Examination of Witnesses (Questions 1-100)
Q1 Chair: Welcome to
you all. It is good to see you again,
Sir David, at your regular appearance. Welcome to
other members of the panel. I shall start with you, Sir David,
and it is the usual problem that arises from the Report on "Managing
high value capital equipment in the NHS in England". Within
your devolved structure, who will be accountable for ensuring
value for money in the acquisition of high value equipment?
Sir David Nicholson: This is in
the structure post-2013?
Chair: Yes.
Sir David Nicholson: Accountability
for management of assets—replacement of assets—within
the foundation trust will be the responsibility of the chief executive
of the trust and his accounting officers, and as individual accounting
officers they will be brought to account by you. In terms of the
NHS trusts that are left, the permanent secretary of the Department
of Health will have a body that has been described as the NHS
Trust Development Authority, and when the SHAs are abolished,
it will be responsible for managing all the remaining NHS trusts
post-2013.
Q2 Chair: So value for
money in the acquisition of this expensive equipment lies with
whom?
Sir David Nicholson: With the
chief executives of the foundation trusts, and with the permanent
secretary of the Department of Health.
Q3 Chair: But with whom?
It can't be dual.
Sir David Nicholson: The reason
why it is dual is that the accountability framework is different
for the foundation trusts and the remaining NHS trusts before
they become foundation trusts.
Q4 Chair: So once all
the others become foundation trusts, it will rest only with foundation
trusts.
Sir David Nicholson: Yes.
Q5 Chair: That leaves
you with a number of problems, and I will take you through them
one by one. One is, if we are to get best value, particularly
with your £20 billion savings and so on, and increased demand,
who will be responsible for identifying demand?
Sir David Nicholson: Demand for
diagnostics and other services in future will be the responsibility
of the clinical commissioners and the commissioning board, but
the clinical commissioners are accountable to the commissioning
board, so overall it will be the responsibility of the NHS commissioning
board.
Q6 Chair: So it will
be your responsibility to say, "We need x MRI scanners."
Sir David Nicholson: No, we will
set out what we think the demand for service will be. We will
set out what our expectations are in terms of the quality and
nature of the kit that is required, but individual organisations
will decide whether they have them or not, and how they purchase
them.
Q7 Chair: This sounds
like a heck of a mess. Let me take you a little further. You will
settle service levels, so if you've got to have an MRI scanner—we
will come back to how you're performing at the moment—within,
for argument's sake, two weeks, you'll set that service level,
but five hospitals in a region or eight hospitals in a region
will compete with one another to decide how to deliver that, and
will individually determine whether to buy an MRI scanner themselves.
Sir David Nicholson: No, we will
not just say, "That's the demand for MRI scans". We
will have a whole set of other service specifications that are
required. It is not just direct access to MRI. For example, if
we wanted to commission orthopaedic services, we would expect
them to have an MRI scanner to enable them to do that. If we commissioned
cancer services, we would expect them to have CT and MRI.
Q8 Chair: So, by commissioning
the service, you implicitly expect them to buy the equipment.
The Report shows that there is a massive variation—surprise,
surprise—in unit cost because at the moment there is no
co-ordinating of either purchasing or sharing of information on
best practice on usage. How, in your commissioning, will you drive
the system so that we do not waste money on equipment and we get
the best value in the usage of the equipment?
Sir David Nicholson: We will set
a series of expectations for individual hospitals that will include,
I think, the age of your machine. There is a direct connection
between the age of your machine and your ability to provide uninterrupted
services, so we would do that hospital by hospital.
Q9 Chair: But how will
you ensure best price and best usage?
Sir David Nicholson: How they
buy it is a matter for them. But we can help, support and provide
tools to enable them to do it, and we can encourage them to use
things like Supply Chain, which most of them do now in order to
buy them.
Q10 Chair: But we have
this massive variation. The National Audit Office has identified
a potential for at least a 10% saving in this area, and has put
it together with the consumables. Basically, the NAO is saying
to you, "Cut 10% off all your acquisitions, whether consumables
or high value equipment". I don't feel this is driving. I
shall come to Mike Richards in a minute because he runs the centralised
system. I am trying to work out in my brain—and I don't
get it yet—how, in a decentralised system, you will actually
eke out best price and ensure best usage, and your tariff—if
you are going to tell me that—always drives you to the average.
It doesn't actually drive you to best price and best usage.
Sir David Nicholson: We want to
encourage people to work together to buy the machines.
Q11 Chair: That's not
good enough.
Sir David Nicholson: We have had
some progress in this area around the machines. More than 70%
of them now are bought through the framework agreement, using
Supply Chain. That is significant progress and, over the past
three years, it has got more and more. In fact, virtually all
of them now are using Supply Chain to buy this type of equipment.
What we are not getting at the moment is the benefit of scale
because they are buying them off the framework contract one by
one. But Supply Chain is working with them to get to that place
so that we can reach a position where people can predict their
individual purchase; they can work with Supply Chain. I think
that we can both benefit from that. I don't think that it is just
a matter of the tariff.
Q12 Chair: You don't
think that it is a matter of the tariff. Well, Mike Richards has
been running a centralised system on the radiography equipment.
The Report again demonstrates, Mike, that, up until 2007, you
achieved a 10% lower price in the cost of the equipment that you
purchased.
Professor Sir Mike Richards:
Yes.
Q13 Chair: Just for this
high value equipment—this is pricey stuff—what is
your view on encouragement, support, blah, blah, blah frameworks
as opposed to actually making this in the tight-loose system a
tight way of ensuring best value for the NHS?
Professor Sir Mike
Richards: We started a central programme back in
2000. Incidentally, that was both for the radiotherapy equipment
and for CT and MRI scanners at that point because we were way
off the pace then. There is no doubt at all that we needed capacity
and we needed it quickly, and we had a central programme in which
we were working with the NHS and saying, "You need an extra
CT scanner, you need an extra MRI scanner". I think that
that was right for the time, and it came to an end in 2006-07.
We are in a much more mature situation now.
We have far more information, information that can help benchmark.
We are in a position where we can still give advice. I think that
central advice which, in the case of radiotherapy, is given through
not only the National Radiotherapy Advisory Group and the National
Radiotherapy Implementation Group, but the equivalent group for
imaging, remains important. But at the same time, we have better
data coming through so that we really know what is going on in
the hospitals. No doubt, we can come back to this, but the radiotherapy
data set is a very important example of that.
We are seeing the capacity go up, but we have
also—most importantly—seen that the waiting times
have come down. The waiting times for radiotherapy were very,
very bad. Back in 2003, 70% of radiotherapy patients waited more
than four weeks for treatment. That came down to 50%, then 30%
and now it's down to about 2%.
Q14 Chair: I shall just
stop you. The Report says that waiting times came down for everything,
right. It came down for everything because we bought more because
we had that capital investment. I accept that, but what is striking
with the radiotherapy in this much more centralised system that
you had, is that it was cheaper. It was cheaper so we got better
value. Now you are fragmenting and letting it go out to the trust.
It just strikes me that this ought to be a tight rather than a
loose part of the settlement.
Professor Sir Mike
Richards: We are giving the responsibility more
locally, but at the same time we have set up the NHS Supply Chain.
That is in a position where it can negotiate much better prices
than the individual trusts would do—that is already happening—so
the trust can go to the supply chain and ask it to work with it.
It is quite a good combination because it doesn't restrict flexibility.
If a trust wants a particular sort of machine, it can ask Supply
Chain about that and Supply Chain is working with all the manufacturers.
I am confident that this system can actually benefit the trusts
and can benefit the health service as a whole by giving us good
prices. I do think that there is more we can do for trusts, and
when three or four of them want the same bit of equipment, we
ought to be able to do even better. That is where we can make
further progress.
Q15 Austin Mitchell:
Supply Chain does not get any provision on getting the price knocked
down. If you have an advisory role now and are telling them about
equipment, you are not telling them where to get the best price,
what the best price is or that if they haggle, they will get a
lower price.
Professor Sir Mike
Richards: The very fact that almost all the trusts
are now working with Supply Chain tells me that they are finding
this an advantage.
Q16 Austin Mitchell:
It might be to get the centralised buying, but they don't all
work with Supply Chain, and there is no indication that Supply
Chain is actually haggling about best price.
Professor Sir Mike
Richards: I could leave that to people from Supply
Chain to answer. Andy Brown.
Q17 Chair: According
to the Report, 75% are working with Supply Chain. That means that
25% aren't.
Andy Brown: No, over the past
three and a half years more than 75% of this equipment—CT,
MR or on linacs has been bought by our framework contracts. That
market share has increased over the past three years so I would
say that it is in the high 80s now.
Q18 Chair: So you disagree
with the facts in the Report.
Andy Brown: No, I don't disagree
with the facts.
Q19 Chair: But it says
75%.
Amyas Morse: Just to be clear.
I thought that Sir David's comments were very valuable, so if
he would just ponder for a second. We don't disagree at all with
going through the Supply Chain. The crucial point is the one that
you touched on, Sir David, about using the volume. It is a high
measure of convenience to trust using Supply chain in terms of
speed of ordering. Nobody is arguing with that either. We do not
criticise that in the Report, but the question is how long will
it be before you are getting the volume discounts you should be
getting from the bulk of purchasers going through? That's the
bit that we are really very interested in. You mentioned that
they were working towards it. If you will forgive me, that is
a bit of a general phrase. Our point is that, given that such
a large amount of money is going out there, if you can get some
agreement that is effected through the Supply Chain, we are not
against that. We are simply making the point that a lot of value
is going begging at the moment.
Sir David Nicholson: Absolutely.
I think we share that view with you. There are two ways that you
can do it: one way is that we are consistently working with trusts
across the whole country to talk about the benefits of Supply
Chain. We recently held a workshop with people from across the
country to enable us to do that. We are pushing it from our end
to encourage people to do it. I have written to all chairs of
organisations to do that. At the other end, via the Department,
Andy is getting lots more information about the sort of things
that are in here, so, as you know, we can tell you the age of
virtually all the machines, and where the trusts are; and connecting
those things together is the way—
Q20 Mr Bacon: That is
all very well, but if you look at the last five years, the purchasing
that has taken place has dropped like a stone, if you compare
2010 with 2005 or 2006, and getting the information now may be
a little late in the day. Mr Brown, I would like to know how many
deals you have done with manufacturers of linear accelerators
when you have said, "I can guarantee you a volume order"
of 10, 12, 15 or whatever the number is in return for a discount?
How many?
Andy Brown: None.
Q21 Mr Bacon: Okay. If
you look at this chart, the yellow part at the top is linear accelerators.
That is by no means all of them, because there are quite a few
purchases in the preceding years. However, if you take 2006, 2007,
2008 and 2009—unfortunately it is one of those charts where
you have to look across at the index—it seems that there
are 33 or 35 in each of the first couple of years, 20 or so in
the next couple of years and perhaps 10 or so in the final year.
There are about 100 or 105 linear accelerators.
The Report says at page 5 that they cost £1.4
million each, so one presumes that the NHS was spending between
£100 million and £150 million on linear accelerators
over that period, buying roughly 100 linear accelerators. Even
though those orders were coming through and even though some of
them are now apparently coming through the supply chain, it seems
that at no point were you in a position to say to the manufacturers,
"Over the next three to five years we will have orders for
100 accelerators. Let's get a good price." You did not do
that. Was the information coming too late, or what?
Andy Brown: Let me explain some
of the facts and the context. We did not have a contract for linear
accelerators until mid-2008.
Q22 Mr Bacon: You mean
a framework?
Andy Brown: A framework, yes.
We started our first capital contract in November 2007, and that
was for medical imaging. We did a contract for linear accelerators
a year later. In that time, we were letting NHS trusts know that
we had a contract, and we were building up awareness and confidence
that we could do those things. More and more demand has come via
our contracts for those three modalities.
Q23 Mr Bacon: In English?
Andy Brown: CT/MR and linear accelerators.
I think that we can go further in terms of being able bulk purchase,
but we need to plan better. We now have good traction—
Q24 Chair: Hold on a
minute. This is since 2008.
Mr Bacon: Most of this purchasing has
happened.
One of you was saying earlier that there was
a lack of investment in 2003 and subsequently, but judging by
the graphs for all three it seems that a lot of the purchasing
has already happened, and that it has now dropped off significantly.
I happened to take linear accelerators because it was at the top
of the three-coloured bar chart, but I could have made the same
point about MRI or CT scanners. Had I asked that question about
volume commitments for the other two items, am I right in supposing
that the answer would still have been none?
Andy Brown: We have certainly
talked about volume commitments.
Q25 Mr Bacon: In terms
of signing deals with volume commitments, would the answer for
those two items—MRI and CT scanners—also have been
none?
Andy Brown: For those modalities,
yes; but we have done significant volume deals on other modalities
when we had the information.
Q26 Mr Bacon: You mean
machines other than those three?
Andy Brown: Yes; for digital mammography,
ultrasound and flexible endoscopy.
Q27 Mr Bacon: What is
the difficulty about doing that for scanners?
Andy Brown: One of the difficulties
is that they are high-spec machines, and trusts do not replace
them lightly. The decision to replace them is usually subject
to an internal business case within the trust. Some trusts work
with us from an early stage of procurement, and some do not. Some
do a local evaluation, decide which machine they want and then
come to us to use the framework contract. So ostensibly what we
have is a lack of visibility. I would like to get more visibility.
When we have worked with trusts to get more visibility, we have
done good deals à la digital mammography, flexible endoscopy
and ultrasound. There is no reason why we cannot do the deals
in the same way, but we need to plan it better. When I say "we",
it is working with the NHS—
Q28 Chair: Mr Brown,
you did not set up these deals until 2008, but as I understand
it, you set up your framework agreements in 2007-08, which basically
means you do not have to do the EU procurement stuff, as far as
I can tell. What have you been doing? Why are you still planning?
Here we are, coming towards the end of 2011—three years
on—and you have not got beyond planning.
Andy Brown: I think we have got
beyond planning. It is getting NHS trusts to understand that planning
is important.
Q29 Chair: Sir David,
we have had three years. With a bit of luck, they may do one deal
next year. Can you afford that when you are looking for £20
billion?
Sir David Nicholson: Clearly we
need to get value for money out of all of these issues. We have
been operating in the way that we have. Interestingly, the way
that Mike described it, at a national level. This was doing it
in a national way, not just a local way.
Q30 Chair: So you are
not happy with this?
Sir David Nicholson: Absolutely.
We need to do better. There is no doubt in my mind about that.
I think it is pretty clear from the conversation that we need
to accelerate this process.
Q31 Austin Mitchell:
Is not your position made worse by the fact that we are now having
a patchwork quilt of foundation trusts independently making decisions?
On a priori grounds, it must be cheaper if you use muscle in centralised
buying and you can cut deals. We need so many of these machines;
give us a three for the price of two offer, like Waterstone's.
Sir David Nicholson: That is fine,
but we need to give the trusts the machines that they need to
deliver the services that they need to deliver.
Q32 Austin Mitchell:
Yes, and centralised buying allows you to aggregate that demand.
Sir David Nicholson: The aggregation
of buying is absolutely the way that we need to go, and I think
Andy has described that we need to do that. We just need to accelerate
that. I am not pretending to you that we have done it.
Q33 Ian Swales: Mr Brown,
you run the Supply Chain. You are the managing director. Supply
Chain is a DHL organisation, so you work for DHL.
Andy Brown: I work for DHL. It
is a 10-year contract with the Department of Health to run the
Supply Chain for the NHS.
Q34 Ian Swales: DHL is
a private company with shareholders and so on. Can you explain
what your incentives are as the managing director of a private
sector company with regard to Supply Chain? What makes you do
a good deal for your shareholders—or not, as the case may
be?
Andy Brown: First of all, I am
the managing director of the diagnostics division within NHS Supply
Chain. I am not managing director of the whole NHS Supply Chain.
In terms of what my incentives are as a function of my team, first
of all the primary objective of the contract is to save money
over the life of the contract for the NHS. That is our primary
objective. We are allowed to make a profit, and that profit is
capped. We cannot make any supernormal profit in any one year.
We would have to give that back through pricing to the NHS. I
believe it is in the long-term interests of DHL shareholders that
NHS Supply Chain is successful beyond the life of a 10-year contract.
Therefore, delivering the savings is the primary objective.
Q35 Ian Swales: So just
to be clear, how do you make a profit? Do you get fees or do you
put a percentage on each thing you buy before it is passed through?
Andy Brown: We take a management
fee on the value of the transaction.
Q36 Ian Swales: On the
value of the transaction. So you have an incentive.
Andy Brown: I will give you some
facts and figures by way of explanation. We take a small percentage
fee on the value of the transaction. You may say, "Well,
it is not in your interests to see prices come down." It
is very much in our interests to see prices come down. As I explained
before, the savings for the NHS on that contract are our primary
KPI—our primary objective.
Q37 Matthew Hancock:
It may be a key performance indicator, but what is your financial
interest?
Andy Brown: If we are not delivering
a good job for the NHS, trusts will not use us; trusts are not
mandated to use our contracts.
Q38 Mr Bacon: Is there
a direct link between your visibly having achieved a particular
key performance indicator like that and some extra financial reward
that you get?
Andy Brown: No.
Q39 Mr Bacon: It is just
this fee? Does the percentage fee vary with the size of the transaction?
Andy Brown: A little, yes.
Q40 Mr Bacon: So a high
value transaction will have a smaller percentage.
Andy Brown: It will.
Q41 Mr Bacon: What would
the percentage range be?
Andy Brown: In terms of difference
or percentage?
Q42 Mr Bacon: What is
the percentage fee that you charge for a large item, such as a
linear accelerator, and for a smaller item, such as a surgical
glove or a PC?
Andy Brown: Surgical gloves are
consumables that are supplied through a wholesale route, which
is a different economic model. On the capital equipment, 2% is
our standard.
Q43 Austin Mitchell:
But that means that the more you are paying the more you are getting.
Andy Brown: No.
Ian Swales: Can I keep on this trail
for a moment? I assume that DHL has no other arrangements with
e-suppliers, such as Toshiba, Siemens and so on, with end-of-year
volume rebates for instance. It would be quite normal in business
to do so.
Andy Brown: When you say DHL,
it is NHS Supply Chain. When we negotiate a rebate based on volume,
we typically pass that on to trusts through pricing.
If I can come to the point about our incentivising—
Q44 Ian Swales: Before
we leave this, would you describe your relationship with the NHS
as an open or a closed-book relationship?
Andy Brown: It is not an open-book
relationship in that we do not share our total prices, costs and
so on.
Q45 Ian Swales: So it
does not know what you actually paid to Toshiba, Siemens or whoever.
Andy Brown: It does, because for
this equipment it is a direct contract. So the purchase order
goes from the trust to the supplier—the trust knows exactly
what it is paying.
Can I make a point about pricing? Prices have
come down over the past three and a half years on the machines.
Not only has the high-specification pricing come down, but the
lower-end specs have come down too. We can demonstrate pretty
good saving.
Q46 Chair: Have they
come down because of your methodology, or simply because they
have come down?
Andy Brown: No, they have come
down because of the methodology. On our savings to income ratio,
in 2008, we saved 13 times more than we earned; in 2009, it was
8.5 times more; in 2010, it was 12 times more; and this year it
has been 25 times more .
Q47 Ian Swales: I have
one last question, again for Mr Brown. A few minutes ago, Professor
Richards said that if three or four trusts worked together, we
could do better. How do you interpret that comment in the context
of what you do?
Andy Brown: The term "collaboration"
in the NHS—indeed, within the NAO report—is something
of a misnomer. To expect trust A and trust B, which are right
next to one another, to work together is sometimes difficult.
However, we might get visibility of the demand through seeing
their capital equipment plans and their raised asset plans. We
are getting that now—more than 40 trusts gave us their capital
equipment plans last year and 30-odd have done it this year. We
are looking at those capital equipment plans and saying, "Right,
there is demand for x in Gravesend, Plymouth, Gateshead—in
x, y and z." We can then start to aggregate that, which is
what we are doing.
Q48 Ian Swales: Did you
say that fewer trusts gave you their plans this year than last?
Andy Brown: Yes, but I don't know
what to read into that.
Q49 Ian Swales: If it
was so good, you would think that the trend would be in the opposite
direction, wouldn't you?
Andy Brown: Certainly we are getting
much higher quality plans this year. You need good quality information
on which to base good commercial decisions, which is what we are
working towards.
Q50 Stella Creasy: Obviously,
these are challenging financial times, but many machines need
replacing. Surely if Mr Brown says that it is really difficult
to get people to work together, there is a high cost to us in
your not getting them to purchase collaboratively. Have you carried
out an assessment of the cost to the NHS of continuing to use
machines that are out of date, that break down and that cannot
do as many scans as you want? I note that the report says that
13% of the linac machines are already out of date.
Sir David Nicholson: We do not
do that for the NHS as a whole. We have not done that calculation
for the NHS as a whole.
Q51 Stella Creasy: So
you have not made an assessment of the cost to you?
Sir David Nicholson: We have made
an assessment of the broad cost of replacing the machines as per
their lifespan and when that ends. We have done all of that, and
the NAO says it will cost us £460 million over the next period
to enable us to do it, so we know that. We know that through depreciation
means, in the way that the resources are allocated through the
tariffs with the pricing mechanism, that trusts will have £2.1
billion-worth of depreciation. We know for the next four years
that the Department is allocating over £17 billion-worth
of capital. So we think that the amount of capital in the system
is there, and that the amount of depreciation in the pricing system
is there as well.
Q52 Stella Creasy: So
all that money is there. You have a challenging financial target
to meet in terms of the NHS budget, and yet you cannot get people
to work together to help you get lower prices. Is that a fair
assessment of the situation? At the moment you have to coax them
into it rather than—
Sir David Nicholson: No, the figure
that Andy—
Q53 Stella Creasy: If
you were able to negotiate the lower prices, who gets the money
back, because you will have to get people to work together, won't
you?
Sir David Nicholson: The individual
trusts get the money back.
Q54 Chair: Can I just
challenge you on your availability? You have cut capital by 17%.
The central capital pot has gone. You look at those rather scary
figures in the report about replacement. I cannot remember them:
50% in three years or something like that, and 80% in six or whatever
it is. And you look at this absolutely exponential growth in demand,
for all sorts of perfectly good reasons. Then you look at the
fact, which is probably the final thing in this little scenario,
that only 50% of people who have a stroke have a scan within 24
hours—scandalous; and 15% of cancer patients, whose life
could be prolonged, do not get access to radiotherapy—scandalous.
You are being a bit complacent, if I may say so.
Sir David Nicholson: I do not
think we are being complacent. It seems to me that over £17
billion-worth of capital and £2.1 billion-worth of depreciation
resources is a significant amount of investment (written evidence
from the Chief Executive of the NHS).
Q55 Chair: A 17% cut
and central funding gone. And £20 billion—
Sir David Nicholson: If you think
about the amount of capital that has been invested in the NHS
over the past five or six years in particular, it seems to me
that there is more than enough capital in the pot to be able to
deal with these issues.
Q56 Stella Creasy: But
you are basing that on the prices that you have now, aren't you?
One issue we are talking about today is that you could have a
better price, and therefore save more money, if you could get
central purchasing to work.
Sir David Nicholson: Yes, there
is no doubt in our mind. The benefit of the NAO Report in the
way that it is set out is that it says to us that whatever we
have done so far has not been enough in terms of getting people
together to aggregate that purchasing.
Q57 Stella Creasy: But
the new system is going to make that harder, not easier, because
the central stick that you need to help Mr Brown with his getting
the trusts that are next door to each other to work with each
other is not going to be there, is it?
Sir David Nicholson: But I have
not got it now. There is no difference in the new system from
the old system from that perspective, because the majority of
trusts that have CT and MRI scanners and radiotherapy machines
are foundation trusts now. Most of them have been for the past
two or three years.
Q58 Stella Creasy: So
we are going to continue struggling to get this right.
Sir David Nicholson: No. Robert
might want to say something about his experience of running a
foundation trust in London. I have to say that I did not know
the figure that Andy talked about of the reduction in the number
of trusts that were giving him their full capital plan; I am not
quite sure why that is. But all the evidence we have around is
that—
Q59 Stella Creasy: But
shouldn't you know that, Sir David? As I say, isn't there a massive
financial interest for us to get this right?
Sir David Nicholson: Yes, there
is.
Q60 Stella Creasy: So
if Andy needs those data, even if you are not going to set up
a central unit to do this, why aren't you saying, "Everyone's
got to give their data over to help do this"?
Sir David Nicholson: Well, we
can encourage people to do that, and we are doing it.
Q61 Chair: Robert, are
you happy that you have enough capital around the system—in
your budget—to do it on your tod and get enough MRI scans,
CT scans and radiotherapy equipment to meet the growing demand
and have a good-quality service?
Sir Robert Naylor: Yes, I am.
My trust was one of the first-wave foundation trusts, and we have
been a foundation trust for about six years. Our systems for asset
management and the utilisation of depreciation to purchase equipment
are well in advance of much of the rest of the NHS. That is one
of the tricks we had to learn when we became a foundation trust.
Prior to becoming a foundation trust, you effectively queued up
for funding from the centre for such equipment, so there was no
real incentive for you to look after your assets, as there is
nowadays. Now that we get paid depreciation in the contracts for
the treatment of patients in the trust, it is up to us to manage
that depreciation and to ensure that there is sufficient money
in the pot from that depreciation to pay for capital equipment
in the future.
I can show you my plans for the placement of
my asset base over the next 10 years. At the moment my asset base,
in terms of equipment, totals some £76 million, about a third
of which is the equipment about which we are talking today. We
have a very high proportion of very high-tech equipment because
we are a very highly specialised organisation. I can show you
my plans going forward 10 years for how much depreciation we are
putting aside each year to pay for the next year's capital programme.
We are in a new world; we never used to have to do that in the
old world of the NHS. These are the new disciplines that have
come about from becoming a foundation trust.
Q62 Mr Bacon: That is
extremely interesting. I am not asking Sir Robert to speak on
behalf of other trusts, so perhaps Mr Brown may want to comment
on this. You said that you have to have high quality information
to make good decisions. Is part of the problem that many trusts
are simply not in a position to give you detailed capital plans
for the next 10 years, as Sir Robert is? Is part of the problem
that, basically, they haven't learned the trick yet?
Andy Brown: It is certainly part
of the problem. It is important to look at this in terms of asset
management. All of these assets have a life, which is typically
between seven and 10 years. So it should be possible to predict
the end of an asset's working life. There is no use buying an
asset well if you maintain or finance it badly. Asset management
is something that NHS trusts have to learn to do better.
Q63 Chair: Do you want
to purchase yourself? You are in a slightly specialist role, but
do you think it is better being done by you—is it a loose
thing?—or should it be done centrally, as the cancer equipment
was?
Sir Robert Naylor: No, it absolutely
has to be through a national framework contract. I can give you
an assurance that we would automatically go to the framework agreement
for every major item of equipment that we buy. The only time that
we might not go to that agreement is when we are buying an extremely
specialised piece of equipment at the leading edge of research
and development. For example, we are in the process of installing
the first PET-MRI scanner in the UK, which is a brand new modality
in cancer treatment. So, of course, there is no framework agreement
for that, because it is the first one. We will have to negotiate
that directly, with the support of NHS Supply Chain, but for all
other items of major equipment we would automatically go to NHS
Supply Chain, because we realise it is in a better position to
negotiate such contracts than we are.
If I may return to the earlier question about
trusts not working together, I do not believe that it is the case.
We see tremendous advantage in working with our colleague trusts.
About three years ago, we were established as one of the first
five academic health science centres in the UK. Although it started
off as research and development and basic science, and translating
that into new treatments for patients, a consequence of the development
of that system has been that trusts in north central London are
now working much more closely together than they ever did before.
One of the projects on which we are currently working is procurement.
We are now working much more closely together across a whole range
of things: the provision of pathology services; back office functions,
such as finance, payroll and HR; and procurement. We see the benefit
of working with other trusts to aggregate our purchases so that
we can get discounts on volume purchases.
Q64 Matthew Hancock:
Following on from that point, I want to bring it to the wider
question across all trusts. How many trusts are there?
Sir David Nicholson: Acute trusts
in this environment?
Matthew Hancock: Yes.
Sir David Nicholson: About 168
(see written evidence from the chief executive of the NHS).
Q65 Matthew Hancock:
And what proportion of those don't work generally through the
framework agreement?
Andy Brown: I would say a handful.
Sir David Nicholson: Yes, I was
going to say that.
Q66 Chair: According
to the Report, the figure is 75%.
Sir David Nicholson: It's slightly
better than that now according to the latest records we have.
You're in the mid 80s, aren't you?
Andy Brown: We shouldn't confuse
the number of MR, CT and linacs machines with the number of trusts
that are buying—not every trust buys a CT, MR or linac every
year. I would say that the number of trusts that are using us
is higher than the number of machines bought in any one year.
Q67 Matthew Hancock:
When you say, "a handful", what does that mean?
Andy Brown: Less than 10 around
the country are—
Q68 Matthew Hancock: Less
than 10% or less than 10?
Andy Brown: Less than 10.
Q69 Matthew Hancock:
Less than 10 are not. Why would they not?
Andy Brown: Some use us for other
modalities and some may not buy CT or MR through us. There are
several reasons: some have what are called "managed equipment
services", which is where they've contracted out their entire
radiology equipment service to the likes of Siemens, Philips or
an independent; some are part of a PFI deal and there are about
30 PFI MESs around the country—
Chair: But 30 leaves you with 70.
Andy Brown: And some are, let's
face it, for relationship and political reasons—people are
people.
Q70 Matthew Hancock:
If they don't go through you, what do you think is the impact
on the cost of the machines they buy?
Andy Brown: For them or for us?
Matthew Hancock: For them. I'm not that
bothered about you.
Andy Brown: I think it's impossible
to say because I don't see what they pay. What I can be assured
of is that they've had to go through a full OJEU process, and
that in itself is expensive, so they've incurred that cost over
and above what they pay for the machine.
Q71 Matthew Hancock:
Sir David, there must be a reason why you do not mandate this
but allow trusts to choose whether to use NHS Supply Chain. Could
you explain?
Sir David Nicholson: Well, I can't.
With Foundation Trusts, I can't manage—
Q72 Matthew Hancock:
Because you legally can't.
Sir David Nicholson: Yes. Legally
can't.
Q73 Matthew Hancock:
And if we look back, when was the framework that you now use put
in place?
Andy Brown: November 2007.
Q74 Matthew Hancock:
If we look at chart 5 on page 16 of the Report, we can see that
November 2007, according to my lay reading, is after the big bulge.
What are the savings per unit, or however it is best expressed,
from having the framework?
Andy Brown: Not all trusts in
that large bulge you refer to got an MR or CT, so about 25% of
trusts didn't get a CT or MR in that wave. From the benchmarking
we did in setting up our contracts, we are confident that there
is a 12% to 15% difference in prices paid by trusts prior to using
our framework.
Q75 Matthew Hancock:
Would it be inaccurate to characterise this as, when the MRI,
CT and linacs machines were being bought, which was mostly before
the framework was put in place, they were bought at a higher cost
than could have been achieved if that framework had been put in
place at the start of the very sharp increase in purchases?
Andy Brown: I think that is very
difficult for me to say because that was before my time—before
NHS Supply Chain.
Q76 Matthew Hancock:
But you managed to reduce the cost and what we've been challenging
today is why that hasn't been driven further.
Andy Brown: What also has to be
brought into context is that the specification of these machines
is complex, so in that—
Q77 Chair: May I interrupt
this a minute, Matt, just for clarity? A framework contract is
not necessarily about the cost of the machine. What the framework
contract allows you to do is not go through the OGC procedures.
The cost of the machine comes out of bulk buying. Tell me if I'm
wrong, Amyas, but that's my understanding.
Amyas Morse: I think we'd all
agree with that. Can I just ensure that I have this straight just
to inform what you're asking? There is no doubt that there is
a significant convenience to the trust of having the framework
agreement. We agree. We're not challenging that. No doubt, if
you are able to talk about the forward plans, even though that
is not the same as a contract, it is persuasive to negotiating
some discounts, but, you would agree, not the same level of discount
you would get if you were able to say, "I've got committed
numbers".
Andy Brown: If we had committed
numbers, we would be able to get better pricing.
Amyas Morse: I am only just showing
you that there is a scale. I am not blaming you, or trying to
suggest that you should be doing something differently. You are
doing whatever you can do in the parameters. But if it were possible
to get more trusts to be in a position to commit, the prices would
be lower.
Q78 Matthew Hancock:
But they can't do that because of the legal framework. Is that
correct?
Andy Brown: No, they can commit.
Q79 Matthew Hancock:
They could commit, but you can't commit. My final question on
this line of questioning: if trusts commit, then you could make
savings, because you would be able to plan better in your business.
Andy Brown: Yes.
Q80 Matthew Hancock:
Do you offer passing some of those savings through to the trusts?
Andy Brown: We pass the vast majority
of those savings through to the trusts.
Q81 Matthew Hancock:
So why don't trusts pre-commit and therefore get better value
for money?
Andy Brown: For various reasons.
I think a lot of trusts commit to working with us.
Q82 Matthew Hancock:
Yes, but as you said that is not enough.
Andy Brown: Let me finish. A lot
of trusts commit to working with us. What stops them committing
a machine at a point in time is a degree of uncertainty around
perhaps their services, perhaps their finances, perhaps the probability
of "something will happen". That does, in the real world,
vary for all sorts of reasons.
Q83 Ian Swales: May I
just ask one final question in this area? Clearly, some trusts
are going it alone. You have said that. It surely cannot be that
difficult to take an equivalent machine that a trust has bought
alone and look at the framework agreement. You are going to find
one of two things. Either they paid less, in which case there
is a lot to learn about how the supply chain is working, or they
paid more, in which case they have got a lot to learn. Given the
amounts of money we are talking about here per machine, do you
invest any effort in that kind of management information sharing
across?
Sir David Nicholson: No.
Mr Bacon: Well you should, it seems to
me.
Q84 Joseph Johnson: I
am very concerned about your ability to save £1.2 billion
on the procurement budget and I am really worried about the loss
of economies of scale. I really struggle to see, with the current
structure, how the framework agreement is going to help much when
you are just talking about aggregating piecemeal scanners here
and there.
Looking at the NAO Report, the issue is not
just about replacing the existing stock of ageing machines, it
is also about, presumably, continuing to catch up with the OECD
average for the number of these machines that are in circulation
in other countries. Looking at the Report, the figures are quite
stark. You have got a stock of 976 of these machines currently
in use in the country and 6 MRIs per million in the NHS in England
against Japan's 43 per million. Japan does seem to be something
of an outlier and perhaps you might explain why the discrepancy
exists there. But even in other countries which are closer to
the UK, geographically at least, there are 19 per million in Greece,
11 per million in the Netherlands, and much the same can be said
about the prevalence of CT machines and linac machines. What is
your ambition, not just for replacing the existing stock, but
actually continuing to bridge the gap that you started on? And
why does this gap persist to the extent that it does?
Sir David Nicholson: There is
no doubt we started at a very, very, very low base. That was why
we allocated the resources nationally to drive it forward. If
you look at the figures, I do not think we want to be hidebound
to a kind of target of numbers per million population, largely
because every health care system is different. But also, we do
more scans per machine than some other countries. It is the scans
per machine and access that are the critical thing for us. So,
waiting lists have come down significantly. We do lots and lots
scans through our scanners, so we do not want to be hidebound
to a number for the future.
Q85 Joseph Johnson: So
you have no objective of reaching at least the OECD average for
number of machines.
Sir David Nicholson: Not for the
number of scanners.
Professor Sir Mike Richards:
When we started out on this, the only figure we had was the number
of scanners per million population, so we had to work with that.
That was the only thing and we were way behind. We have moved
forward and they have moved forward. We have also looked very
carefully at the CT and MRI scanning rates reported by the OECD,
and in general, we probably get more scans out of our machines
than they do. Having said that, we are still doing fewer scans
per million population than other countries. I think the demand
will go up in this country, because the range of indications for
doing such scans is broadening all the time. Partly, it is broadening
as the scanners get better, so there are more things that you
can now do and see with the scanners. The demand will undoubtedly
go up, and we need to ensure that we respond to that.
Q86 Chair: How, in the
current climate, with a non-centralised approach?
Professor Sir Mike Richards:
One thing that we really can do is provide information, which
is part of the answer to that. If we are providing trusts and
commissioners, too, with high-quality information on what they
get—for example, we can look at the number of scans per
100,000 population. If we can provide that information to every
part of the country, they will see that they are relatively lower
or higher than the average. We cannot yet do that. From next year,
when we hope to have the diagnostic imaging data set in place,
we will be able to do that.
We can do it now for radiotherapy; only last
month, we published the first full annual report from the radiotherapy
data set. We will publish the second report a whole lot quicker
than that, hopefully by about the end of this year, because we
have now got the methodology sorted out. In that report, we will
be focusing on inequalities of a variety of sorts. So, I think
we will give really high-quality information to the NHS—plus,
we also have the information on waiting times. We have combined
those two, which I think really does help.
Q87 Joseph Johnson: I
just wanted to get a quick sense of why there is this massive
dispersion of the number of machines per million of population,
and why the UK seems to be lagging so far behind on that measure.
Professor Sir Mike Richards:
I think it is historical; it goes back to pre-2000, in fact, and
we have been playing a long game of catch-up. You will see that
we did a considerable catch-up from 2001 to 2007. The NAO chart
shows that we expanded a lot the numbers of machines going in,
and we have seen—again, the NAO Report shows—that
our number of scans over a decade has gone up almost threefold,
so we are doing better on that. I am not complacent at all. I
know we need more scans.
Q88 Joseph Johnson: We
are now spending £50 million a year on these machines, rather
than £80 million a year between 2001 and 2007. Do you expect
the gap to widen or narrow over the next three to five years?
Professor Sir Mike Richards:
My view is that, first of all, the NAO Report shines a helpful
spotlight on this, which we can make use of. Secondly, we can
now work with trusts—my team is already doing that—and
we can feed back to them exactly what is going on there. We can
ensure that they are able to prepare, and then I would expect
them to work with the supply chain.
Q89 Joseph Johnson: But,
will this gap on machine per million of population widen or narrow
over the next three to five years?
Sir Mike Richards: Because I don't
think the machine per million of population is—
Q90 Joseph Johnson: Okay,
scans per million.
Professor Sir Mike Richards:
I would be confident that the number of scans will go up, and
we will at least be going up in parallel. I hope it would narrow.
Q91 Stella Creasy: My
main questions are about the issue of data, but I just want to
clarify something with Sir Robert. Earlier, it seemed that you
were saying that you do purchasing through the supply chain process,
but that you also work with other foundation trusts on procurement—is
that right?
Sir Robert Naylor: Yes, that is
right.
Q92 Stella Creasy: Have
you found that you are able to negotiate as groups? How do you
discover the other foundation trusts to do that? Are you setting
up competing groups of people going to manufacturers and saying,
"A group of us want to buy; what discount can you give us?"
Are you bulk buying and using your bargaining power separately
to the supply chain process?
Sir Robert Naylor: Yes, we are.
The choices that foundation trusts have about where they buy things
is completely up to foundation trusts. However, I think a foundation
trust would be pretty foolish if it went out to do its buying
on its own, because it does not have the expertise or the aggregation
of purchasing power. So, most trusts—certainly my trust
is part of a collaboration of procurement, which isn't just in
north-central London; it extends across to the west midlands and
beyond. There is a group of hospitals—
Q93 Chair: How many trusts?
Sir Robert Naylor: In total, I
would guess that there are probably about 35 trusts working together.
This is based upon an organisation called HPC that was set up
in the west midlands, and when I was a chief executive of a trust
there many years ago I was part of its setting up. It was set
up to try to get the benefit of aggregated procurement, so all
orders would come in to a central place and then that organisation
would purchase on behalf of these hospitals. We managed to achieve
huge savings in those days; I'm going back 15 years or so.
Q94 Stella Creasy: Could
you quantify the sort of savings that you are achieving when you
work in that way as opposed to through Supply Chain? Could you
put a figure on it at all?
Sir Robert Naylor: We have a choice
of purchasing through this collaborative consortium, going to
Supply Chain or going to buy something directly ourselves if we
want to, but the majority of our purchases are bought together
in the consortium, and Supply Chain is an obvious place to which
we might go to get the best prices. So, if Supply Chain offers
the best prices for a commodity we will go there; if we could
get a better price by going directly to a manufacturer—
Q95 Stella Creasy: But
what you are saying is that you are exercising bargaining power
independently of the supply chain process at some point. Do you
have a figure or an example in your head of the kinds of savings
you are able to make when you are using your bargaining power
in that way?
Sir Robert Naylor: It would be
impossible to give a figure overall, because we buy thousands
of different lines of commodities. Pretty much everything that
is manufactured out there in commerce is used in a hospital somewhere,
so the range of commodities that we buy is enormous.
Q96 Stella Creasy: I
appreciate that, but obviously one of the concerns we have here
is about the ability of the NHS to exercise its bargaining power.
What you are telling us is that foundation trusts have already
got on and tried to do some of this stuff, and you are telling
us where the benefits have come from that collaboration, which
tells a slightly different story from what Mr Brown is saying
about the difficulties of getting people to work together. So,
it is clearly possible in some instances, but it is not happening
in others.
Sir Robert Naylor: Well, of course
it isn't because of foundation trusts. As I said, this collaborative
procurement arrangement was established 15 or 16 years ago, because
trusts even in those days realised the benefit of working together.
Rather than duplicating the purchasing departments, the receipt
departments and the paying of invoices, there was benefit in coming
together. But I think that there is much more incentive to do
that nowadays because foundation trusts have the freedom to do
it, and obviously if we save money through purchasing through
a consortium or through NHS Supply Chain we can retain that money,
and that money is then the resource that we have to buy the equipment
we are talking about today.
Stella Creasy: I appreciate that but—
Q97 Ian Swales: May I
ask a question, Stella, just to help you here? You say you can
buy at three levels, in effect. Have you tested that on any specific
item of equipment that is the subject of this report?
Sir Robert Naylor: We haven't
done in recent years because, as Mike said, from 2000 to 2007
most of the new equipment was purchased through a nationally negotiated
set of contracts organised by the Department of Health. Then the
framework agreement came along, as Andy has described, so we haven't
gone off either of those two purchasing mechanisms for this equipment
for at least the past decade.
Q98 Amyas Morse:
I just wanted to turn, Sir David, if I may, to the subject of
accountability, and not yours actually. You were saying to us
that we need to try harder to persuade trusts, that we need to
get them to listen to us, and I hear an unspoken, "We really
want them to do more of this and we are trying to persuade them
to do it." Would you recommend to the Committee that it appropriately
consider the accountability of the individual accounting officers
who are running the trusts, if they are getting a lot of good
practice recommended to them and for some not terribly clear reasons
are not taking up on it? Is that something that the Committee
should be taking account of? In other words, apart from your persuading
and communicating and your wooing of them, which I gather all
of you are trying very hard to do, isn't there some element of
duty involved that we might give consideration to as well?
Sir David Nicholson: There are
a whole lot of issues in there, aren't there?
Chair: Don't evade it in your answer.
It's quite a good question.
Sir David Nicholson: I wasn't
proposing to evade it; I couldn't possibly do that. It is frustrating
on a number of areas that we cannot make more progress in this
area. Part of it is because there is a lack of information, so
it is quite difficult to get anything. You get a group of trust
chief executives together to try to explain to them the benefits
of the supply chain and bulk purchasing, and they all sit there
and say, "Actually, I can get a better deal myself directly
with the company, thank you very much." But you never really
know, because of the problem we have with information, whether
that is true or not. As we heard at a previous hearing, we are
doing a lot of work to get that information transparent and open
so that everyone publishes and everyone has to do that.
Q99 Mr Bacon: It sounds
like you could do with some assistance from an auditor going in
and checking the actual prices that are being paid.
Sir David Nicholson: But this
is a broader issue than just this. Information is the issue. If
you are looking at what extra you would ask, I think the kind
of approach of comply or explain is a better approach to do that—a
more transparent approach and one more likely to get people, I
think, on board and make it happen. That seems to be the issue.
Amyas Morse: I find that a very
helpful phrase. I take it from what you are suggesting that that
would be a reasonable basis to approach the question of accountability
of those who are running the class, to say, "If you've got
a very good reason why you're not doing it, okay, I can understand
that, but if there isn't a very good reason, we are entitled to
expect that you can demonstrate that you have used best practice."
Sir David Nicholson: I think that
is right.
Sir Robert Naylor: If I could
add a comment, as a provider my job is to run my trust and provide
the best care I can for my patients in the most efficient and
effective way, but I do that in the context of a contract with
a commissioner. I see no reason why, through commissioning, there
cannot be requirements placed in contracts to say there was an
expectation to do these things and if these things are not done
there is a need to explain that. That is exactly the kind of relationship
that foundation trusts have with Monitor. We have lots of guidance—very
few instructions, but lots of guidance—but if we do not
follow the guidance, the onus is on me as the accountable officer
to explain why we have not been following that guidance. That
seems to me to be quite a strong lever over an organisation like
mine to actually comply or then to have to go to all the trouble
of having to explain why we are not complying.
Q100 Mr Bacon: I want
to ask about the question of specification, which Mr Brown touched
on very briefly, although I suspect it is a clinical question
to some extent. At least in the first instance, I would like to
direct it to Sir Mike Richards. Plainly, one of the things that
might inhibit a trust from going into a central purchasing arrangement
is that it will want to be sure that, at the precise moment it
decides to replace a machine, it gets the newest, best machine
available—perhaps not the very newest, because it will want
to be sure that it is tested and works. You can see that that
might be a problem.
The second issue is that I suppose you might
have—whether they are radiologists or consultant oncologists
inside a hospital—different views on which bell and whistle
of the machine is absolutely essential and whether it is okay
to have the Volvo, whether some people will even be arguing for
the Mini, or whether you absolutely have to have the Rolls-Royce.
Views about that will differ inside different foundation trusts.
In so far as there is such a thing as a bog standard MRI machine—you
said that these machines are getting better—how difficult
a problem is the spec and how it is changing to surmount and overcome
the difficulties in getting better prices through central purchasing?
Are we wrong to suppose that there would be considerable gains
from—I know this is a crude phrase—obtaining large
purchases of a bog standard MRI machine, if there is such a thing,
which are still not being obtained, not for reasons of spec, but
just for reasons of lack of co-ordination?
Amyas Morse: To add to that, 84%
of MRI machines are in fact standard. That is the information
in the report.
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