Smarter procurement is crucial practice for the Health and Social Care sector

‘Procurement’ is fast becoming a watch-word throughout the adult social care sector. With financial pressures on local authorities continuing to grow, there is an increasing need to commission care services more cost-effectively whilst maintaining a level of service appropriate to the service users’ needs.

When examining the commissioning high cost packages of care (those packages of care costing in excess of £850 per week) it is important to consider the budget that is committed to this area. Figures show that in total, the UK spends circa £4bn a year supporting approximately 55,000 people in care.

The average longevity of a placement is 10 years, which equates to an average lifetime cost of £700k per placement over that period. Therefore, it is crucial that the right level of care is purchased at the right price from the outset.

In addition to the level of spend, the dynamic of fractured procurement is very evident across the UK. Currently, over 600 commissioning bodies purchase specialist placements, which range from adult social care residential placements through to Continuing Health Care placements with 24 hour home support. Expenditure in this area is continuing to grow and is led by the rising cost and number of Continuing Health Care placements, which is a major area of overspend in PCT budgets.

However, I stand firm in the belief that controlling these budgets is absolutely achievable. In reviews of over 4,000 placements and purchasing new placements on behalf of 40 local authorities (LA’s) and PCT’s, it is clear that savings can be made and markets can be restored to a financial balance. Through this process we have identified three key issues that need to be considered when creating a sustainable procurement infrastructure.

Pooling intelligence

The purchasing patterns of LA’s and PCTs are diverse due to the specialist nature of these placements. Location of provision can be anywhere in the country, which means that purchasers are forced to make decisions without knowing the local market rates or conditions. They could also be dealing with large, unfamiliar and experienced national providers, with a better understanding of the market rates, making any negotiations on price difficult.

However, pooling this knowledge through a central intelligence store offers a solution to these pitfalls. Commissioners need to be fully aware of any previous experiences of the provider and exactly how much a package should cost before entering into negotiations. In doing this, they are much better placed to procure the best price for a sustainable, long term quality service.

Pooling negotiation skills

In most organisations the purchasing of new placements is devolved to a local level or to a centralized purchasing team for that organisation. Often, this requires individuals to make significant financial decisions, without having the necessary skills to do so. More attention should be focused on developing and maximising the skill set of these individuals so that they are competently equipped to negotiate contracts, which are regularly worth in excess of £1mil.

Individuals whose skill sets combine experience in both care provision and buying techniques are the ideal, however, these people are in short supply. Therefore it is important that these skills are utilised across a number of commissioning bodies by sharing services, either through pooling budgets or by using a specialist company to provide negotiation support.

Facilitation increases transparency among residential care providers which is often impossible for authorities to achieve alone. Third party negotiations with providers, while potentially uncomfortable at the outset, often result in improved relationships in the long term.

Maintaining market management through sustainable purchasing

While there are considerable savings that can be made through better procurement, the risk of cost reductions leading to an unsustainable market is still a real concern. Worryingly, research shows that approximately only 40 per cent of providers are deemed as value for money. With budgets under increasing pressure, providers may be tempted into making arbitrary percentage reductions across all care packages, which will eventually force even value-for-money providers out of business.

In the medium term this could lead to a supply shortage for providers who have been able to absorb the reductions by expanding to fill the void. This could cause prices to rise within the market, resulting in an override of any prior savings made. In order to counter these problems, LA’s and NHS purchasers need to consider a targeted programme of reviews based on the best market intelligence. New placements should also be directed towards value for money providers so that a sustainable market is maintained.

While the true cost of care packages includes consideration of a wide range of factors, it is important to note that within these packages there is often scope for negotiation and savings. Not only can individual savings be substantial, but by replicating the process across all providers, authorities could also experience major cost reductions, without compromising on the level of service. Therefore, adopting smarter procurement techniques and streamlining service commissioning is crucial for maintaining and improving efficiency within the adult social care sector.

SHARETweet about this on TwitterShare on LinkedInShare on FacebookShare on Google+Pin on PinterestDigg thisShare on RedditShare on TumblrShare on StumbleUponEmail this to someone

Ray Hart is the commercial director at OLM Financial Management, part of OLM Group. He manages the MyCareCosts and brokerage services that financially analyse individual specialist placements commissioned by local authorities and the NHS to achieve value-for-money in commissioned care. Before joining OLM, Ray worked as Director of the Efficiency Review Team for Kent County Council and previously as Assistant Director of Social Services for East Sussex County Council where he was responsible for the finance, commissioning and ICT functions. By trade, Ray is a CIPFA member and his expertise spans across the care commissioning sector from both a financial and market management angle.