NHS procurement is proving to be the ultimate rubix cube for policymakers tasked with knocking hundreds of millions of pounds from NHS spending figures.
Despite progress being made towards Lord Carter’s vision for operational productivity – with news last week that the NHS Business Services Authority and NHS Supply Chain have met £300 million cash-releasing savings target set by Government five months ahead of plan – most acute trusts are still failing to meet efficiency targets, according to recent revelations in the HSJ.
It sets the stage for the latest initiative attempting to balance the books – the “Future Operating Model” (FOM), which is the new purchasing and supply model tasked with making a significant dent in the £6 billion common goods budget.
The FOM represents a step change in the way the NHS purchases goods, and is expected to deliver annual real-term savings worth £615m from 2022/23 onwards by rationalising the procurement of supplies and services.
But with six separate NHS procurement strategies since 2000, we ask: How does the FOM differ? How likely will it be in achieving its aims? And, most importantly, what is the impact for hospital suppliers?
What is the Future Operating Model?
The FOM will come into effect this Autumn, replacing NHS Supply Chain, which currently procures around 40% of the NHS’s £5.7bn spend on everyday hospital consumables, common goods, capital equipment and high value healthcare. Once the FOM is in place, it is likely to impact 60-65% of goods and services in the short term, eventually accounting for 80% of this spend.
The aim of the FOM is to address the fragmented and varied nature of the current NHS purchasing system by cataloguing goods and services into category towers, which cover items from infection control and wound care, to diagnostic equipment and associated consumables, and NHS Hotel Services.
Crucially, trusts will contribute to the model through NHS funding allocations, which provides an incentive for trusts to use it. Under the new system, the operating costs of the FOM will be top sliced prior to going into tariff and other funding routes, and then allocated to the FOM. This is likely to lead more trusts to use the FOM but if it doesn’t offer value we could see a backlash from trusts unhappy about what their contributions are going towards.
Fundamentally, the FOM will further centralise hospital procurement, categorising and (in theory) making it easier for procurement teams to get the right products in the right areas. It also aims to move the focus on procurement away from lowering unit price, to delivering whole system value.
What impact will the transition have on suppliers of NHS goods and services?
As the towers go live this month and through the summer, suppliers can expect to hear from the new category tower providers. Some suppliers will have pre-existing relationships with the providers which will make the whole process easier, whilst others will have to build new relationships up over time. The reduction in the number of interactions with trust procurement teams may lower sales and marketing costs in some respects but with less points of entry, suppliers will need to be more targeted in their engagement than ever before.
With the category strategies for each tower still under review (and all at different stages) suppliers may have to wait some time before there is clarity on priority areas for product optimisation.
The fact that the FOM will be clinically evaluated is welcome but there are still some question marks around how value judgements are being made. The DHSC has committed to an evidence-based approach to pricing to reflect total system cost and value, however the challenge remains for suppliers to quantify and evidence potential savings their products will make to the system.
There is a feeling that the FOM model could offer more opportunities to suppliers than the NHS Supply Chain format, but with the specifics yet to be ironed out, this is not a foregone conclusion. The DHSC has pushed the message that the FOM will be continuously reviewing prices and practice, presenting an ongoing challenge for market leaders on price.
How should industry respond?
The next few months will be crucial for hospital suppliers as tower provider expectations are confirmed. Officials at the DHSC have said they want to engage with industry on the FOM’s introduction as much as possible.
For suppliers, while mechanisms and routes to entry may change, fundamentally the job remains about proving the broader value of the products and services which keep the NHS moving day-to-day. Those organisations who can communicate their value most effectively – while also demonstrating how they can support the NHS to overcome longstanding procurement challenges around data for example – will be best placed to succeed.