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Smart Use: Challenging the NHS to fully understand cost


Ask any hospital in the UK exactly how much it cost to carry out Mr Smith’s hip replacement and they probably couldn’t tell you, claims David Ford, co-founder of Microsoft Partner, Smart Use. Since budgets will be dispensed by GP commissioners in future, he says acute trusts really need to clean up their procurement act. Ford talked to Paul Curran and explained why the NHS urgently needs better cost control.

Inefficiencies and inaccuracies

Trained at a London medical school and with a 25-year career almost exclusively within healthcare, David Ford is a former executive director of the British Standards Institution and was also responsible for managing the world renowned ‘Kitemark’. It would be reasonable, then, to believe him when he says he knows “a fair bit about what excellence in quality of product and process should actually look like.”

Prior to co-founding Smart Use, Ford also ran several international blue-chip healthcare businesses supplying the NHS with diverse products used in surgery. This led him to discover that, in comparison with industry, most hospitals manage their materials supply chain very poorly. But he says the current climate of austerity in the public sector is finally forcing trusts to address the problem after years of neglect.

“As financial control in the NHS becomes ever more challenging, improving the way healthcare inventory is acquired, stored and managed has become business-critical”, he says. “NHS hospitals in England spend around £4.6bn each year on a huge range of everyday supplies. Yet thus far there’s been no adequate solution for effectively managing inventory in clinical and non-clinical environments.”

Worse still, he cites a recent National Audit Office study which revealed that hospitals often pay wildly varying prices for the same products - and that there’s also a huge variation in what they buy. For example, 61 trusts purchased 21 different types of A4 paper, along with 652 types of surgical glove.

“The study found that hospitals rack up admin costs by placing many small orders, so miss out on many lucrative bulk discounts. It concluded that at least 3.3% could be shaved off the cost of consumables just by reducing price variation, and that hospitals could save a fortune through more efficient purchasing.

“For most acute trusts, the average spend in theatres alone is around £30m. We’ve found that typical waste in district general hospitals is 15-18% of that amount annually. Let’s not forget, that’s taxpayers’ money. Shareholders in a commercial organisation would look for heads to roll for such a serious lack of control.” Hence, Smart Use, a procurement and inventory management system designed specifically for healthcare at the point of use.

Operating in the dark

Ford says that NHS Trust leaders need better information if they are going to recoup these losses. “Given that the NHS is likely to be overspent by around £15bn each year, it must finally get to grips with inventory management at the sharp end and work out exactly what’s being spent on procedures. Only then will it have the right information to control costs.

At present, he says, many trusts are operating in the dark. “Ask most hospitals what it cost to carry out Mr Smith’s hip replacement and they can’t tell you. They might be able to give a ballpark figure for a procedure cost using averages, but not a detailed breakdown of how much the actual operation for Mr Smith cost them.

“That’s because hospitals typically base their costs on how much time patients spend in theatre; they work out the cost per case by taking the total spend across the year in that area and dividing it by the available number of hours in which they can operate. It means that a long episode that uses no products will show up as costing more than a case involving lots of expensive products but only a short amount of theatre time.

“Now, that’s fine if you’re managing a budget that’s just coming to you anyway; but guess what! The budget’s not coming to you any more - it’s going to GP commissioners. And they will ask: how much is it really going to cost to carry out this particular procedure on Mr Smith? Therein lies today’s challenge for acute trusts.

“An additional challenge is the financial competition intentionally created by the ‘Payment by Results’ tariffs for procedures. Those who commission procedures will not take too long to shop around for the best deals. Without costs being very clear and linked directly to the actual procedures, how can trusts possibly know how their balance sheet is affected?”

Potentially massive ROI

For these reasons, Ford says Smart Use feels “as if it is now in the centre of a perfect storm.” The company is now facing a massive increase in demand from hospitals that need to resolve their inventory and process issues before they suffer the consequences of financially ‘flying blind’ in the new, more commercial NHS environment”. 

Ford claims Smart Use yields a significant return on investment (ROI) in typical trusts, with some reporting returns of up to 8:1 within a year by:

  • Reducing the amount of stock on shelves - that can represent a one-off cash saving of around £1.8m
  • Introducing demand-led purchasing - typically saving around a further £500k
  • Reducing wastage by 4% - typically saving £500k per year
  • Reducing the number of delivery charges and requisitions - potentially saving a further £1.5m or more.
Demonstrable payback in savings: trial at Portsmouth Hospitals NHS Trust
Attracted by such potential savings, Portsmouth Hospitals NHS Trust and its supply chain management partner, Solent Supplies Team, commissioned Smart Use to conduct a six-month process and data analysis exercise last year within the Theatre Department at Queen Alexandra Hospital (QAH).

Ford says the study highlighted a lack of visibility of stock using existing information systems, high levels of stock, inefficient and costly processes which potentially caused wastage; a haphazard approach to materials management; and significant storage space limitations. “This supported a trial of our inventory system which is based on Microsoft Dynamics NAV,” he says.

Supported at Board level by the Trust, and implemented within just one activity area, the trial highlighted significant recurring time-savings across the theatre complex. Equally importantly, it permitted a cash release of over £1m back to the balance sheet, Ford says.

“QAH now has a store that’s never over-stocked, and a more efficient system that allows supply chain staff to locate items more easily and service more theatres.” A similar assessment of orthopaedic stores has shown over-stocking of high value implantable devices, and QAH is currently implementing an extension of the system to all areas of the theatres.

Applying industrial techniques to healthcare

Ford says inventory control is core to the supply chain. “With Smart Use, Trusts can finally move toward material requirements planning (MRP) techniques and integrate inventory management as part of a demand-led system. Rather than just looking at historical re-ordering points for example, QAH is now able to ‘pick to procedure’ - in other words, a ‘just-in-time’ pre-ordering of surgical and medical products for known elective treatments.

“Let’s face it,” says Ford, “individual trusts in regions are now competing with one another for the same business. It’s therefore time for each of them to consolidate their purchasing and get a grip on their non-pay spend using effective inventory management. They are unlikely to achieve this via central government because the NHS isn’t built like that, plus we now know that ‘one-size-fits-all’ IT processes don’t work.

“By instead following QAH’s example, any trust can quickly realise a substantial reduction in their expenditure,” he says. “But more importantly, they can begin to predict what they will need weeks hence, which means they can at last plan what they buy; this in turn will enable them to look at their data, manage suppliers and link purchasing to better clinical outcomes.”