As the NHS tightens its belt, new opportunities are arising for healthcare SMEs that can offer targeted clinical and business solutions. Sreevidhya Praveen of Frost & Sullivan looks on the bright side of NHS reform.
Recent announcements from the Department of Health indicate that the UK Government is attempting to save £11 billion of the NHS budget by 2012-13 through 'efficiency savings'. One of the ways to achieve these savings is driving down the cost of procurement. The Government has said: "Up to £1.5 billion will be saved through securing goods and services at best prices from the manufacturers."
The Association of British Healthcare Industries (ABHI) also believes that the majority of NHS efficiency savings can be made through cost reductions to the serve/acquire processes, rather than through simple price reduction.
Other significant announcements from the Government include: targeted savings by the NHS of £4.35 billion by 2012-13, support for SMEs, and measures to encourage investments. The NHS, which plays a pivotal role in the UK healthcare market, is visibly encouraging more innovative enterprises to step in to the medtech space.
The Chief Operating Officer at NHS Supply Chain has stated that the organisation is focusing on electronic streamlined routes for procuring products from suppliers, which means they are trying to minimise paper-based documentation. NHS Supply Chain will engage with clinicians, the DH and academic institutions during the procurement process to ensure that products meet current healthcare needs.
Medical technology suppliers are aware of the new DH and NHS commercial operating model, but are still working out its business potential. Figure 1 summarises some of the business priorities for medtech SMEs in this diverse and challenging, but potentially rewarding, market environment.
Figure 1: Business Environment Orientation for SMEs
DFM opens doors
At present, the NHS functions on a Full Service Vendor (FSV) procurement model whereby more than 80% of medical products are manufactured offshore and then purchased through suppliers. The delivery of this service adds to the overall cost of these products.
The Direct From Manufacturer (DFM) programme directs the NHS to save a considerable amount on certain product areas in the healthcare market. The programme develops a direct sourcing strategy that will result in the NHS working directly with manufacturers.
DFM means the NHS will go directly to offshore manufacturers that have the capability and expertise to produce medical products, and work directly with them. This initiative will help the NHS to have a more transparent supply chain, and can save purchasers money on product costs.
NHS Supply Chain widens net
NHS Supply Chain procures and supplies a wide range of diagnostic, therapeutic and interventional equipment. The list includes most equipment used in operating theatres, dental surgeries, ENT departments, orthopaedics and rehabilitation. While earlier NHS Supply Chain concentrated on capital equipment in medical imaging (such as MRI and CT scanners) as well as a range of disposables, now the agency has broadened its scope to general medical equipment such as stretchers, operating tables and theatre lighting.
NHS Supply Chain's Strategy and Procurement Director, Mark Patterson, said recently that the NHS is focused on what it needs to deliver, and that for uncovered product categories a business case will be submitted to the DH to outline the delivery of services. He noted that in some areas, such as renal and cardiology services, the NHS has a small number of contracts that do not cover the full range of products - but that hospital trusts are planning to widen their contract coverage in renal and cardiology services over the next few years.
With a growing focus on innovative devices in procurement, manufacturers will need to dive deeper into medical research areas to succeed in the healthcare arena.
Silver lining for SMEs
Globally, public sector expenditure is under serious pressure. But there is an upside for the SMEs with their lower overheads, local knowledge and great flexibility to win NHS contracts.
ABHI's Budget brief 2010 said: "The Government will deliver public sector spending changes in central departments by agreeing departmental targets to increase the proportion of central government procurement spend that goes to SMEs by 15% throughout the supply chain." Based on current expenditure, that would mean another £15 billion of business for the SME segment across the public sector.
The Government is recommending hospital departments to make more use of SMEs, including flagging contract opportunities as SME-friendly and increasing training to institutionalise SME-friendly procurement practices.
Moreover, the European Commission has brought in measures to assist innovative and growing SMEs in the healthcare industry. This includes making finance systems more SME-friendly to facilitate the financing of start-ups, innovation and growth as well as measures to generate more risk capital investments.
Private sector contracts are often won on price. The Government will want to see evidence of specific competencies, quality of the service or product, and compliance with health and safety and other industry standards before inviting private sector organisations to tender.
It is important for SMEs to know their customers and learn how to tailor their bid to each buyer's expectations. No two public sector bodies or departments within an NHS organisation function in the same way. They follow a basic procurement model, but have their own approaches to suppliers or manufacturers.
A clear knowledge of individual public sector requirements can allow SMEs to outperform their larger industry competitors.
Sreevidhya Praveen is a Senior Analyst, Healthcare for growth consultants Frost & Sullivan. For more information, visit www.frost.com.
Globally, public sector expenditure is under serious pressure. But there is an upside for the SMEs with their lower overheads, local knowledge and great flexibility to win NHS contracts.
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