Commitment discounts and common sense in the supply chain save £8.4m for London's NHS

Over four years, £8.4m was saved by LPP members by bringing a common sense approach to procurement and leveraging the London NHS expenditure through NHS Supply Chain, aggregating demand to take advantage of commitment discount arrangements.

Commitment discounts and common sense in the supply chain save £8.4m for London's NHS

As John Nicholson, Supply Chain workstream lead at LPP says, “Procurement does not have to be complex to deliver value. Sometimes simple initiatives can achieve significant benefits – and LPP's introduction of commitment discounts to London Trusts' £150m annual spend through NHS Supply Chain is one such initiative.”

John explains, “All Trusts in London use NHS Supply Chain, to varying degrees, for the supply of a variety of common use consumable items used across healthcare. NHS Supply Chain contracts for a variety of products used by the NHS, but adopts a position of neutrality in product choice and commitment levels. That’s where we spotted the opportunity for our members. The amounts used by each Trust vary, but there is a high degree of commonality in the products used.

“Within the NHS Supply Chain catalogue are a number of opportunities for significant discounts if a Trust commits to use a minimum number of particular products. Identifying those and developing contractual agreements which leverage the discounts available is the value we have been able to bring for our members.”

The LPP solution: one agreement, maximum discounts

Having identified an opportunity, LPP puts together an agreement between a Trust wanting to take advantage of discounts, NHS Supply Chain, and the product supplier. It works as follows:

1.    the Trust agrees to purchase a stated quantity over a period of one to three years
2.    the suppliers pays an agreed rebate to NHS Supply Chain, usually on the anniversary of the agreement
3.    NHS Supply Chain pays the benefit to the Trust, usually the following quarter, to the original requisitioner or to a central point as determined by the Trust.

The list of agreements signed by LPP on behalf of members is published on the LPP website, and is accessible to members. Signing just one agreement removes the need for administering multiple individual Trust agreements. It also enables LPP to secure the maximum discount levels by committing London-wide spend rather than spend by an individual Trust.

As an example, LPP has committed its members to using 15m syringes each year over a three-year period, achieving a discount of 19 per cent. The discount available to an individual Trust committing to just 2m syringes this year is only seven per cent.

“If we think there is a risk that commitment volumes will not be achieved, we will commit to 80 per cent of historic volumes. Where the only penalty would be dropping to a lower commitment banding, then we will commit to 100 per cent of historic volumes,” says John.

The outcome: transparency, innovation, and £2m+ a year

Complete transparency is provided - Trusts can check that payments are being received by running the transaction report available through the NHS Supply Chain website, and LPP checks with NHS Supply Chain that suppliers are honouring their agreements. LPP provides a policing service, ensuring that if suppliers have failed to make payments, they are reminded of their contractual responsibilities. LPP informs Trusts of benefits paid through the regular CIPS reporting for members.

“We hold quarterly review meetings with the major suppliers, at which management information on sales achieved is shared. That means there should be no surprises when payment back to Trusts is due. This process also allows for changes to improved bandings when agreements are renewed.”

What this process also encourages is an opportunity for suppliers to bring new, innovative or improved products into the agreements. A good example of this is the introduction within the last six months of new non-slip anti-embolism stockings, reducing the risk of patient’s falls (and the risk of subsequent litigation). Another is the use of a Saline Flush Syringe designed specifically to reduce the risks of infection and medication errors during flush procedures performed in a sterile environment.

Spotting the opportunity and acting on it has benefitted LPP member Trusts by £8.4m over the last four years. Suppliers and Trusts both benefit from a much simplified administration process, and Trusts have the added benefit of LPP ensuring that suppliers live up to their contractual obligations. Patients get the benefit of better value from the NHS budget, and where applicable the introduction of new and better products for improved patient care.

As John Nicholson concludes, “The simplest solutions can be the best, as this work for our members demonstrates”.

15-01-13    Medical Surgical Supply Chain

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