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Commercial skills for the NHS

Policy Estates HR / Workforce Commissioning Management IM & T Planning/Performance Finance Clinical Social Care/Partnership Working

Document purpose For information

Gateway reference 13751

Title Commercial Skills for the NHS

Author Competition Branch, Commissioning and System Management

Publication date 25 March 2010

Target Audience PCT CEs, NHS Trust CEs, SHA CEs, Care Trust CEs, Foundation Trust CEs , Local Authority CEs, PCT Chairs, NHS Trust Board Chairs, Special HA CEs, Directors of Finance, PCT and SHA Directors of Commissioning, Commercial Support Units, Providers of NHS funded Healthcare Services (NHS, 3rd Sector and Independent Sector)

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Description The purpose of this document is to describe our proposed approach to improving services for patients and value for money to taxpayers by: • supporting staff at local level to develop appropriate commercial skills • supporting local commissioners and providers by facilitating access to specialist commercial expertise and infrastructure from a regional and national level

Cross references The Principles and Rules for Cooperation and Competition, PCT Procurement Guide

Superseded Docs Necessity not Nicety (Department of Health; May 2009)

Action required n/a

Timing n/a

Contact details Bob Ricketts – Director of System Management and New Enterprise Department of Health New Kings Beam House 22 Upper Ground London SE1 9BW

For recipient's use

DH INFORMATION READER BOX

COMMERCIAL SKILLS FOR THE NHS 02

Purpose of this documentDelivering high quality care and a sustainable NHS The role of commercial processes in improving NHS services World Class Commissioning

Purchasing of goods and services used by the NHSCommissioning, procurement and contracting for services provided to NHS patientsSummary of approach – strengthening commercial skills in the NHS

Support at regional level – Commercial Support UnitsSupport at national level – Strategic Commissioning Development Unit

Chapter 1 Introduction

Contents

Chapter 2 Improving NHS services: opportunities for NHS organisations and our partners in independent and third sectors

Chapter 4 Implementing support for local commissioners and providers

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1 Introduction 2 Improving NHS services: Opportunities for NHS organisations and partners in independent and third sectors

3 Improving NHS services: The role of commercial skills

4 Implementing support for local commissioners and providers

5 Driving better quality and value in the purchasing of goods and services used by the NHS

6 Next steps

Chapter 6 Next steps

Chapter 5 Driving better quality and value in the purchasing of goods and services used by the NHS

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Chapter 3 Improving NHS services: the role of commercial skills

1 Introduction

Specifically, in the commissioning of services provided to NHS patients, supporting commissioners and providers:

• By strengthening contractual mechanisms for recognising and rewarding quality in services provided to NHS patients, building on Payment by Results and the Clinical Quality and Innovation (CQUIN) payment scheme

• In incentivising adoption and spread of established best practices

• In the use of procurement and contracting to support transformation in services, for example by shifting care for people with long-term conditions from acute to community settings

• Improving staff engagement in commissioning processes to ensure transparency and fairness for staff and to create opportunities for staff to contribute to improving services and redesigning care pathways

• Supporting commissioners and providers to develop competence in undertaking clinical service reviews1 as a key mechanism for identifying and implementing improvements in service quality and productivity

• Use new ways of working evidenced through Total Place and Total Capital initiatives, which promote collaborative procurement of services which are cost effective and deliver better outcomes and shows how third sector organisations can help deliver high quality and innovative services

• To continue to remove potential barriers to the participation of non-NHS providers, including access to information systems.

In the purchasing of goods and services used by the NHS:

• Driving better value in the purchasing of goods and services by maximising our collective purchasing power and giving local commissioners and providers greater influence over the NHS Supply Chain

• Rationalising procurement activities at national level and across government by winding-up the NHS Purchasing & Supply Agency and consolidating its functions under existing structures, to release efficiencies and enable the NHS to benefit from the purchasing power of the wider public sector (eg driving better value in the purchasing of energy and fleet).

This document clarifies ambiguities in and supersedes Necessity not Nicety (Department of Health; May 2009) with immediate effect and reflects the changing environment for the NHS.

Delivering high-quality care and a sustainable NHS

The overarching aim for the NHS is to deliver higher-quality care for all, whilst maintaining or improving standards of equity and access. First and foremost, this is about improving quality of care. However, the medium-term economic outlook for the NHS is for increasing growth in demand for healthcare combined with reducing growth in resources.

Therefore, in order to be sustainable for the future the NHS must improve quality of care, whilst also increasing productivity substantially and placing greater emphasis on encouraging and empowering everyone to take greater responsibility for their own health, preventing illness and supporting people to better manage long-term conditions. This means doing more using the available resources, and – for many pathways – providing care, treatment and support differently.

Purpose of this document

The purpose of this document is to describe our proposed approach to improving services for patients and value for money to taxpayers by:• Supportingstaffatlocalleveltodevelopappropriatecommercialskills• Supportinglocalcommissionersandprovidersbyfacilitatingaccesstospecialist

commercial expertise and infrastructure at regional and national level.






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1. In this context service reviews are a tool available to commissioners to address concerns about performance, which differs from service reviews involving engagement with patients and service users to inform commissioning strategies.

Patients and the public will have a clear set of rights. They will have full choice of primary and secondary care services. And, subject to consultation, a personal health budget, health checks and to choose where to spend their last days of life.

The staff who work in the NHS are its greatest asset and must be empowered to rise to this challenge. In the last 10 years, the NHS has made significant improvements in access to care and raised standards in key areas such as single-sex accommodation and infection control. These improvements are the result of the hard work and commitment of NHS staff and the innovations in service delivery that they have brought about. Over the next 10 years, the contribution of NHS staff will be equally, if not more, important.

With a greater focus on cooperation in the interests of patients and taxpayers, commissioners and providers will be seeking to increase efficiency and make best use of theavailable resources for patient care. Adoption and spread of best practices will help to achieve this aim by reducing unnecessary variation in quality and cost. For example, where providers cooperate to make more efficient use of, and avoid duplicating, diagnostic services and major clinical equipment by – where appropriate – sharing clinical facilities and infrastructure.

We will continue to work with the independent and third sectors, particularly where new services or new service models are required to meet future needs or to offer patients more choice. Competition for such services will be transparent and fair, with all providers having an equal opportunity to bid, potentially in new partnerships and joint ventures.

We also need to reduce administrative and transaction costs by ensuring that non-clinical functions such as HR, payroll, financial and information systems are provided efficiently and cost-effectively, with providers sharing appropriate services. The benefits of these schemes have been demonstrated through the NHS Shared Business Service (NHS SBS). NHS SBS serves around 30% of all NHS Trusts processing over four million invoices each year to a value in excess of £30bn. NHS SBS has already delivered savings in the order of £40m and is ‘world class’ when measured with the Hackett benchmarking

tool against corporate players such as Marriot, McDonalds and Diageo. Again, where providers are able to take the lead in realising these potential efficiencies it will set a benchmark for others and help to increase productivity for the system as a whole.

An immediate priority is to harness the NHS’s collective purchasing power and drive better quality and value for money in the procurement of goods and services used by the NHS. The focus is to improve coordination and collaboration to the extent that once purchasing decisions are made, the NHS can speak to industry as one voice to deliver both value and innovation. Driving the use and performance of NHS Supply Chain is a key enabler in this process.

The role of commercial processes in improving NHS services

Commercial processes include procurement and contracting and the strategic review and planning to prioritise how these are used.

The contribution of these processes to improving NHS services is to underpin positive service change. For example, by recognising and rewarding quality in payment mechanisms; and/or, through procurement of new, community-based service models for patients with long-term conditions that encourage provision of integrated care and cooperation between primary, secondary and social care services.

The term ‘commercial’ is readily applicable to the procurement of goods and services used by the NHS because these are supplied almost exclusively by private companies on commercial terms.






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By contrast, services provided to NHS patients are commissioned from NHS bodies, as well as sometimes from independent and third sector organisations. However, the reforms introduced in the NHS over the last 10 years have resulted in greater separation of commissioner/provider responsibilities.2 This move away from top-down, management lines of accountability has placed much greater importance on the role of ‘commercial’ processes, in improving services and maintaining standards,3 including procurement and contracting.

Whereas contract management is a mechanism for driving improvements within the scope of services covered by an existing contract, procurement is the process to create new contractual relationships, albeit that these may include new contracts with existing providers.

Procurement may therefore be defined as a transparent process of securing services to meet specific commissioning needs, involving formal engagement with providers and that would normally culminate in award of contract(s). A secondary issue is whether or not, and if so to what extent, individual procurements will involve competition between providers. Further guidance to PCTs on procurement options, obligations and the issues to be considered in making decisions will be set out in the revised PCT Procurement Guide.

World Class Commissioning

We have described elsewhere the core competencies that PCTs will need to demonstrate as World Class Commissioners (WCC)4 and underpinned this with an annual assurance programme to identify and prioritise commissioner development needs. The results from Year 1 of the assurance process have shown that PCTs nationally have some way to go in developing their commercial skills (ie WCC Competencies 7,9 &10). These results highlight the urgent need to provide commercial support to PCTs. But, in proposing to deliver this support through regional Commercial Support Units (CSUs) we also recognise that not all PCTs will need access to specialist commercial skills, all of the time. Nevertheless, there remains a strong case for more collaborative working and pooling of resources.






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2. For example, there are now more NHS Foundation Trusts in England than there are NHS Trusts. Unlike traditional NHS Trusts, Foundation Trusts are subject to independent regulation by Monitor and not subject to direction by the Secretary of State or his delegated authorities (ie Department of Health or Strategic Health Authorities).

3. The NHS Constitution and the National Standard Contract set out the NHS workforce standards that commissioners would expect to see adhered to by all providers of NHS services (eg professional qualifications, continuous professional development, pre-employment checks, compliant with Cabinet Office Code of Practice on Two Tier Workforce Issues etc).

4. http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_089015

opportunities for NHS organisations and our partners in the independent and third sectors

The NHS Constitution6 describes what patients can expect from NHS services, irrespective of the type of provider, and confirms our continued commitment to giving patients choice of GP and secondary care services. Crucially, commissioners and providers need to work together with staff to channel their energy and commitment into improving services. Ensuring staff own and lead the process of service change and adopt best practices (eg the NHS Institute’s ‘Productive’ programmes) is a key success factor.

We are asking the NHS and its staff to go through an unprecedented amount of change. It will be led by the NHS, but it can also include partners from other sectors. The essence of this policy is to set out the ground rules on which existing NHS services are challenged. It denotes a fair process, not a permanent status. It should not be used to allow underperformance to continue, nor to freeze out our partners in other parts of the NHS, the third sector and the independent sector.7

The nature of this challenge is that the NHS will need to be preventative, people centred and productive, with services delivered in a more integrated way to cope with the rising demand associated with a changing and increasingly diverse population and the cost of new drugs and technologies. Where new services or new service models are necessary to meet future needs or offer patients more choice, we will look to NHS, independent and third sectors to meet this demand. Competition will be fair and transparent with all providers having equal opportunity to bid. The scale of service transformation required means that commissioners simply cannot ignore the need to make the best use of their

resources already invested with existing providers, including the investment in public assets and the public-sector workforce.8

We are looking to commissioners to be systematic in driving improvements in quality and challenging poor quality services within clear ground rules. The process will be fair and inclusive, seeking out and addressing underperformance whilst ensuring openness and transparency involving partners in other parts of the NHS, the third sector and independent sector. In many cases, this would be taken forward through cooperation between commissioner and provider in undertaking service reviews, engaging staff in redesign and service improvement. Any agreed outcomes would be implemented as contract variations or addressed upon expiry. Should underperformance be evident where the NHS is the incumbent provider, that provider will be given two opportunities to improve before a decision is taken on whether to engage with other potential providers. Further guidance is set out in the PCT Procurement Guide. Encouraging commissioners to work with existing providers to address service concerns and drive required incremental improvements is just common sense.

An improved NHS is one where patients and taxpayers’ interests are at the centre of decision-making,withNHSstaffempoweredtodrivechangeandservicetransformation. The Secretary of State has made clear that we will put quality at the heart of everything we do in the NHS and that services will be judged by the quality they provide.5






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5. Secretary of State’s speech to the Kings Fund, 17 September 20096. The NHS Constitution for England, Department of Health, March 2010. 7. Department of Health, 2009. NHS 2010-2015: From Good to Great. Preventative, People Centred, Productive8. The net book value of the NHS Estate is £40bn

2 Improving NHS services:

What’s changed? – Implications for commissioners

The core principles that commissioners are required to follow, which will be underpinned by World Class Commissioning assurance are:

• Commissioners are expected to secure best value and quality for patients and taxpayers

• NHS and other existing providers should be engaged at an early stage of service development

• Early and substantial engagement of staff and their trade union representatives, where applicable, is required and is principally the responsibility of employers9

• NHS providers should have the opportunity to bid for any opportunities that are developed

• Where commissioners decide to competitively tender for services then all providers should have a fair and equal opportunity to bid

• Decisions are taken locally, but within a framework of clear national guidance

• Commissioners must demonstrate: – Fairness and transparency of process – Clear rationale for decision making

– Needs-driven approach – Proportionality (ie that commissioner acts

proportionately to the size and seriousness of any problem)

• Commissioners are expected to actively monitor the quality of services and to initiate a process with providers if services are not adequate

• The starting point for some scenarios will be the contractual mechanism that currently exists

• Robust oversight and assurance of all the above through: – PCT Boards – DH assurance of SHAs – World Class Commissioning, SHA assurance of PCT

plans for Transforming Community Services – Partnership oversight through regional social

partnership forums.

To illustrate these principles and how they might be developed in practice, we have developed six outline scenarios, which set out the processes PCTs are required to follow as commissioning needs arise (see table below). Further guidance on their application will be set out in the revised PCT Procurement Guide.






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Scenario (commissioning need) Process to be followed

1) Addressing underperformance The PCT would raise its concerns and engage with the provider to address these through contractual mechanisms. There would be two formal chances for the existing provider to improve before engagement with alternative providers.10 Judgements would be made on the basis of clear measures of quality, including patient satisfaction. Where there is insufficient improvement within reasonable timescales, and the scale of under-performance is significant, the commissioner should give notice of contract termination and consider re-tendering. If competitive tendering is subsequently pursued, the existing provider and its staff should continue to be engaged and given a full opportunity to compete on a fair and equal basis.

2) Incremental service improvements and increases in capacity

A joint service review would be undertaken, the results of which (if agreed) would be incorporated in a revised contract (ie via contractual review and variation procedures). Only if the existing provider failed to develop robust and credible plans for service improvement and the shortcomings were serious (in terms of quality and value for money), would the commissioner consider engaging with other potential providers. This would only be after full engagement with the provider and its staff, and the provider having been given at least two opportunities to develop and present its service plans. Engagement would continue whilst the PCT considered other options, including market-testing. If the service is ultimately tendered, the provider would be able to bid on a fair and equal basis.

9. Staff engagement is a key competency within World Class Commissioning (WCC) that has been strengthened for Year 2 (ie 2009) and will be assessed as part of WCC assurance.

10. Mechanisms reflecting this exist within the National Standard Contract.






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Scenario (commissioning need) Process to be followed

3) Regulatory intervention under the NHS Performance Regime11

Commissioners are expected to cooperate with SHAs and regulators to mitigate risk of failure and in implementing solutions for unsustainable NHS providers.12 The commissioner would work with the provider to try to resolve problems. If necessary, the commissioner would enlist the support of other providers within the local health system. If the problems cannot be resolved, regulatory intervention may be required and potential resolution through merger, acquisition or franchising, probably with an existing NHS organisation, is more likely to be a viable solution than the market-testing of services, though this remains an option. The assumption would be that the commissioner would be acting under the SHAs’ direction as part of seeking a coordinated solution, potentially under the oversight of the relevant regulator. The commissioner would be required to engage fully with the provider throughout this process.

4) New services or significant redesign of services

PCTs would be expected to engage fully with the existing provider(s) and staff at an early stage, as well as other potential providers, being clear about what outcomes and/or innovation it was seeking, the reasons for change, and the processes to be followed, enabling them to contribute to shaping service specifications. Only after this would a decision on whether or not to openly tender for the new or redesigned service take place. For certain services, clinical issues or safety may warrant a tender that could lead to an ‘NHS only’ competition. In either case, existing providers would have a fair and equal opportunity to bid.

5) Increasing patient choice The PCT would adopt an open or managed ‘Any Willing Provider’ accreditation process, under which potential additional providers (including other NHS providers) could apply. Under this scenario, existing providers (as long as they continued to meet quality, value for money and registration requirements) would continue to provide services – this is about adding to the number of providers, not displacing existing ones.

6) Contract expiry Commissioners should follow the guidance set out in the PCT Procurement Guide. The options will include award of a new contract by Single Tender or Competitive Tender, or alternatively, decommissioning. In any subsequent procurement, the existing provider would have a fair and equal opportunity to bid.

11. Developing the NHS Performance Regime (Department of Health; June 2008).12. The regime for unsustainable NHS provider: Response to Consultation (Department of Health; January 2009).

What’s changed? – Implications for NHS providers

Commissioners will be expected to behave in accordance with the core principles and scenarios set out on pages 8 and 9. This means that NHS providers and their staff can expect to be engaged constructively by their commissioner(s) to work in partnership with them in addressing concerns about the performance of services and required service improvements, giving them fair and reasonable opportunities to improve and lead change. Service reviews, initiated by commissioners, but undertaken jointly with providers will be a key vehicle for this and should create opportunities for staff to identify and implement improvements, as well as contribute to service redesign. Where new or substantially redesigned services are required, commissioners should engage fully with the existing provider(s) and their staff at an early stage, enabling them to contribute to service specifications. If competition is used in the procurement of such new and/or redesigned health services, the process must be transparent, fair, proportionate and non-discriminatory. NHS providers must have an opportunity to bid, and any such bids should be considered on a fair and equal basis.

What’s changed? – Implications for independent and third sector providers

The intention of preferred provider policy is to emphasise that NHS providers and their staff must be treated fairly by commissioners and given the opportunity to address concerns about performance, improve services and to innovate. Independent and third sector organisations, however, can and will continue to make a valued contribution to providing treatment and care, helping to add capacity, improve quality, increase patient choice and drive innovative practice. The two formal opportunities to improve performance before contract termination will also apply to independent and third sector providers. Where services are tendered under the scenarios, set out on pages 8 and 9, such as to increase patient choice, or to secure new or significantly redesigned services, competition will be fair, open and non-discriminatory, with all providers having the ability to raise concerns or complaints about competition or procurement practices with the responsible commissioner, SHA and ultimately the Co-operation and Competition Panel.

What’s changed? – Implications for establishing Social Enterprises through the Right to Request for staff

We remain committed to supporting those PCT staff who wish to establish Social Enterprises under the Right to Request initiative and forthcoming guidance will not preclude the establishment of successful Right to Request schemes. Applications and assurance mechanisms remain unchanged and we remain committed to helping new Social Enterprises to gain traction in the system by offering ‘first wave’ schemes, 3-year contracts and continued access to the NHS Pension Scheme for transferring staff. We also, however, expect PCTs and SHAs to ensure that – as part of their approval and assurance processes – there is a strong service improvement rationale for such proposals (ie clear benefits to patients and taxpayers, and fit with commissioning strategies) and that – as set out in Enabling New Patterns of Provision – there has been appropriate and sufficient engagement with the staff affected. It is therefore an important part of the SHA assurance role to establish that there has been appropriate and sufficient engagement and formal consultation with staff affected and their trade union representatives, as set out in Enabling New Patterns of Provision and Transforming Community Services. Proposals for Social Enterprises will therefore need to test the extent to which staff involved in the social enterprise are supportive of the proposals going forward.






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3 Improving NHS services: the role of commercial skills

Purchasing of goods and services used by the NHS

The NHS depends on a supply of essential goods and services in order to provide care to patients. Goods included range from food to pharmaceuticals, medical consumables and complex medical devices, services again may range from cleaning services to decontamination and clinical waste disposal.

NHS providers spend around £20bn a year with third party suppliers of goods and services used by the NHS. The scale of this expenditure demonstrates the importance of maximising quality and value through this procurement activity. Furthermore, the NHS purchases these goods and services from the private sector, including some of the world’s largest multinational companies. These are commercial relationships and driving quality and value for money therefore depends heavily on good procurement and contracting.

Utilising procurement to influence the supply of goods and services used by the NHS also presents significant potential opportunities to contribute to social, economic and environmental aspects of sustainability, including the NHS Carbon Reduction strategy (eg purchasing ‘greener’ products; streamlining of logistics; etc).

Our aim is to drive maximum quality and value in the purchasing of goods and services used by the NHS, including through the NHS Supply Chain. We propose to do this by maximising the potential of the NHS’ collective purchasing power through collaborative working and rationalisation of procurement activities. In particular, we aim to avoid unnecessary duplication of procurement activity within the supply chain while facilitating collaboration at an appropriate level, whether local, regional or nationally. It is intended to give local organisations and clinical networks greater influence over the NHS Supply Chain through the role of regional Commercial Support Units (CSUs) in supporting providers.

Commissioning for services provided to NHS patients

The job of PCTs, as commissioners, is to secure health services that meet the needs of their local population, maximising quality of care for patients and value for money to taxpayers. Innovation and service redesign to achieve these aims will need to come from the provider side of the system and must be clinically-led. A dynamic and sustainable provider-base is the key to delivering positive service change. However, commissioners have a vital role to play in enabling and, where necessary, driving these changes.

Commissioners and providers both, therefore, have important roles to play in improving NHS services. However, their respective roles cannot be performed without ongoing dialogue and effective cooperation, for example, commissioners cannot expect to simply tender for new service models and expect providers to be ready and waiting to respond. A complementary approach is essential. That is why we are developing commercial support arrangements that aim to enhance opportunities for two-way engagement and help to develop funding and contract models to enable higher-quality and more productive care pathways, whether these are being driven by commissioner or provider.

The economic outlook for the NHS means that we have to become more efficient in the way we care for patients today so that we have sufficient resources to care for the additional demand in caring for the patients of tomorrow. Where there are established best practices when commissioners need to facilitate adoption and spread, at scale and at pace. In parallel, commissioners need to foster innovation and cooperation in developing best practices of the future.

ThissectionsetsoutthecaseforstrengtheningcommercialskillsintheNHStounderpin:• Purchasingofgoodsandservicesused by the NHS• Commissioningforservicesprovided to NHS patients.






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Commissioning processes need to underpin these changes. Where service models need to change then referral pathways may need to change and funding flows would need to follow. Commissioners need to work with providers to model the impact of such changes on income and expenditure flows in order to ensure a smooth transition. Commercial support arrangements will help to facilitate this by working with both commissioners and providers.

Commissioning processes will often play an enabling role. For example, where resources need to be re-prioritised to underpin redesigned care pathways for long-term conditions with a greater focus on prevention and an enhanced role for community services. In other cases, commissioning processes will need to be a catalyst for change. For example, where commissioners are seeking to procure new service models or to actively encourage innovation.

Improving existing services through benchmarkingandcontractualmechanisms

The public rightly expects that decisions on who provides NHS services will be based on who is best placed to meet the needs of all patients and the local population and that providers will be held to account for the quality and productivity of services delivered. But, in some areas this still isn’t happening because NHS funding is being allocated on the basis of historical budgets with limited information on what services are being delivered to which patients, how much these cost and what level of quality is being provided. This must be addressed as a matter of urgency.

The immediate priority is to work with existing providers to improve our understanding of existing services, adopting established best practices at scale and at pace, and reducing unnecessary variation in quality and cost. This will require commissioners and providers to ensure a high level of transparency over:

• What services are being commissioned?• What quality of services is being provided?• What commissioners are paying for services overall?

Transparency will strengthen accountability. In turn, an enhanced understanding of current services will enable benchmarking against other services, help to identify potential for improvement, and ensure the public understand what services cost. An important area of focus will be on

working with NHS organisations as the key providers of hospital and community services,13 which, in turn, represents about two thirds of total NHS expenditure.

In many cases, incremental service improvements will be implemented through contractual mechanisms, as per the National Standard Contracts (eg Contract Reviews, Service Variations or Service Development Plans), and through pricing mechanisms (ie National and Local Tariffs). Service reviews will play a vital role in the process by increasing commissioners’ understanding of current services, creating opportunities for staff to identify and implement targeted improvements and ensuring the more rapid and consistent application of proven good practice (for example, the NHS Institute’s ‘Productive’ programmes).

Primary Care and Practice-Based Commissioning (PBC)

The majority of primary care services in England are provided by independent contractors including GP practices, dental practices, optometrists and community pharmacies. Quality measures and service developments, therefore, need to be implemented through contractual mechanisms. A series of supportive good practice guides to World Class Commissioning to improve primary care services is published on the Department of Health website.14 These provide details of the range of incentives and levers available to PCTs to improve the quality and availability of primary care services.

Under PBC, GP practices have opportunities to develop additional services in primary care, tailored to meet the needs of all their patients and potentially more cost-effective than referring to secondary care. PBC has considerable potential, therefore, to contribute to our overarching aim of improving quality of care, whilst increasing productivity for the system as a whole. Providing support to practices to develop business cases for service developments will facilitate this and further demonstrates the case for investment in commercial support. Similarly, there is a case for supporting PCT boards in evaluating PBC business cases and making decisions on contract award.






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13. The NHS accounts for 2008/09 show that over 90% of NHS expenditure on hospital and community health services was on contracts with NHS Trusts, Foundation Trusts and PCT-provider arms

14. http://www.dh.gov.uk/en/Managingyourorganisation/Commissioning/Policyguidanceandtoolkits/DH_100305

Stimulating providers through procurement

In 2008/09, PCTs were responsible for c£75bn of commissioning expenditure. PCT procurement will invariably involve large sums of public money and impact on the availability and quality of essential health services. When procurement is done well it will contribute to delivering in higher-quality, viable and more productive services. But, when done badly procurement can result in poor contract award decisions and services that may be clinically or financially unsustainable. The opportunities afforded by good procurement and the risks associated with poor procurement demonstrate the case for building competency in this area. However, as procurement experience and expertise in these areas is relatively limited within the NHS we need to work collaboratively and pool resources.

Where procurement is being used to stimulate a response to specific health needs the case for commercial support is for both the commissioner and provider sides of the system.• For commissioners, this support will include: – Learning and development for staff (eg reviewing

current services against health needs and benchmarking data to inform commissioning priorities)

– Access to specialist expertise and practical support (eg in engaging with providers and in developing service specifications)

– Developing tools and guidance to support commissioning in national priority areas (eg stroke rehabilitation).

• For providers this support will include: – Learning and development for NHS staff (eg responding

to tenders, costing and pricing) – Access to information about commissioning intentions

and procurement activities.

Summary of approach – strengthening commercialskillsintheNHS

Our proposed approach involves encouraging collaboration, pooling resources, providing access to infrastructure and expertise at regional and national level and supporting staff in commissioner and provider organisations to develop their commercial skills. Fundamental to this approach is prioritising the development of specialist skills and supporting infrastructure at local and regional level, whilst rationalising activity at national level. The rationale for this approach is to improve skills and knowledge transfer, enhance support for local commissioners and providers, and make the purchasing of goods and services used by the NHS more accountable and responsive to the needs of local organisations and clinical networks.

These improvements will be implemented through:•EstablishmentofCommercialSupportUnits(CSUs)

at regional level. CSUs will provide support to local commissioners and providers and will encourage collaborative approaches to commissioning, procurement and contracting to drive quality and value for money. CSUs will support commissioners in procurement and contracting for services provided to NHS patients and will support providers in understanding commissioning intentions and responding to tenders. An immediate priority for CSUs is to put in place learning and development programmes for staff. CSUs will also support providers and clinical networks in the procurement of goods and services used by the NHS (eg pharmaceuticals and logistics), including driving better quality and value from the NHS Supply Chain.

Revised National Arrangements, including:•AnewProcurementInvestmentandCommercial

Division (PICD) within DH The Procurement, Investment and Commercial Division (PICD) in the Department of Health has been created with an aim to bring the best commercial and investment experience into the health sector to achieve better economic value and improve patient care. PICD will provide expert commercial and procurement support to both the DH and the NHS and have a key system and professional leadership role encompassing oversight of the entire NHS landscape. PICD brings together the former Commercial Directorate with key functions of NHS PASA, Private Finance Unit, Capital Investment Branch, Revenue Investment Branch and Procurement Centre of Excellence.

•EstablishmentofaStrategicCommissioningDevelopmentUnit(SCDU)withinDH SCDU will work closely with regional CSUs to support the NHS in achievement of strategic commissioning goals. For example, SCDU will lead on developing resources to support PCTs in commissioning for priority disease groups and service sectors (‘commissioning packs’).

•ClosureofNHSPurchasingandSupplyAgency(PASA). The closure of NHS PASA has resulted in the integration of a range of functions to the following organisations:

– Category Management (Energy, Fleet, Estates and Temporary Staffing Contracts) to Buying Solutions

– e-Enablement, Procurement Centre of Excellence, Pharmacy to DH/PICD

– Learning and Development Products to CSUs.






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4 Implementing support for local commissioners and providersSupport at regional level – role of CommercialSupportUnits The Procurement Capability Review Programme – Department of Health: OGC, November 2008:15 stated “PCTs are not uniformly strong in commercial capability, and are being offered support by NHS PASA, CD, Commissioning Directorate, Hubs, and by private sector providers (via the DH’s FESC framework and others). This range of support to them (people and guidance) is not fully coordinated and varies in quality”.

The world class commissioning assurance process provides further evidence supporting the significant capability gap around the three most commercial competencies (ie competencies 7, 9 and 10):

• Effectively stimulate the market to meet demand and secure required clinical, and health and well-being outcomes

• Secure procurement skills that ensure robust and viable contracts

• Effectively manage systems and work in partnership with providers to ensure contract compliance and continuous improvements in quality and outcomes.

Competencies 7 and 9 have an average score across England of 1.1 and 1.3 – the lowest of all 11 competencies. To address these issues we have made available £20m of funding in 2009/10 to support Strategic Health Authorities (SHAs) in developing regional Commercial Support Units (CSUs). The role of CSUs is to provide support to local commissioners and providers on a range of commercial aspects, including learning and development support for NHS staff and access to specialist expertise and infrastructure at regional level.

The types of skills and expertise and support that the NHS will be seeking from CSUs would include provider/market management and performance improvement, negotiating, contracting and procurement support, contract compliance and contract and demand management. CSUs will need to ensure an appropriate balance between providing support for skills development and direct intervention.

Developing this Commercial Capability will enable both commissioners and providers to develop strong sustainable organisations that will benefit both patients and staff whilst reducing reliance on external consultancies.

The rationale for investing in commercial support at regional level is to facilitate skills and knowledge transfer to staff at local level, as well as to ensure that commercial support is tailored to suit the needs of local commissioners and providers. For example, CSUs have a key role in driving collaboration between commissioners and providers to enable improvements in quality and productivity. A regional approach will ensure greater consistency in approach and that the service quality is appropriately reviewed and managed.

Consistent with this rationale, our approach to implementation is to define the functions that SHAs will be expected to deliver across the country, whilst leaving scope for regional variation in shaping the CSU concept to deliver this vision. In defining the functions a strong programme of co-design with regions and local stakeholders has been put in place to ensure CSUs offer maximum value.

The key functions that SHAs will be expected to deliver through CSUs are summarised in the table on page 16. Further guidance on implementation will be set out in a CSU Manual.






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15. http://www.ogc.gov.uk/ogc_-_transforming_government_procurement_procurement_capability_reviews.asp

Examples of how CSUs can provide a range of support are set out below:

a. CSUs will support PCTs to identify opportunities for collaborative procurement for clinical services, building on the approach used with specialist commissioning arrangements. In addition, they will ensure a collaborative approach is taken across the regions in the procurement of goods and services used by the NHS. This will help to develop the knowledge, skills and information to inform purchasing decisions that benefit the wider NHS.

b. A key role will be to support both commissioners in their contract management arrangements, and providers in performing to their contractual agreements. This may include supporting service reviews, ensuring adequate participation from both commissioners and providers and advising on appropriate improvement plans where performance needs strengthening.

c. With a greater focus on cooperation in the interests of patients and taxpayers, we also need to encourage providers to make the most efficient use of, and avoid duplicating, diagnostic services and major clinical equipment by – where appropriate – sharing clinical facilities and infrastructure, and ensuring their cost-effective provision. CSUs can help identify where there is scope to reduce administrative and transaction costs. For example, CSUs can support NHS organisations to ensure administrative and non-clinical support functions are provided efficiently and cost effectively.

d. CSUs can also support providers to respond effectively to commissioning and procurement activities. For example, CSUs can support providers of community services, where there is an urgent need to better understand the performance of existing services in order to inform decisions on improving quality and productivity going forward. This could usefully complement the SHAs’ broader role in developing autonomous and sustainable ‘business ready’ provider units in Transforming Community Services.

Support at national level – role of the Strategic Commissioning DevelopmentUnit

The establishment of the Strategic Commissioning Development Unit (SCDU) will complement the role of regional CSUs. The role of the SCDU is a leadership vehicle, which provides practical support to PCTs in the commissioning of clinical services. The support will take the form of practical tools, templates and information for PCTs to enhance World Class Commissioning skills and capability. The SCDU will enable PCTs to get better at understanding and managing their local health system, combined with improving contracting and procurement skills. This will encourage the continuous improvement in the quality of care for patients and allow a focus on generating greater productivity. Initially SCDU will work on the development of commissioning packs, which are being designed for use with all providers, including incumbents and in a tender situation. The objective of the packs is to establish clinical service specification for a whole care pathway underpinned by evidence based medicine, minimise unwarranted variations in the delivery of care and encourage more innovation.

CSUs will need to develop strong working relationships with their regional social partnership forum – or local equivalent body. Each region will have such a body that brings together representatives from NHS Employers, trade unions and the DH to debate, discuss and involve partners in the development and implementation of the workforce implications of policy. Further guidance will be developed in this area.






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Commissioners CSUs: Providers CSUs:

Provide commercial skills transfer and development in PCTs, in particular for World Class Commissioning competencies:

• (7) – Effectively develop existing providers and where appropriate stimulate the market to meet demand and secure required clinical and health and wellbeing outcomes;

• (9) – Secure procurement skills that ensure robust and viable contracts with all providers;

• (10) – Effectively manage systems and work in partnership with providers to ensure contract compliance and continuous improvement in quality and outcomes and value for money.

Support efficient and effective use of resources through demand management – support providers better to understand current and future demand, building their capability to analyse available data more effectively and use a wider range of information to predict potential demand.

Where necessary, undertake commercial activity on behalf of PCTs, eg where PCTs have taken an early and informed decision to pool commercial activities (for example procurement or business intelligence).

Enable informed procurement – help achieve best value wherever products are needed. CSUs offer wide-ranging advice on the best source of products covering all non-pay expenditure. They ensure a clear understanding of the role and benefits of the NHS Supply Chain (NHSSC) – which should be the default option offered by CSUs, provided value for money is clear – backed up by wider market knowledge.

Focus on innovation and sustainability – CSUs are responsible for working with national bodies, suppliers and local organisations to identify new service solutions that meet regional demand and improve outcomes.

Focus on innovation and sustainability – CSUs are responsible for working with national bodies, suppliers and local organisations to identify new products that meet regional demand and which can be used locally. (Similarly, they are encouraged to help local suppliers join the NHS Supply Chain).

Support alignment with regional economic strategies and act as a single point of access for the private sector to engage with the NHS.

Respond to commissioners’ requirements – help providers respond to large-scale tenders and engage in commercial negotiation (providing adequate attention to conflict of interest issues).

Enable providers to pool commercial and procurement support.





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Table 1 KeyfunctionsofCSUsinsupportinglocalcommissionersandproviders


Our proposed approach involves rationalisation of procurement functions at national and regional level to eliminate duplication and release efficiencies, whilst maximising the NHS’ collective purchasing power. Our objectives and key elements of the new model include:

• Making the 10-year NHS Supply Chain contract work harder and smarter, to demonstrate and deliver improved value for money and supporting greater efficiencies for providers (Foundation Trusts (FTs), the NHS Trusts, the third and private sectors). Improved visibility of pricing issues, taking into account the total cost of acquisition, greater responsiveness and improved strategic management. Local procurement hubs will be expected to realign with regional CSUs to ensure that NHS Supply Chain can maximise its potential. It is imperative, in the current economic climate, that we leverage maximum value from NHS Supply Chain; however, unnecessarily competing procurement organisations will not realise this ambition – a message underscored in the Treasury’s recent Operational Efficiency Programme: final report.

• Transferring the NHS Purchasing and Supply Agency’s (NHS PASA) functions to organisations that can add greater scope, scale and impact to the procurement of goods and services. The integration of key NHS PASA sourcing activities with Buying Solutions, including the formation of an NHS-facing buying arm, will contribute to the Treasury’s

requirements to aggregate public sector spending power. The move of some other NHS PASA functions to the CSUs will build regional capability. eEnablement will transfer to PICD, to be led by DH but driven and owned by the NHS to deliver greater access to procurement data, supporting overall improvement in the NHS. NHS PASA will be closed and efficiencies realised. Greater purchasing muscle will serve both providers and commissioners as they secure greater efficiencies in the provision of goods and services and drive better value through the supply chain.

Key benefits

These changes will offer providers a number of clearly differentiated, relevant and complementary services as they seek to maximise efficiency in their own procurement and commercial activities:

• An opportunity to seize savings benefits from pooling the NHS’s huge purchasing power through the NHS Supply Chain contract, with stronger responsiveness to NHS needs and the greater transparency providers have been asking for

NHS providers currently spend around £20bn a year with third party suppliers of goods and services usedbytheNHS.Tosupportthislevelofprocurement,arangeofsolutionshavedevelopedovertime,nationally,regionallyandlocally.Althougheachofthesearrangementshasbeensetinplacetomeettheneedsoftheircustomers,therehasbeenalackofalignmentbetween them resulting in conflicting priorities and fragmentation within NHS procurement. Asaconsequence,therehasnotalwaysbeenthepotentialtodeploytheskillsandknowledgeof these organisations to deliver the maximum benefit for the NHS as a whole.






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• Alongside this, scope for providers to realise further savings in key non-health categories (for example energy and fleet) arising from the pooling of the whole public sector’s purchasing power through the integration of NHS PASA’s current core sourcing with Buying Solutions;

• A continuation of NHS PASA’s highly regarded secondary care pharmaceuticals sourcing activity to maintain the NHS’s purchasing power and strategic supplier relationship management in this key category; and

• At regional level, a dedicated service from CSUs (building on the services previously offered by the collaborative procurement hubs), focusing on delivering savings from contracting (complementing but not competing with NHS Supply Chain) and key strategic benefits from additional services – trusted advice to providers on which sources of procurement are best for them, support in demand management, support in responding to commissioners’ procurements, and creating strong links with industry and clinicians so that ground-breaking innovations can be procured rapidly and effectively. CSUs’ role in supporting commissioners as well as providers will put them in a unique position to help deliver innovation through service redesign and procurement.

Looking at the NHS as whole, the key benefit will be to put the system in a strong position to realise demanding procurement efficiency expectations and to maximise the NHS’s spending power for the benefit of patient care.






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Key next steps will include:

• Updated National Standard Contracts and guidance (Published, January 2010)

• Good practice guidance on staff engagement in commissioning, including service reviews (TBC, pending advice from SPF ‘staff passport’ subgroup)

• Revised PCT Procurement Guide (March 2010)• CSU Manual (March 2010)• Review of Principles and Rules for Cooperation and

Competition in the NHS (to be completed in March 2010).

Implementationisalreadywellunderway,withtherationalisationofstructuresat nationallevel;transferofNHSPASAfunctions;andtheestablishmentofregionalCSUs.






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