NHS medtech costs will face increased scrutiny

Oli Hudson, of the Wilmington Healthcare consulting team, explains how NHS procurement transformation will impact on the medtech industry.

Introduction

In September, the current DHL NHS supply chain contract will come to an end and a new procurement model will be increasingly used to help the NHS save money and reduce the variation in price that it is currently paying for all types of goods, including medical devices.

The new model will see procurement split into 11 categories known as ‘towers’ with each tower run by an organisation appointed by the NHS.  The towers will sit alongside existing private purchasing alliances and informal supply alliance agreements between hospitals.

The model, which follows Lord Carter’s review of ‘Operational Productivity and Performance in English NHS Acute Hospitals: Unwarranted Variations’ in 2016, aims to see tower contract owners manage 80 per cent of goods and services procured by the NHS.

In this article, we will explore the new model in more detail and assess where the seats of power will lie in NHS procurement and how this will affect the way medtech companies do business.

How does the new procurement model work?

The Future Operating Model (FOM) is the most high-profile initiative emanating from the Lord Carter review. It aims to transform the current NHS supply chain to eradicate the variation in purchasing costs that has seen the price of in-patient treatment vary by 20 percent between the most and least expensive trusts.

Category service providers within the new 11 procurement towers will be incentivised to reduce the total cost in the system, not just the unit price. They will be expected to offer larger volume opportunities than the current NHS supply chain and provide a single point of contact for supplying to the NHS.

By delivering clinically safe, high quality products for the best possible value, the FOM aims to realise £2.4bn of savings in its first five years of operation, which can be reinvested into front line services.

The 11 procurement towers are divided into three sections, namely, medical, capital and non-medical.  Medical is the largest section and comprises six towers -Tower 1, ward-based consumables; Tower 2, sterile intervention equipment and associated consumables; Tower 3, infection control and wound care; Tower 4, orthopaedics, trauma and spine, ophthalmology; Tower 5, Rehabilitation, disabled services, women’s health and associated consumables; Tower 6, cardio-vascular; radiology; audiology and pain management.

The ‘capital’ section contains two towers – Tower 7, large diagnostic, capital devices including mobile and consumables; Tower 8, diagnostic equipment and associated consumables. The third section is ‘non-medical’ and it covers Tower 9, office solutions; Tower 10, food and Tower 11, NHS Hotel Services.

The towers have been contracted out separately to different provider organisations. DHL, which previously ran all the contracts, has won a number of them back; while a key new provider under the new procurement scheme is the NHS Collaborative Procurement Partnership (NHS CPP).  The NHS CPP is the culmination of the collaborative working of four NHS procurement organisations: NHS Commercial Solutions (NHS CS), East of England NHS Collaborative Procurement Hub (EOE CPH), NHS North of England Commercial Procurement Collaborative (NOE CPC) and NHS London Procurement Partnership (LPP). By joining forces, NHS CPP represents approximately 60 percent of NHS trusts and influences between £6.0 billion and £7.5 billion of NHS non-pay spend.

The procurement towers are not mandatory and, as stated earlier in this article, they will sit alongside existing private purchasing alliances. Informal supply alliance agreements between hospitals will continue to exist and supplies of day to day equipment, such as catheters that are needed urgently, will not be purchased via the procurement towers.

There is a strong chance that some trusts will continue with their existing purchasing arrangements. However, they will still be audited by the NHS and could be asked to justify their reasons for not using the towers if they run into financial difficulty and fail to meet their control totals.

Personnel within procurement towers

The Intelligent Client Co-ordinator will run the entire procurement towers programme, via Clinical Evaluation Teams. These teams sit above the procurement towers and will be particularly important for medtech companies looking to sell new and innovative products, since they will establish the product list. Once contracts have been awarded, the teams will develop relationships with those trusted suppliers who they will deal with on a regular basis.

Within the towers, there will be account directors who will purchase products in each tower directly from suppliers. So, if a hospital needed a particular product, it would go to the account manager who is running the relevant tower and they would contact the suppliers and get the best value for the NHS.

Conclusion

The NHS must make huge efficiency savings if it is to become sustainable. Reducing variation is key to achieving this across many areas of the NHS, including the supply chain, where the new towers are designed to transform procurement.

Medtech suppliers must familiarise themselves with the way these towers will work and the key influencers within them; while companies that hope to continue existing arrangements outside the towers cannot afford to be complacent as NHS customers will be increasingly required to justify costs.