The Universal challenges of health care procurement

Posted on June 1, 2011


It seems that hardly a week goes by when there isn’t one story or another involving health care.

From Medicaid reform to the spiraling costs tied to an increase in chronic illnesses – according to health care expert and author of the book Navigating The Healthcare Maze Jeff Knott, a surprisingly large percentage of the American population struggles with at least one and in some cases two forms of chronic illness.

Now one might wonder how this ties back into procurement, after all this is the main focus of the Procurement Insights blog.

In the past, establishing the link between patient care and purchasing may not have been to the outsider a natural connection.  However, for those involved with the day-to-day responsibility of delivering health services on the front lines, the link is not only recognized but of critical importance.

One of the most glaring examples of the consequences associated with an interrupted supply chain is the Veterans Health Administration’s Bay Pines facility in Florida where, as a result of a failed Oracle/JD Edwards implementation the medical professionals were unable to deliver essential care to their patients.  The end result was a highly publicized Congressional Hearing.

These problems are by no means limited to this side of the Atlantic, as demonstrated by my extensive coverage of the challenges faced by the largest socialized medicine program in the world, the National Health Service in the UK.

In my December 3rd, 2010 post  UK Government Puts An End To The Gravy Days of Big Budget IT Initiatives: Another Nail for Large ERP Vendors?! I wrote the following:

After the National Health Service “NHS” spent more than $4 billion US to “create ideas” on automating its health care system, of which only a paltry $224 million US actually had an impact on patient care, it is not surprising Cabinet Office minister Francis Maude told companies such as Hewlett-Packard that the UK Government “will no longer offer the easy margins of the past.”

Against this backdrop of universal challenges within the sector I was particularly interested in Colin Cram’s recent article on the Public Leaders Network website.

Cram as you know is the 30 plus year public sector veteran in the UK who wrote what I have frequently referred to as the seminal paper on improving public sector procurement.  I am of course talking about his Towards Tesco paper that using the giant retailer as a model, provided some very interesting and insightful pointers on how the public sector can drive greater efficiencies as well as savings.

In this latest article, Cram focuses his attention on the NHS providing some equally compelling perspectives on how the organization can improve by building on what is already in place.

The following is a brief excerpt from “Incentives and persuasion do not work in NHS procurement.”  I would encourage you to access the article in its entirety through the provided link.

The public accounts committee report on the £4.6bn a year procurement of consumables by the NHS highlights problems that exist throughout the public sector. The government, on behalf of the taxpayer, provides vast funding for procurement with little accountability for the efficiency and effectiveness with which it is spent. It is gaining greater control over central government procurement (£70bn a year), though this week there was a critical report about an MoD project, which is included in the £70bn.

That leaves £150bn-£160bn of procurement spend in the wider public sector, managed in a fragmentary way, over which the government has little control and where accountability is limited. Procurement policies of successive governments, including the present one, when applied to this spend, have been nothing more than empty words. The government has limited knowledge of how much is spent, by whom, with whom, on what and the proportion of spend with small to medium enterprises (SMEs), even though such an exercise could be undertaken with little difficulty, starting with transactional information that already exists in all finance systems. It has no plans to find out.

The PAC report emphasises the disjointed nature of procurement by NHS hospital trusts, the poor quality and inconsistent data and a reluctance to use organisations that have been set up to maximise the purchasing power of the trusts. The Department of Health believes that the requirement to deliver 4% efficiency savings, year on year, will incentivise the trusts to improve. However, experience in other parts of the public sector, such as local government, which has had to report efficiency savings for each of the past few years, suggests that this will be wishful thinking.

Once again, you can access the article in its entirety through the from “Incentives and persuasion do not work in NHS procurement.” link.