The NHS Malthusian Challenge… Purchasing and Beyond

The NHS is unavoidably in the midst of the deepest and longest financial squeeze it has witnessed in its 65 year history. This article seeks to comment on some of the challenges faced as we move into a new era of unprecedented demand on services, coupled with increasing requirements for procurement professionals and frontline staff to do ‘more for less’ and ‘do different’.

Every 36 hours the NHS deals with over 1 million patients. Like any service, free at the point of use and deemed universally attractive by those needing it, a natural point of excessive strain eventually comes to the fore. In this case the NHS’s ability to provide care for an increasingly growing and complex aging population across the scale and coverage now demanded of it. Today we witness a growing trend of overuse and misuse at every level within Primary and Secondary care from the missed doctor’s appointment through to the frivolous call-out of a non-emergency ambulance.

Looking forward, future financials also paint a grim picture; The NHS already faces a funding gap of up to £2bn – about 2% of its budget for the next financial year and over 44% of NHS trusts are expecting to end the year in a combined deficit. In addition, 64 of England’s 145 hospital trusts are reported to expect to end the year in the red with ‘black hole’ predictions.

Longer term predictions provide little comfort too, with The Nuffield Trust estimating funding gaps of up to £54 billion by 2021 adding to the some £20 billion in the year in hand. Cumulatively the annual deficits equate to a staggering £130 billion funding shortfall in the next 5 years alone.

The “Malthusian Challenge” – where geometric growth of a population out strips the resources available to it – if it continues in UK healthcare as it has and is doing, looks set to simply render the NHS with a future inability to deliver unless changes take place. This is not any fault of any one government of the day – but a dramatic population matter, set by society. Set against a background of a UK economy that has not, in real terms, progressively grown by even 3% compound when we have seen NHS spend for the15 years to 2010 rise by 4.9% a year compound – far outstripping the growth of our commercial economy and GDP; it is the simple economics and evidence that fiscal policymakers will have to alter the running to keep up, as societies demand for Healthcare is outstripping the economic growth they are providing.

In context, in today’s value of money, the NHS has a budget of over £112 billion – compared with what was the equivalent of £9 billion in 1948. That’s a 12 fold real terms increase. However, the Malthusian dynamics are that the UK population has both grown enormously over the same time period and amazingly now also has a life expectancy that is, as near as anything, 25 years longer than in 1948 and more healthcare demand and expectation as well. An older population with multiple health issues, fragility, mental health and long term conditions and not the infectious diseases that were principally on the handling agenda for the NHS of 1948.

On a daily basis, through osmosis of emotive media, the taxpayer public absorbs bleak forecasts around a lack of funds, exorbitant hospital waiting times and a crisis in the supply of frontline staff and equipment alike. Combine this with the odd story thrown in of the a Trust or two in special measures and it is easy to see how a vicious cycle of lamenting cynism can develop with little regard to the good work of a system which often makes the British healthcare market the envy amongst some international peers.

And so with the above in mind, we come onto the topic of procurement and the requested saving of £1.5 billion by 2015/16 by the ‘Spending Round Settlement’. In reality it means that the NHS needs to have implemented a 0 % inflation policy for the last 2 years onwards out of its total net expenditure (resource plus capital, minus depreciation) – reported at £113.035bn (2014/15). Leading voices however call for this figure to be much higher at savings closer to £5 billion. Looking back, bodies such as The National Audit Office recorded waste of up to £500m on the procurement of just basic provisions via inefficient procurement methods. In isolation exorbitant tendering processes are said to cost the NHS more than £1bn a year. The Better Procurement, Better Value, Better Care sets out a commitment to establish a national Spend Analysis and Price Benchmarking service to pioneer new services which will provide uniformity, reinvigorate and futureproof across the c£20 billion+ a year which the NHS spends on consumables expenditure (c30 per cent of its total operating costs)

With hundreds of disparate sites, systems and processes, improving or more accurately a creating uniformity of good procurement practice does not come with a magic wand. As outlined within the NHS England 5 Year Forward View where there is a call for a layered tier of responsibility and commitment to shape the future of the National Health Service, encompassing everyone from system leaders, procurement professionals, frontline staff, patients and the public alike. -

With this in mind only with a top down alignment between policy makers, boards, clinicians and frontline staff can a truly colligate and accountable environment thrive to create momentum in the following areas of consideration:

  • Creation of a mature of a consistent billing engine for allow for recovery of 3rd party healthcare costs, such as those facilitated by Healthcare Cost Recovery for the recovery of treatment costs for third party non-fault accidents. More than £700m is not being recovered here alone. Healthcare Cost Recovery, alongside better workflow management tools to prove cheaper and consistent charging and invoicing where necessary.
  • Strengthening of relationships between Procurement, the NHS Supply Chain, the Government Procurement Service and further use of the “Capital Equipment Fund” to ensure that procurement professionals have a true voice within, on future evolutions of these systems. It estimated that these organisations amongst others influence 30% of NHS spending decisions and so it is key to ensure that there is an open dialogue around what Purchasing Professionals require to maximise both value and advice given
  • Product substitution is estimated as having potential savings of more than 38% across the some £4.5 billion yearly spent on clinical supplies and services alone. To put into context NHS Supply Chain estimates that, if other products aside from the market leader were tried and implemented across the £25 million currently spent on sterile surgeon’s gloves the NHS would save around £5 million.
  • Nurses often find thousands of pounds worth of unused medication in patient’s homes, the purchasing of increasingly expensive unused medicines currently costs £300m a year. By devising robust systems and monitoring around the dispensing of medicines huge savings and reduced waste could become a reality
  • GSI has called for a uniformed approach to barcoding across the NHS for both patients and inventory. Consistency in this area has already saved the UK retail industry an estimated £10.9bn per year and it is thought material real savings could be replicated within the NHS
  • Whilst focused on consumables expenditure; if NHS trusts adjusted their HR policies to ensure the percentage of non-permanent staff moved progressively to within the national average of 4 per cent of the workforce, the NHS could reduce £230 million of non-permanent staff expenditure. Locum use within some trusts has increased by 60% with some Locums reportedly charging up to £1,700 per shift
  • Management Consultants charge the NHS c£1bn+ per year. This could be radically reduced by Purchasing forging more transparent relationships with suppliers, allowing them to understand the core objectives so as to leveraging their recommendations and skills and reducing the need for further consultancy in the future. For too long the wrong solutions have been bought and sold on the basis of a lack of dialogue.
  • Renegotiation of PFI deals in place needs to be made a statutory matter – and is a key way to look at reducing property costs/ finance charges. Within properties – simple changes such as fluorescent lights being replaced with high efficiency luminaires are expected to produce a compounding savings each year for 12 years. Further use of the £50 million Energy Efficiency Fund can provide huge efficiencies to be reinvested back into patient care
  • Futureproofing of talent should also take priority with a programme of graduate and apprenticeship programmes to increase attract a new commercially driven generation of procurement professionals and the retention of high performers and talent

    Future speculations on the shape of the NHS has presented a myriad of new proposals around flexible models of service delivery tailored to the needs of local populations with hints at everything from virtual, online and tele-health clinics initial doctors’ appointments; through to the proposal of A&E in-house pharmacies etc

    If we were to step back further and take a more holistic approach, there are perhaps five themes we could consider to promote real and long lasting change. However, we should not miss the opportunity in the pursuit of the perfect to just make things better.

    1. Introduction of financial productivity performance measures & metrics.
      Recruit, reward and performance manage leadership & staff based specifically on these. We have grown NHS spending by more than our economy is growing for the last 25 years – we must now improve efficiency to assist in closing the gap. The “treat the whole person” initiatives are clearly a part of this to avoid multiple healthcare teams separately treating an individual for different specific issues. Rather look to facilitate a single overall treatment & support process.
    2. Review length & service agreements.
      Alter the framework of healthcare employment to be a more normalised performance related arrangement rather than perceived auto-employment. The aforementioned point 1 supports this by definition. Support with the upskilling of senior management to provides increased capabilities for accountable commercial performance management; which move away from outdated early retirement or internal transfer agreements; but to a supportive development led performance culture.
    3. Billing Engines which are fit for purpose.
      Introduce a transparent billing engine into the NHS and ensure that every patient and user is aware and educated about the cost of what they are consuming, even if they are not charged at all. The importance of one’s customer and user recognising the value of what they are getting is as important for staff delivering it as it is to the consumer receiving it – if habits are to change. Free at the point of delivery does not mean it is free to produce and deliver and the public needs a better understanding of what they are using and how. This is not to perturb the use of the NHS for emergencies – quite the contrary it through methods like this and ensuring that all user groups – such as third party insurance companies, corporate bodies and those attempting healthcare tourism are automatically invoiced/ or asked to reimburse the NHS for their service consumption that will ensure that we have an NHS which can facilitate emergencies and treatment for all long into the future.
    4. Free at the point of use – but not free unconditionally.
      Introduce a set of minimum charges for users calling on the system after a certain limit, whom are above a set income and have repeat usage. Examination of the introduction of a flat rate privately funded NHS insurance policy for all under 60 year olds to meet a cross section of health incidences or increase a slightly higher marginal tax rate if preferable to the individual. In this way the NHS can engage everyone in sharing the responsibility of supporting a population, now with a life expectancy of over 20 years past retirement, irrespective of their own consumption or needs. In effect our life expectancy has risen by 8 hours a day for the last 20 plus years and we need new ways to support this – as quality will be the detriment if we don’t. ‘Demand need’ cannot be stunted or thwarted – delivery efficiency, self-responsibility and the availability & sources of funding can however all be tackled and progressed. These should now be the acceptable battleground of our situation. This is not some sort of privatisation by the back door it is simply enabling the prioritisation of funding of a public system through the front door.
    5. The myth around nationalisation.
      There is an irony which has manifested over the last 10 years plus in UK Healthcare – the hidden reality being that all of the major national independent and private hospital systems (Nuffield, Ramsay, Spire & BMI) are now all in effect ‘nationalised’. They all see a significant amount of their patient activity funded by the NHS – and all of them would now be financially insolvent if these huge percentages of their current activity were not funded by the NHS. We have therefore at the same time as suffering the most significant NHS funding increases and pressures, effectively nationalised our private hospital / healthcare system. Dr Jacky Davis and other doctors and campaigners including the National Health Action Party have put a cost on this process at £10billion a year. Although the Centre of Health & the Public Interest put it at a conservative’ £4.5billion a year. Irrespective, Without the NHS none of these providers would be financially viable – we the tax payer are in effect supporting the maintenance of the private asset base and funding of the private hospital system for the UK. Their assets should now be viewed as being part of those available to the NHS and we should rationalise either those that are not fit for purpose elsewhere, or these – so we are not burdened by excessive costs and fixed costs of incremental building and facilities.

      In the midst of looking for efficiencies often through the use of shear powerhouse economies of scale, we can look to Lord Young’s report on ‘Growing your Business’ to identify the ways in which the NHS can become easier to do business with including everything from abolition of PPQ’s under the EU threshold through to adoption of standard payment terms to ensure that local SME’s are not precluded so that the NHS continues to provide purchasing power to the British economy itself. May 2015 provides uncertainty around exactly what the future holds for our most loved institute. Whilst no ‘E-Government’ will ever take the place of healing hands it is time to get serious about removing what is now an increasingly inevitable postcode lottery of healthcare. The NHS was originally built on pioneering innovation but the world has long since changed since 1948 and we cannot allow fear of adapting to new challenges to block progress or simply allowing ignorance to seek to maintain the status quo.
      In the words of Sir Bruce Keogh….. ‘The NHS is an international icon of the British social conscience, designed to replace fear with hope. It’s owned by the people for the people, funded by everyone for everyone. Irrespective of age, social status, race or creed…..’ Only by harnessing the changes and not dodging the hard decisions can we keep it largely that way. We as a population our needs and our expectations have changed we need to make sure the NHS does with us.Adrian Fawcett is Chairman of Healthcare Cost Recovery – the UK’s leading financial reimbursement specialist for the NHS. He was previously CEO of BMI Healthcare the UK’s largest independent healthcare & hospital group and a Non-Executive Director at the Department of Work & Pensions. An economist by background Adrian is now the Chairman of a number of well-known major businesses.


By | 2017-06-08T15:33:30+00:00 January 7th, 2016|Governments, Medical|0 Comments