Improving Purchasing of Clinical Services*

21st October 2005

*connectedthinking

Why the need for change

Procurement Trends & Best Practice

Purchasing considerations

Impact & constraints

Options

Summary

Questions

Contents

Our analysis has shown that the current model does not function effectively for a range of reasons:

Relative strength of providers compared with PCTs

Variable purchasing skills in PCTs, often because this function is not given high enough priority and, as a result, is not always adequately funded.

Lack of consistent and reliable data and knowledge of how to use it

Duplication of effort because each PCT negotiates its own contracts

Complex model with many PCT’s competing for attention

Why is there a need for a new purchasing model?

Current & Future State of Existing Model

PCT

PCT

PCT

PCT

PCT

Provider

Provider

Provider

Provider

300 PCTs each contracting with a few providers

PCT

PCT

PCT

Provider

Provider

Provider

Provider

Provider

Approx.125 PCTs each contracting with many providers

Volume of purchasing will increase over the next few years as planned reforms such as PbR, choice, and greater plurality of provision are implemented. The number of providers that PCTs would have to contract with would increase significantly.

From research evidence we have determined that best practice for purchasing is likely to achieve these benefits through :

A co-ordinated approach for all purchasing decisions

Positioning purchasing as as a strategic function

Aggregated purchasing activity

Being driven by business cultural and organisational needs

Being viewed as a key business advisor on industry and provider market trends

Aligning with authority levels across organisations

Contracting activity being separated from strategic sourcing and performance monitoring activity, but linked through effective systems and processes.

Acting as a source of intelligence

Purchasing best practice

Central / Decentral

65%

Decentral12%

Central23%

Organisation Structure There is an increasing trend toward hybrid (central / decentral) purchasing organisations; an 18% increase from previous studies

Companies under $500M have more centralization 33% Vs those more than $10B - 18%

Service companies tend toward more centralization 32%

Trends in Purchasing Organisational Models

Co-ordination of purchasing activity typically takes place where:• Services are common to a range of organisations to which leveraged purchasing can

be applied;• There are limited skilled resources capable of undertaking the activity;

Centralised purchasing is typically applied where:• Specialised services which require specific knowledge & skills:• Small number of highly specialised suppliers

Purchasing considerations & principlesRole of purchasing

• Purchasing needs to act as the link between the strategic business requirements of the PCTs, the needs of the patient and to ensure these requirements are aligned in the contracts placed with suppliers

• Purchasing needs to understand the dynamics of the market place, and incorporate the impact that Patient Choice will have on provider behaviours

• Provide strategic business advice on the implications of commercial changes to the contractual relationship with Providers

• Provide purchasing & contractual frameworks under which “Area Purchasing” operates

Purchasing Organisational Model Options:• Outsource purchasing activity to an external third party• Create lead purchasing hubs within a number of “competent” PCTs who act on behalf of all • Set up separate regional purchasing hubs to undertake purchasing activity

Contracting Framework & Structure• Implementation of contracts that incentivise providers to deliver quality outcomes Vs payment on activity

levels• Drive performance of providers through market dynamics and system of patient choice• Commonality of service levels across all providers to ensure consistency of service• Use of credit regimes to drive delivery of agreed service levels rather than “cash returns”

Purchasing considerations & principles

Contract & Supplier Management

• Provide distinction between the role of “contract management” (delivering what is contained in the contract and “Supplier Management” (working with supplier to improve & enhance services) – the feel good factor

• Create governance regime to allow balance of power to fall appropriately between DoH, PCT, procurement, Patient & Provider

• Undertake regular review of contract performance to ensure objectives are continually being met and delivering desired objectives

Performance Management

• Creation of supplier enabled performance measurement systems to focus on both delivery of service levels and key performance indicators

• Performance measurement needs to be driven through feedback at all levels starting with patients

The problem is size; contracting and purchasing is either done at a level that is too large, or too small

Local National

•Responsive to patient’s needs•Flexibility according to local context

•Ability to influence clinical practice

•Ownership by stakeholders

•Critical mass to allow for variations in numbers

•Concentration of expertise•Reductions in transaction costs

•Proximity to national targets

…purchasing needs to strike the balance between commercial

control of national activity and the local needs of patients. It also

needs to ensure clarity of financial responsibility

The available evidence needs to be set against existing policy drivers. These include:

Extending patient choice

Commissioning a Patient-led NHS

Implementation of PbR

Existing fixed contracts with Foundation Trusts & ISTCs

What this means in the NHS

Initial thoughts on processes

ProcessesIn very broad terms the options for contracting with providers fall into three areas:

1. A laissez faire approach which allows for negotiated contracts on a case by case basis

2. Centralised negotiation of National Contracts allowing for some flexibility for local & regional needs

3. Structured engagement model using framework agreements which can be flexed & tailored to suit local circumstances

Initial thoughts on processes

Having reviewed the complexity, cost and timeliness of implementation of the various models our initial thinking leads us towards favouring the following process:

• Core national framework contracts developed centrally but with adequate flexibilities to enable tailoring to local requirements.

• These contracts could be developed in a relatively short period of time and could apply equally to NHS FTs and other providers

• Whilst it is beyond the scope of this project to comment on the future design of PbR we would also suggest that these contracts include an option to reward or penalise financially purchaser behaviour as appropriate

Summary of key issues & options

Procurement Structures:•The role of purchasing needs to be re-defined and professionalised•A range of models exist that need to reflect the needs of DH, Provider Market, Commissioners and Patients

Contracting approaches:•Local contracts meeting local needs Vs National contracts meeting DH targets•Central negotiation Vs Framework contracts

Performance management:•Measurement must take place at patient & GP level•Information needs to be consolidated at highest contractual level to drive provider performance

Open Discussion

Questions?:

What might be some of the practical constraints around the proposals?

Implications of PbR?

Existing fixed contracts with Foundation Trusts & ISTCs

Do they work?

What would you wish to change?