Value based procurement – an alternative approach to cost

reduction in the NHS

Mike Ludbrook

Project Manager - NHS NW Procurement Development

CIPS Trainer – Neil Fuller Associates

Owner – Value Time Consulting Ltd

Presentation for CIPS Leeds Branch

April 2018

Areas covered

• Introduction to the concept of VBP

• Relevance of VBP to the NHS and the Health sector

• Wider relevance and links to total cost of ownership

• VBP guide overview and discussion

Background to NWPD

• 35 provider hospitals

• 7m population

• £3bn annual spend on goods and services

• Create a community

• Raising the profile of procurement

• Improve transparency & co-ordination

• Promote organisational development

• Develop supplier relationship management

• Assist Trusts supporting the National NHS procurement agenda and savings challenge

National

&

Professional

NWPD

NHS Trusts

‘Value’

• Value as a net concept

• Health outcomes achieved per pound spent

• Shifting the focus from volume and processes delivered to value of outcomes is a central challenge in healthcare (Michael Porter)

Background to value based procurement

• Value-based procurement is acknowledged internationally as a method to deliver whole-life cost savings and service improvements across product pathways beyond traditional, narrow price-based measures.

• By focusing on pathways, VBP (or ‘Procurement for Pathways’) delivers far higher financial savings than traditional procurement approaches

NHS Procurement journey…

Profile

Impact

• Paper based • Transactional • E-Procurement

• Strategic

“..Lord Carter

concluded there were

“stark variations” in the

quality of care and

finances, which were

costing the NHS

billions”

2004 2013-15 2017+

. “Mr Homa has been required to

make savings of more than £40m in each of the last four years, and

the trust is on course to cut another £40m this year, taking

the total to more than £200m in five years.”

More with less….

The challenge

Rationale for change

• NHS procurement is focused on price and doesn’t account for total acquisition costs.

• Relationships with suppliers are based on traditional, adversarial; win-lose strategies. This approach will not deliver the required level of cost savings for the NHS.

• Supplier relationship management principles see engagement with suppliers as a key to the solution, rather than a cause of the problem.

• To become more strategic, both NHS procurement and NHS suppliers must embrace behavioural change.

A solution…

Aim to find ways to develop procurement approaches that identify, quantify and

reward, tangible(£) efficiencies in the patient pathway and patient care

Price focus….

0

200

400

600

800

1000

1200

1400

1600

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Primary knees example

Will suppliers leave the market?

Price £

Time (yrs)

Current practice

Savings projects

53%

22%

8%

6%

9%

<£10k

£10k+

£25k+

£50K+

£100k+

Value of savings forecast by procurement project

UK National position

• The National Agenda driven by the Carter Review in 2016

• The new structure to replace NHS Supply Chain (Future Operating Model - FOM)

• GS1 – “Scan4Safety”

There is another way…

Value based procurement Opportunities for extending the life for savings and improved efficiency

5000 Procedures per annum

Total procedure costs: £4000

10% saving 10% Saving total

procedures (p/a)

Implant costs £1000 £100 £500,000

Pathway costs £3000 £300 £1,500,000

Total potential savings £2,000,000

Strong case for VBP…..

• More difficult to measure

• Price

• Quality, quantity, maintenance, disposal

• MEAT

Total Cost of Ownership

Lifecycle costing

– Various transaction costs

– Finance costs

– Acquisition costs

– Operating costs

– Costs of storage and other handling, assembly or finishing required

– Costs of quality

– End of life costs

• Total cost of ownership includes not just the price of the items being purchased, but also:

The price-cost iceberg

Value based procurement

“Procuring for pathways

- a practical guide”

Framework for value based supplier relationship management

• One day workshop with relevant stakeholders from the pilot Trust

• Each strand will form sub-groups to complete their tasks agreed at the workshop

• Outcomes need to be tangible benefits

• Roll-out to the wider region

• Project manager facilitates the roll-out and maintains the high level relationship with the supplier.

Framework for value based supplier relationship management

• Data analysis to produce supplier reports

• Initial meeting with supplier at the appropriate level

• SRM project proposals

Project plan

Work overdue

Year

Mo

nth

Stage Task Owner

1 Project scope

1.1 Initial review of data PM

1.2 Initial meeting with supplier PM

1.3 Summary report PM

1.4 Identify areas for savings & benefits Supplier lead

1.5 Engage with relevant Trust(s) and identify pilot PM

1.6 Agree scope for mini-project PM/SL/TL

2 Stakeholder engagement

2.1 Workshop for all key stakeholders PM/SL/TL

2.2 Agree aims and measures for commercial Finance lead

2.3 Agree aims and measures for clinical Medical lead

2.4 Agree aims and measures for 'supply chain' Procurement lead

3 Pilot actions

3.1 Commercial Finance lead

3.2 Clinical Medical lead

3.3 Supply chain Procurement lead

4 Produce 'framework' for regional SRM

4.1 Lessons learnt & project report PM/SL/TL

5 General support for project

5.1 Ongoing feedback and support PM/SL/TL

2017 2017

Cook Medical & NWPD SRM Project - workplan

Work to be done

Work Completed

2018

January

2017

August September October November

2017

December

2017

SRM benefits • Example data from 2018 project work with

Cook Medical - a supplier of Pneumothorax treatment devices:

Benefit Summary

Saving of inpatient management costs after HRG income £1,097.08

Income from outpatient management after HRG income (in

surplus)

£531.02

Total Benefit (per procedure) £1,628.10

Baxter Evolving Health Programme

Partner with the NHS to deliver the quality and efficiency agenda

Enhanced Recovery - NWPD and Bolton NHS FT

Improvement in the Day Care unit

HES Period April 15 – March 16

Unwarranted variation

WWL RIC’s case study

RICs rather than ear moulds (940 patients) results in a total saving of £40495.20 over three years

Spending an extra £3,760 on the RICs product results in a saving of £44,255.20 in staff costs over three years

Opting for RICs saves 2.25 hours of clinical staff time and 2.2 hours of admin staff time per patient

Choosing RICs rather than Ear Moulds saves the patient 6.5 hours over a three year period- 4 clinic trips rather than 8

»The results…

Tendering...challenges

TRUST Can VBP be used as a ploy by

suppliers to avoid lowering prices? The OUTCOME

Will savings be realised?

TIME Impact on BAU

VBP tender process

1) Product ID 2) Clinical stakeholder

engagement to map value chain

3) Finance stakeholder engagement to quantify

value chain

4) Supplier engagement to validate value chain &

establish risk sharing/value

commitment mechanism

5) Tender design –

• Product/output specification

• Evaluation criteria

• Contract terms

6) Invitation to tender

7) Evaluate tenders 8) Contract award 9) Contract management

Stages 1-4

1. Product identification

2. Mapping the value chain

3. Quantifying the value chain

4. Validating the value chain

Stages 5-8

• Tender design

• Invitation to tender

• Evaluating tenders

• Contract award

Example bid scoring and weighting model

Evaluating tenders Total knee replacement (TKR)

1000 knees implanted per year - 3 year contract

Probability that value based proposals will apply to 75% of procedures

Pre market engagement to determine value drivers and confidence levels

Unit price total VBP reduction LOS < 1 day = £400

Theatre time < 1hr

= £1000

Instrumentation trays < 1 tray

£25

Bid 1 £950 £25 0 0 1

Bid 2 £1,000 £425 1 0 1

Bid 3 £1,100 £950 1 0.5 2

Std procedures *250 VBP procedures * 750 TCA TCA = Total cost of acquisition

Bid 1 £237,500 £693,750 £931,250

Bid 2 £250,000 £431,250 £681,250

Bid 3 £275,000 £112,500 £387,500

EG rationale – Stage 1 getting procurement to think past price.

Stage 2 – total care pathways and clinical outcomes

Stage 9 – contract management and supplier relationship management

• Downstream contract management, and in a wider sense, supplier relationship management (SRM), presents more opportunities for value based procurement. Developing supplier relationships through effective contract management facilitates the collection of market intelligence and ensures savings actually reach the bottom line.

• When Trusts are already in contract with a supplier, or

at least have a compliant route to market readily available, they can engage in value based activities without the need for a new, full tender process.