Procurement and the Election

Posted on April 16th, 2015 by

Photograph of a Ballot Box

In the run up to the election, the Conservative Party’s plans regarding NHS funding are taking up a lot of the headlines.

One can understand the attention. The NHS has a £115.4bn budget, one of the largest of any government department. Yet this can appear a relatively modest figure when we consider the comprehensive healthcare offered and set it against the historical and ideological basis of the NHS.

Most of the world’s other quality healthcare systems involve costs to both the respective countries and their individual citizens which, when added up, are usually higher than the cost per person of the NHS to the British nation. But there is a price to pay – and it appears to be rising, whether we like it or not.

Following publication in October of NHS England’s Chief Executive Simon Stevens’ “NHS Five Year Forward View” (dubbed the “Stevens Plan”), Jeremy Hunt recently announced proposals to plug an identified £30bn NHS funding gap over the course of the next parliament. £22bn of the £30bn gap would be funded through NHS efficiency savings, alongside £8bn of new investment (a shortfall agreed and variously addressed in the spending plans of all of the major political parties).

Hunt’s plan is positioned as a response to current and future challenges facing the NHS, such as the ageing population. The Conservatives also argue that the NHS budget has grown uncontrollably, with each hospital varying wildly in cost-effectiveness. It’s inevitable, too, that the NHS will need more money over time, with a growing population and rapid but expensive developments in medicine.

Picture of Surgeons operating

Efficiencies form the bedrock of Conservative economic policy. David Cameron has made it a point, especially when appearing alongside Ed Miliband, to talk about inefficiency in various functions and departments of both national and local government. Indeed, the planned efficiencies within the NHS extend to all other government departments, who will be tasked with delivering economies whilst maintaining levels of service even as their funding is cut.

Government-wide efficiency

All of the above is in line with David Cameron’s message that the Government’s efficiency targets lag well behind the targets of private industry and that huge savings can accordingly be made without causing any pain. It’s fair to say that over the course of the last parliament, the government has achieved positive efficiency savings that would be welcomed by a private company.

The problem in public perception of the benefits, though, is to do with the dreaded word “austerity” and the painful connotations that approach has picked up both at home and abroad (especially in Greece). Meanwhile, rival parties appear not to dispute that efficiency savings can be made – but maintain that the figures are inflated and are being used to justify cuts that may compromise the effectiveness of front-line services.

None of the above arguments are especially unfamiliar to anyone working in procurement to keep various stakeholders happy, of course…

Procurement

Central government and English local government combined spend £86bn a year on procurement, while the NHS alone spends £22bn, nearly 20% of its total spend. Earlier this year, HM Treasury released a plan that details how the government expects to “stretch” the £40bn spent on procurement in central government per year, in order to achieve £25-30bn savings between 2015 and 2017.

By 2019/2020, the government aims to move £10bn of expenditure on common goods such as Defence and Law Enforcement, Environmental Services, Transport and IT from the currently responsible departments to the Crown Commercial Service. The prime objective is to maximise the government’s purchasing power: with billions of pounds worth of contracts, including £4bn a year on IT alone, up for renewal during the next parliament, significant savings do appear achievable.

Photograph of some £10 notes

The Crown Commercial Service looks like a good place to centralise procurement. If you consider how a private company would behave if it had the same spending power as the government, it would almost certainly centralise its procurement to improve efficiency and service to its stakeholders. Centralising is the key to realising savings, as it allows an organisation to do the following:-

  • Control and track expenditure (knowing what you’re buying and how much you’re paying is the first step to making savings)
  • Review all current contracts to ensure they are fit for purpose (contain no major liabilities or erroneous clauses) and are consistently delivering the goods and services you need
  • Take the best practices/policies/procedures found across the organisation, and promote and embed them throughout
  • Realise the public sector’s worth to suppliers: the public spend not only represents large volumes of products and services to attract suppliers, but it can also offer the stability – both in terms of demand and financial security – that no other customer could ever match

There are also many steps a centralised buying function can take to increase and maximise buying power. Two examples:-

  1. standardise the products purchased (e.g. rather than buying 10,000 each of 10 different types surgical glove, buy 100,000 of one type)
  2. consolidate suppliers (again, rather than buying 1000 staplers from each of 10 different suppliers, buy 10,000 from one supplier)

Once you have such buying power, it should be used as effectively as possible, building strong relationships with key suppliers that will generate sustainable savings year after year.

The most challenging part of such a transformation is communication and the politics of change – in both the public sector and beyond. Internally, it necessitates informing all procurement employees of the changes and opportunities to come, and ensuring they are behind them and ready to adopt. Externally, all stakeholders similarly require preparation regarding the changes to come, the anticipated savings and the timeframes in which those savings are expected (connoisseurs of negotiation will recognise this as “conditioning”).

NHS conditioning

The NHS Procurement Efficiency Board has been tasked with delivering £1.5bn – £2bn of efficiency savings in 2015/2016 through centralising the currently fragmented systems by which hospitals run their procurement. Further huge savings are expected to be made by modifying the way A&E departments are funded and changes to workplace practices and care models.

Accelerating productivity gains, however, would require billions of pounds worth of extra investment; while the £22bn savings figure is considered an ambitious estimate by many health professionals, history also suggests that productivity gains of 2.4% per year within the NHS would be a challenge to achieve. The aggressive health economies involved would be unprecedented in post-war Britain.

The corollary of that, of course, is that successful implementation of the plan could make the NHS more efficient than it has ever been. The positive impact would, after the pain, be even more sustainable, bringing considerable benefits to the long term health of the NHS.

As Simon Stevens observed, the history of NHS funding has been tied to both the state of the UK economy and various political agendas. Governments come and go; and this has led to endless “stop-go” funding – while true stability can only be achieved should “the health service… plan and make the necessary efficiencies” to stabilise it against the fluctuating fortunes of governments and political parties.

In that sense, the health of the nation’s Health Service should be above politics. But it should not be above change if it is to survive in a sustainable form. Procurement is one of the most sensible areas to address in this regard. Whether the British can procure themselves a government that can deliver the necessary transformation… we’ll see! But wouldn’t it be great if vote-seekers were to realise that good, open communication, information and preparation are all vital to stakeholder adoption?