Department of Health commercial director Jin Sahota and his team are transforming NHS purchasing, turning it into a cohesive and powerful procurement entity
Mention disposable gloves to a hospital-based procurement professional, and they are likely to respond with a groan… or worse. The seemingly innocuous medical gloves became a touchy subject in 2011, when the UK National Audit Office (NAO) revealed that 652 different types were being bought by NHS trusts. Some variation (size included) is required of course, but glove-gate was seen as indicative of a waste of resource the health service could ill afford. It also sparked a realisation that leaving each hospital to strike its own deals on commonly used items made no logical or financial sense.
It wasn’t the first study to challenge poor procurement and inefficiency in the NHS, nor was it the last, with the 2015 Lord Carter report, Productivity in NHS hospitals, seemingly providing a tipping point. This set out how trusts can reduce unwarranted variations in running costs, sickness absence, infection rates and prices paid for supplies and services, thereby saving the NHS £5bn a year by 2020/21. One of its proposals was a Procurement Transformation Plan, now under way, which is one of the highest-profile overhauls in government. It has also led to the Future Operating Model (FOM), which outlines how the NHS will soon purchase goods. And the hope is that the result will be an annual saving of £600m by harnessing the combined buying power of the NHS – benefitting patients, the procurement profession and the system as a whole.
The man overseeing this transformation is Jin Sahota, director of the Department of Health’s commercial division. He joined the department soon after Carter’s final report was published last year, moving from a private-sector procurement career – most recently as senior VP for worldwide operations at a division of media-tech company Technicolor. And his task is, as he puts it, “driving efficiency in the one place this country needs it: the NHS”.
“Our health service is easy to knock, but there aren’t that many people willing to have a go at transforming it,” he tells SM. “We need to do every single thing available to us to drive efficiency – and we are.” He insists that the NHS should and will become the most powerful procurement entity in Europe, once the new model, governed by a central body to wield its influence, is in place. “The NHS will no longer be fragmented and exploited – as it has been in certain ways. One company told me it tries to make as much money from the NHS as possible – that is the sort of supplier we’ll flush out. As a profession, we can’t be in a system that doesn’t let us practise its key tenets. The new model helps put those in place.”
Future operating model
Sahota and his team worked with 80 trusts to create the FOM. “Today, there is a fragmented procurement landscape – everyone is buying things in different ways. And there are 400,000-plus products in our system, so there’s a lot that needs to be rationalised.”
Currently, only about 40% of the health service’s £5.7bn spend on everyday hospital goods, high-value healthcare consumables and capital equipment goes through NHS Supply Chain. This outsourced contract is run by DHL and expires in October 2018. Another 40% goes through hubs, with the remaining 20% spent directly by trusts. Under the future plan, 80% of spend will go through a new-look NHS Supply Chain, whose proposed structure will comprise a logistics provider, transactional services, supporting technology infrastructure, 11 procurement category ‘towers’, and a 200-person-strong Intelligent Client Coordinator (ICC).
“Currently everyone is buying everything and competing against each other,” Sahota explains. “The idea is to establish a smart, central set-up of category towers, run by public hubs or private companies, to provide category management.” These 11 towers will cover five medical categories of procurement spend, three capital and three non-medical. They have been organised with a number of rules to ensure model longevity and to generate competition: each tower covers a certain amount of spend – big enough to attract bidders without being too powerful or unwieldy; they group together similar items that are different to the other towers, to ensure they’re not competing among themselves; and bidders can only go for a maximum of three towers, ensuring the NHS doesn’t allocate too much business in one place.
“Procurement must always have a credible threat to anyone that’s not performing,” he adds. “If you lump it all together, you only have the ability to change that one contract. A credible threat keeps everybody sharp.”
Each tower will have product-focused teams with experience and expertise in their categories. And each deal lasts for three years, with the potential for two one-year extensions. “If they’re doing really well, they automatically get an extension. But if one tower isn’t working well, others will be able to pick that work up,” says Sahota. In other words, the department won’t be held over a barrel by a poor performer as it will be easier to shift the work elsewhere. “There’s competition all the time, so if providers are not doing what they should, we can transfer it.” The central body overseeing these towers – the Intelligent Client Coordinator – will expect to see really strong strategies coming from these towers if they want to win ongoing business.
“You can also add additional towers to the market if other categories appear around health,” adds Sahota. “So the model has longevity, which is another reason I like it.”
Furthermore, stable demand for goods means the department can commit to certain quantities. “We need to get away from frameworks; I don’t like frameworks, especially when volumes are constant. Compared to say telecoms or other industries, what trusts buy is the same as 10 years ago, so we can negotiate lower or enhanced prices for commitment deals. This is what the hubs or anyone running a category tower wants, to get great deals from suppliers for years ahead.”
The office-solutions tower – awarded to the Crown Commercial Service – will start operating this month, the first tower to go live. The six medical towers went out to tender in April/May and are aiming to go live in February. The non-medical and capital categories went out to tender in July/August (planned start by June 2018). Supporting technology, transactional services and logistics will be operational by October 2018.
While there is no mandate to force trusts to purchase in a particular way, the funding model shows it makes financial sense for hospitals to use deals done by NHS Supply Chain. “Today we fund the model through margins, so when a trust buys a product, the extra cost on top goes towards running the whole supply chain. Going forward it will be paid for centrally through the Department of Health [DH].” A chunk of budget will bypass trusts to directly cover the cost of running the NHS Supply Chain. “So if you’re the CEO or CFO of a trust, one thing that shouldn’t be on your table is how effectively and efficiently you’re buying stuff,” says Sahota. “You should be able to look at the FOM and see the delivery of the right product at the right price. You don’t want to see logistics costs for hospital consumable goods either, because it will have been paid for centrally, and you don’t want to see margins on goods.
“Each trust has a cost improvement plan, and this programme will help. It also means procurement professionals working at these hospitals will be able to focus on other opportunities, such as non-pay side services. There is currently no central entity to leverage NHS spend; as a procurement professional, what you will be getting is fantastic.”
Supplier and customer relations
Overseeing all the towers, modernised logistics, tech and operations will be the Intelligent Client Coordinator, already operating in shadow form after its business case was approved. Consultations showed those in the health system wanted a public-sector-owned-and-run central function; the ICC will take responsibility for performance management and customer engagement. “We need to be one of the most commercially astute organisations around,” says Sahota, currently its acting CEO.
The management team at the ICC will include leads for IT, HR, suppliers, customers, governance, clinical/products, finance and more. They will be mainly based in Nottinghamshire with some in London and account managers in the field. Lead nurses and clinical-evaluation teams will concentrate on selecting the best-quality product for the patient, and category management should boost innovation by making it easier for suppliers to get their ideas heard. “If you’re a supplier of an innovative product you can go to a category specialist who speaks your language, understands the products you’re talking about and can get it in front of a clinical-evaluation team,” he says. “Rather than going to 240 NHS trusts with your product, they can approach one receptive category specialist.”
The supporting IT system still requires updating, but there is already one significant new tool in place as a result of the Carter review. The Purchase Price Index and Benchmark (PPIB) system helps trusts to identify suppliers, categories and products where they pay more than their peers and provides an index so they can benchmark their organisation alongside others. “The trial sucked up all purchase orders around the trusts and gave us an understanding of who was buying what, the volumes and the cost. For the first time we could see we were procuring an unwarranted variety. We only had this for 40% of purchasing through NHS Supply Chain; now we have it for 100% of trusts, which is very powerful information.”
Leadership vacuum
In August 2016, the Health Care Supplies Association (HCSA), which represents procurement and supply professionals within the NHS, was highly critical of the DH, complaining about the “top-down procurement models” emanating from Whitehall over the last 25 years and a “vacuum in NHS procurement leadership”. It argued planned changes were confusing and were being made without consulting health service buyers.
“Eighty trusts helped us build the FOM, but our engagement initially was poor,” concedes Sahota. “We weren’t where we should have been with suppliers and trade associations. But it got better as we started to recognise that, and worked a lot more closely with all our trusts. Since then, we have sat on the NHS national customer board and regional customer boards, and taken on as much input and guidance as we can. Our strategic advisory group includes heads of procurement, and I’m a member of the HCSA – as are others working on this programme – so we’re all part of the same family trying to do the same thing. And I’m yet to come across a supplier who is against it. We’re here to make sure they do the right thing for the health system. We’re not here to limit their success.”
Sahota points out that total cost of ownership (TCO) will be taken into account when it comes to product price. The management office will form partnerships with providers, have strong and strategic conversations should anything go wrong, and ensure gains are shared with suppliers who innovate to reduce the TCO. “The litmus test of progress is: ‘Are we where we wanted to be at this time?’ And the answer is ‘yes’. Do we have the level of support we expected from procurement? Yes. Suppliers? Yes. Trade associations? Yes. Will there be bumps in the road ahead? Probably. Can we cope with and predict them? Yes.”
The extent of the FOM’s ambition is broad but sensible. Flexing the scale and size of NHS purchasing clout should improve value for money and deliver savings directly back to trusts to be invested in frontline services. Clinical work to ‘get it right first time’ with the selection of products is designed to help improve outcomes for patients. And centralising the purchase of common items ought to enable procurement professionals on the ground to concentrate their focus elsewhere.
“The NHS is massive and we need to get the purchasing model right,” concludes Sahota. “I’m yet to meet anyone who says: ‘Don’t change anything.’ There aren’t many models I’ve come across that can stand the test of time. This one will. It’s got to be a success – come October 2018, there will be no room for error or ambiguity.”