made through the elimination of “unwarranted variation” in how clinical and non-clinical services, works and supplies are commissioned and organised. A significant minority (£2 billion) of these savings are expected to be made in the following areas: procurement (£0.7 billion), estates and facilities management (£1 billion) and back office functions (£0.3 billion).

In this article, we look at the headline findings of the review in relation to procurement, and at some of the recommendations made.

Key findings

• Most trusts still do not know what they buy, how much they buy, and what they pay for goods and services.
• Few trusts are able to demonstrate a basic level of control or visibility over total inventory or purchase order compliance that is common practice in other health systems and industrial sectors such as retail. 
• There continues to be a systematic failure to capitalise on the national nature of the NHS and to benefit from achieving economies of scale. 
• A sample of 22 trusts covering approximately 16 per cent of NHS spending revealed that in one year they used 30,000 suppliers, 20,000 different product brands, more than 400,000 manufacturer product codes with more than 7,000 people able to place orders. This brand proliferation, says the report, leads to unwarranted variation and higher prices. 
• Levels of purchase order compliance vary enormously (some Trusts are as low as 30 per cent when 80 per cent is the benchmark) as does digitisation of purchase-to-pay (P2P) processes.

Recommendations

The key recommendation for NHS procurement is recommendation 5. It states:

“All trusts should report their procurement information monthly to NHS Improvement to create an NHS Purchasing Price Index commencing April 2016, collaborate with other trusts and NHS Supply Chain with immediate effect, and commit to the Department of Health’s NHS Procurement Transformation Programme (PTP), so that there is an increase in transparency and a reduction of at least 10 per cent in non-pay costs delivered across the NHS by April 2018.”

The report goes on to suggest that the following steps should be taken to achieve that recommendation:

• Implementation of a new purchasing price index with immediate effect, starting with a basket of around 100 products and increasing over time, so that trusts are able to compare their performance with their peers on price and volume (via monthly reporting). NHS Improvement is to hold trusts to account on their performance against the index from April 2016, developing into a national analytics and reporting system which, for the first time, will provide the NHS with a single national reporting system on purchase prices.
• All trusts should be operating with 80 per cent of their transaction volume through an electronic catalogue by September 2017. Further, 90 per cent of trusts’ transaction volume is to be covered by electronic purchase orders by the same date, with performance to be benchmarked to enable trust boards to understand the relative performance of their procurement function. 
• Trusts should collaborate with at least five other trusts to share data and resources to modernise their procurement function. Consideration should also be given to the sharing or even outsourcing of their procurement back-office such as P2P services. Trusts with inadequate performance will face consequences, such as removal of control, being mandated to join shared service solutions, use the national solutions or other actions to be determined by NHS Improvement. 
• Every trust should have a local Procurement Transformation Plan (PTP) in place by July 2016 demonstrating its plans for meeting the “model hospital” benchmarks (to be issued by NHS Improvement), to collaborate with other trusts and the national solutions such as NHS Supply Chain. A board director should be nominated to work with their procurement leaders to ensure that the PTP is firmly embedded in every trust’s performance improvement plan. 
• Trusts should consider the role collaborative procurement hubs could play in helping them achieve their model hospital benchmarks (the report expressly states that it does not expect to see hubs competing with or undermining the national solutions, and recommends trusts take this into account in developing their PTP plans).

What to take away

Lord Carter’s recommendations clearly envisages a radical overhaul of procurement within the NHS with much greater collaboration between trusts to eliminate variation and harness the greater efficiencies achievable through increased aggregation of demand and standardisation.

NHS Improvement takes on a new and more prominent role in relation to this, including responsibility for holding trusts to account for their performance. There will be much more for trusts to consider in the coming months as the full effect of Lord Carter’s recommendations are digested. Trusts can also expect to receive further guidance, direction, and support at a national level from the Department of Health, NHS Improvement and NHS England.