Innovation UK > News > Healthcare > Procuring innovation in the NHS

The NHS is one of the biggest spenders of taxpayers’ money, responsible for over £100 billion of a total £568 billion. To deliver its objectives, the NHS requires the support of a huge number of external suppliers providing goods and services and increasingly healthcare itself, as we drive for greater plurality and choice in healthcare provision. In 2007/8, it is estimated that some £40 billion was spent with third-party suppliers, which not only has a significant impact on the UK economy as a whole, but is also critical to some industry sectors such as life sciences.

This level of spending means that the NHS can be a powerful spur to innovation, or, if used without careful thought, it can be a potential obstacle to the development and diffusion of innovations. The NHS is unique, a taxpayer-funded national system that could be, and should be, a hotbed of innovation for suppliers. Opportunities to move to more health prevention should act as a vital stimulus for industry to innovate and to use the NHS as a showcase for global export. But, we know this doesn’t happen enough, which is why the Department recently published Creating an Innovation Culture to unlock this potential.

But this responsibility is not one-sided. The current economic climate will lead to the NHS looking for ways to ensure the health budget not only goes further through improved efficiency, but also improved quality and the only way in which efficiency and quality can be achieved is through innovation. The new climate provides an opportunity to deliver a win-win situation, whereby key industrial sectors are encouraged to innovate, so the NHS can deliver more efficient and higher-quality care. But the NHS must mobilise itself to play its part. It can stimulate innovation by acting as the first customer and early adopter of new innovations, setting clear strategic directions and better communicating where and how it is seeking to procure innovative solutions in future. This is not easy, but the rewards are too important for us not to act now.

Procurement is a vital lever in making this happen. A procurement function that creates and articulates intelligent demand from the NHS system and then encourages suppliers to develop innovative supply-side solutions, can help the NHS unlock its innovation potential.

Creating the right environment

In his Next Stage Review (NSR), Lord Darzi confirmed that there was a desire to bring the benefits of innovation to patients more rapidly. Across the country, from the South West to the North East, he heard that there is much to be gained by the NHS working in partnership with higher-education institutions and the private sector. Clinical practice is constantly improving, offering new opportunities to improve the quality of care. This means that if quality is really at the heart of everything we do, accepting, embracing and leading innovation is an imperative, not an option.

The NSR emphasised the need for innovation to be driven regionally by strategic health authorities who now have a new legal duty to promote innovation. We are now in a position to support the uptake of frontline innovation through the creation of substantial regional innovation funds held by SHAs. The funds’ purpose will be to identify, grow and diffuse innovation.

But we know that innovation is no longer the exclusive domain of in-house scientists and R&D labs and that organisations such as Proctor & Gamble now source half their innovation from outside, believing innovation to be a multi-player game, and the issue is less about creating knowledge than it is about knowledge flows. This is where purchasing professionals come in.

Good ideas are more often coming from outside the firm and so a good set of antennae is important to pick up the signals and triggers from a firm’s supply network. The procurement function in the private sector is increasingly stepping up to meet this challenge because of its experience in handling relationships that could play an essential role.

In recent years, some industry sectors have complained that the NHS does not respond well to innovative ideas and very rarely seeks to “pull” ideas from the supply side. Over the last five years we have been working to address this in some sectors such as medical devices through the Healthcare Industries Task Force (HITF) and its successor the Ministerial Medical Technology Strategy Group (MMTSG), and in pharmaceuticals through the Ministerial Industry Strategy Group (MISG). These initiatives have led to the creation of important support levers and functions such as the National Innovation Centre (NIC), the National Technology Adoption Centre (NTAC) and the Centre for Evidence-based Purchasing (CEP), but we know these initiatives cannot embed a culture of commercial innovation in the NHS alone and the way the NHS faces up to industry is an essential ingredient to improving the relationship.

Industry has complained that the NHS commercial landscape is both confusing and time-consuming and therefore sub-optimal. We know that if we can face industry in a more co-ordinated and intelligent manner then we can achieve significant improvements. Over the past decade in particular, the third and private sectors have played a vital role in the support and delivery of healthcare to the NHS. New services, buildings and staff have offered the public and patients better access to, and quality from, NHS-funded healthcare. This is why we have recently launched a new commercial operating model (Necessity not Nicety) to encourage the NHS to organise itself to face up to industry in a more co-ordinated and intelligent manner, working with the grain of the NHS, not against it. Commercial and procurement skills are already at a premium at all levels and they are particularly acute in the area of innovation.

At the heart of this new model is the creation of regional Commercial Support Units (CSUs) whose task will be to act as the primary interface for industry. CSUs will provide commercial support to commissioners to “stimulate the market” where this works in the interests of patients, manage contracts effectively and work in harmony with NHS Supply Chain to secure better value for money for goods and services procured. It will give existing and potential healthcare suppliers a single, simple point of contact with the NHS and it will allow scarce commercial skills to be shared in the most efficient way.

Government expects

Innovation and the procurement function have never been comfortable bedfellows in the majority of the public sector, despite the growing importance government is attaching to it. As an endless stream of government reports and policies have filtered down, procurement functions have struggled to deliver on the recommendations. The latest drive is the 2008 White Paper Innovation Nation, which promises to make Britain the best country in the world to run an innovative business or public service. The paper acknowledges that whilst there have been good examples of innovative procurement, the culture has not yet taken root and procuring innovative solutions is still a low priority. The finger is inevitably pointed to the age-old reasons of risk aversion, difficulties in defining what constitutes innovation in procurement, and insufficient capability in the function.

Innovation Nation builds on HM Treasury’s Transforming Government Procurement by recommending that government departments should include an innovation procurement plan as part of their commercial strategy, setting out how they will embed innovation in their procurement practices and seek to use innovative procurement mechanisms, based on the DIUS/OGC guidance included in Finding and Procuring Innovative Solutions (FPIS). The majority of government departments have now published their Innovation Procurement Plans, but will Innovation Nation make a difference? To find the answer to this, it is necessary to look at what drives public procurement now.

Drivers in public procurement

As government attention has intensified on public procurement then departments have become increasingly sophisticated in their approach – not least to deliver the expectations set by Peter Gershon in 2004. Armies of consultants have marched into public services offering sourcing methodologies to help deliver the expected efficiencies from procurement. However, the problem with five, six or even seven-step methodologies is that they all tend to be focused on what the public sector has spent its money on in the past, rather than what it will spend its money on in the future.

Put crudely, public sector procurers have been taught to gather data on what has been spent, “dice and slice” the data into categories, assess the opportunity for “savings”, and then drive out the opportunities through rigorous tendering and contracting processes. Whilst there is no doubt this approach has reaped rewards, there is a fundamental problem. It’s all viewed as “money” and then “how can the money be reduced”, rather than focusing on the value that the money can bring to delivering better public services.

Dick Russill points out in his article “At the helm or all at sea” in CPO Agenda earlier this year, procurement is failing to shine as it should because its role is seldom associated with the goals of the business but, instead, focused on cost reduction. He calls this the “self-harming paradox” in that many senior procurement people define their importance by the vast amount of money they spend and then pin their ambitions on making it as small as possible. He says there is little credibility in a business process seemingly bent upon cost saving itself out of existence!

Dick states that procurement’s business role is to contribute to company strategy, distil out its supply implications, and then act to make strategy happen, whereas its task role is to create and sustain supply markets the business needs for it to succeed now and in the future. The slicing and dicing approach to procurement doesn’t fit with this ambition. Herein lies the biggest problem for public procurers. Whilst we are under constant pressure to deliver broader strategic objectives, such as sustainability, the link to business objectives is harder to make, and in any case that’s not what is measured. The measure is value for money which, unfortunately, is translated into “savings” (reducing costs), and if this is what drives public procurement then it is perfectly understandable that innovation takes a back seat. Procuring innovation requires procurers to understand the value of the innovation to the business.

“Innovation” or “strategic” procurement is very different to the more well-known transactional procurement of goods and services. Traditional procurement of goods and services is usually focused on the delivery of cashreleasing savings that can be used elsewhere on the frontline, whereas strategic procurement is focused on the delivery of business objectives and priorities. In healthcare this translates to supporting the delivery of better and more efficient patient care. Transactional procurement still has high priority to ensure taxpayers’ money is not wasted on routine goods and services used in the delivery of healthcare, but strategic and innovative procurement has now become an imperative in helping the NHS innovate to deliver the high-quality care for all in the deteriorating economic climate.

So how can we drive innovation procurement in the NHS?

The new regional duty to promote innovation coupled with the creation of regional Commercial Support Units, provides an opportunity to embed innovation procurement into the fabric of the NHS. Regional Innovation Procurement Plans embedded into local planning can be an important driver to mobilise the NHS commercial landscape to source innovation from outside.

Regional Innovation Procurement Plans (RIPPs) can be used to articulate local priorities and objectives and identify the opportunities for sourcing innovation from outside the NHS to meet them. They can also be used to mobilise the various players in the NHS landscape – co-ordinated by the new CSUs – to present a united face to industry and brigade innovation activity so that it becomes more focused on meeting local needs. RIPPs can also help to accelerate what we already know. There are many innovative technologies that already exist that can help NHS organisations deliver their strategic objectives but awareness and take up has tended to be slow. The National Innovation Centre has recently developed a web tool to showcase and help accelerate the uptake of such technologies and RIPPs can ensure they become embedded into local planning.

RIPPs can also set out the measures for success, ensuring that procurement is not solely focused on saving money. The Department will be publishing guidance for SHAs in the Autumn to help them think about Innovation Procurement Planning.

There are already many good examples of innovation procurement in the NHS, for example, the HCAI Technology Programme, which is encouraging suppliers and innovators to develop technologies to help the NHS combat healthcare-acquired infections such as MRSA and Cdiff, and the forward commitment procurement project at Rotherham General Hospital, which is looking to use procurement to create a step-change in energy efficiency by acting as a lead market for new ultra-efficient lighting.

RIPPs can be the vehicle to making these approaches the norm rather than the exception.

John Warrington is currently Director of Policy and Innovation at the Purchasing and Supply Agency (PASA) and is shortly to take up a post as Deputy Director, Policy & Research at the new Procurement, Investment & Commercial Division of the Department of Health.