Tag Archive for: Health

(Pic; A&E on a Saturday night)

Incentivisation is a fascinating topic. In a business context, for example in terms of incentivising the right behaviour by suppliers, it can require knowledge of psychology, contract law, finance, economics, and operations management. Most of us in procurement will have seen examples of it going wrong too – indeed, I dedicated a whole chapter in the Bad Buying book to dodgy incentivisation that drove unexpected or simply bad supplier performance.

In the UK’s National Health Service (NHS), the way “the centre” (usually the Department of Health or NHS England) incentivises hospitals and other Trusts that deliver services is very similar to a commercial buyer/supplier relationship. Basically, the centre gives money to Trusts and they agree to aim for certain performance levels.

Now I’ve looked up the cvs of  Sarah-Jane Marsh, National Director of Integrated Urgent and Emergency Care and Deputy Chief Operating Officer, NHS England, and Julian Kelly, Deputy Chief Executive and Chief Financial Officer, NHS England. To be honest, there is nothing in them to suggest that these two are stupid. And yet they have launched one of the daftest and most inappropriate incentivisation-related initiatives I’ve ever seen.

It is in effect a “competition” through which Trusts can receive additional funding for capital expenditure in 2024/5. This is what they say in their letter to Trusts this week.

We recently met with ICB and acute trust leaders to discuss how we best work together to meet the challenge of delivering the agreed target of 76% A&E 4-hour performance during March 2024 so that more patients are seen, treated and discharged in a timely way….

In addition we are now announcing three other routes through which trusts will be eligible for additional capital funding in 2024/25:

  1. The 10 trusts delivering the highest level of 4-hour performance (that means seeing people within 4 hours of their arrival at the accident and emergency department) during March will each receive £2 million.
  2. The 10 trusts who deliver the greatest percentage point improvement in March (compared to January 2024 performance) will each receive £2 million.
  3. The next 10 trusts who deliver the greatest percentage point improvement in March (compared to January 2024 performance) would each receive £1 million.

(It continues…)

So where do we start with this? As I say, I look on it as a supplier incentivisation exercise, and on those grounds I would immediately point out a few major flaws .

  • It was issued on March 12th, and relates to performance in March. So how can Trusts possibly have time to make any significant or lasting changes to their processes to improve A&E within days?  
  • Shouldn’t capital expenditure be allocated based on where it will get the best return rather than on some sort of “Hunger Games trial by A&E”?  You would put money into a collaborative venture with a supplier based on its potential return, not on some spurious “performance measures”, wouldn’t you?
  • Doesn’t relating much of it it to improvement mean those Trusts that were particularly awful in January have more chance of winning then the consistently good Trusts? That seems unfair.
  • How do you stop “gaming” of the process and the data?  I’d pay a few local layabouts to come into A&E with a “bad finger”, see and discharge then in two minutes, then rinse and repeat until my figures look amazing.
  • Indeed, this could lead to patient care that is driven by finance, not needs. See the easy cases in A&E, not those with their leg hanging off…

This strikes me as politically driven, surely the only explanation as to why Kelly and Marsh would take this deeply flawed step. Ministers desperately want some good news from the NHS now in case there is a Spring election. Officials must have been instructed to do this – that must be it? If not, if this really is an NHSE internal initiative, then the NHS really is in even deeper trouble than we thought.

Incentivisation is a topic that probably isn’t discussed in procurement as often as it should be. I find it fascinating, as it encompasses a mix of finance, economics, contract law, psychology, low cunning…  How we construct contracts, the success measures we set for suppliers, how we reward their good behaviour or performance and punish the opposite – these all feed into how they behave.

Suppliers generally behave rationally given the incentives they are presented with. In the Bad Buying book, there is a whole chapter on the topic, because I found so many interesting case studies about incentives going wrong.

We see another example in a slightly different context in the UK at the moment, where the dental element of the National Health Service has failed in its core objective – to keep the nation’s teeth in good condition. A BBC investigation in 2022 found that nine out of ten dental practices weren’t accepting new NHS patients.  In some regions, that figure was 98%. That has led to more and more patients turning up at hospitals with terrible dental problems that require urgent treatment – which puts more pressure on over-stretched hospitals of course. Tooth decay is the most common reason for hospital admission of young children, shockingly. And 20,000 adults and 60,000 children were hospitalised last year to have teeth extracted under general anaesthetic. 

There are stories of people pulling out their own teeth, or making homemade dentures, fillings and crowns. We seem to have gone back to Victorian times. And it is all because the contract for dentists incentivises the profession in a manner that has led to that situation. The NHS contract does not pay dentists based on their actual effort, and does not allow them to make what they consider a reasonable income. So they have learnt that treating only private patients will reduce their patient numbers, but overall, the dentist will make more money. More and more practices are taking this view, unfortunately, making totally rational decisions.  

Funding for dentistry has been cut under this government. And one of the incentivisation issues is that the dentists’ contract does not always relate the income they make to the amount of work they do. So, simplifying the problem, their pay is broadly based on a fee for each course of treatment they deliver to an individual. So they receive the same amount whether they do one filling for me or six.

There is a vicious circle here – if people can’t find an NHS dentist easily, by the time they do, they probably do need more work doing, so they are even less attractive for the remaining NHS surgeries.  The current contract actually goes back to the days of the last Labour government, but the Tories have done nothing to address this issue in recent years – until now, when they see it becoming a potential election issue this year.

One solution would be to increase the supply of dentists, which in classic economic terms should drive prices down in the market – pushing more back into NHS work perhaps. But the five-year training scheme means this is impossible in the short or medium term. Another possibility would be forcing dentists to do NHS work for a certain number of years after qualifying, given they benefit from the taxpayer subsidising their training. Neither option has been tried.

Last week, the government announced incentives to encourage more dentists to do NHS work, but the profession doesn’t think this will work. We will see. But devising a contract that incentivises the behaviour the government (and the taxpayer) want to see should surely not be impossible.

However, politicians have struggled with contracts and incentivisation for the medical profession for years. I remember the new GP contract for first line “family doctors” that was agreed by the Labour government back in 2004. My friend who was a GP told me that he and his colleagues were astonished how favourable it was to them. When he first read the letter about his new payments and contract, he honestly did not believe it.

Anyway, I am fortunate to still have an NHS dentist, although I’m also fortunate to be able to afford private additional treatment when I need it. But the current situation is a disgrace. When we see people travelling from the UK to the Ukraine – a country at war – to get dental treatment, you know something has gone badly wrong with the UK situation.

Last month, the UK National Audit Office published “NHS Supply Chain and efficiencies in procurement”, a report looking particularly at the National Health Service’s Supply Chain organisation. Supply Chain (SC) acts as a central procurement “organisation”service provider”, putting in place contracts for a huge range of goods and services that can be used by hospitals and other NHS organisations.

It has a complex history, going back 50 years or so, which we won’t fully explore here. But after its perceived failure during the pandemic in terms of supplying PPE in particular, it has been going through yet another re-organisation or “transformation”.  The operation of various “category towers” had been outsourced – although the outsourced service providers were actually other NHS procurement organisations in most cases. But now the category work is being brought back in house.

As we might have expected, the report paints a mixed picture but on balance, I would call it a somewhat worrying report. There is still a lot of mistrust between SC and procurement leaders in many health trusts. Much of that is historical, but more needs to be done.

One example of this is the “eDirect” service. SC operates a logistics service, delivering to NHS sites from its own warehouses. But it also runs “eDirect”,  a direct delivery services from suppliers to the NHS – more of a “dropshipping” model, as it were. However, that has not been working well. The report says that procurement route accounted for around £1.5 billion of orders via Supply Chain in 2022-23, but more than a quarter of orders were delivered late, by an average 22 days, between June 2022 and March 2023. I hate making facile comparisons, but Amazon would be horrified if it was providing that level of service.

The mistrust also comes from issues such as the measurement and reporting of “savings” – basically, SCL reports big numbers to justify its existence, but many Trusts don’t recognise the numbers or feel that SCL is really delivering tangible savings they can see in their own organisation. In 2019, the Department of Health set Supply Chain a target to deliver £2.4 billion savings by 2023-24. SC told the NAO that it had exceeded its £2.4 billion savings target as of 2022-23, however NAO did not (or could not) validate this and there seems some confusion over how the rather weird savings methodology was initially agreed.  

So it was interesting to see just yesterday (January 31st) Jacqui Rock, Commercial Director at NHS England, announcing a new unified savings measurement process for the NHS. We’ll see if this solves the problem.

Clearly, there is a lot of change going on in the Supply Chain organisation, and it has not all been plain sailing. I was worried around a year ago when two very good senior executives left Supply Chain suddenly (and not to go to better jobs) – not a sign of a happy ship. So how does NAO rate the effectiveness of the transformation programme? More concerns here;

Transformation is not being run as a multi-year programme, instead it is managed on a year-by-year business cycle in line with NHSE’s business planning process. Supply Chain has not articulated clearly defined or measurable objectives with a detailed and costed timetable for delivery. There are gaps in Supply Chain’s senior leadership team and an over-reliance on the Chief Executive Officer.  Recruitment of senior staff is being slowed by time taken for the civil service approvals process and the addition of an extra layer of approval for high-cost posts created by its move to NHSE …”

There are two sides to every story of course and some Trusts (and people within them) are guilty of pursuing procurement independence for their own reasons. But those reasons aren’t always selfish and the report is disappointing in the sense that it suggests that Trusts should make more use of Supply Chain, without really explaining why that would be a good thing, other than assuming bigger buyers get better deals.

Supply Chain estimates that trusts spend approximately £3.4 billion outside of its function. Trusts are largely free to purchase goods outside Supply Chain. Supply Chain estimates that, as at September 2023, trusts’ annual procurement spend through Supply Chain was £4.5 billion with £3.4 billion spent outside of Supply Chain’s function”.

But is this lack of use of SC a good thing or a bad thing?  Trusts cannot be forced into using Supply Chain given their legal independence, so there is always a tensions here, and I do wonder sometimes whether the NHS is just too big. I’ve argued for years – not just in the NHS context – that the benefits of aggregation and centralisation in procurement are almost always over-estimated. Trying to do effective “central procurement” in an organisation that employs 1.4 MILLION people in the UK is perhaps just too much to expect. I wouldn’t take on the Supply Chain CEO role for £1 million a year and a knighthood, so I do have sympathy for the team there, but maybe this is just an impossible task.   

Over the holiday period, we heard a lot more about the case of Medpro, the firm that is being taken to court by the UK’s Department of Health and Social Care over the supply of PPE, gowns in particular, which allegedly turned out to be unfit for purpose. The beneficiaries of this, the high profile Michelle Mone, a member of the House of Lords, and her husband Doug Barrowman, produced a documentary arguing their side of the case, and gave an interview on the BBC. This came after the couple had originally denied publicly that Medpro was anything to do with them, with Mone lying to the press and then getting lawyers to issue threatening letters to various publications.

The general response to all this new self-generated publicity was not very favourable for the couple. The interview was called a “car crash” and was likened to the Duke of York’s famous “I was at Pizza Hut and I don’t sweat” interview with Emily Maitlis in 2019. There are some questions though which still need answering on the government’s side of the story.

  • Why is this the only legal case that the government appears to be pursuing? There have definitely been other examples of quality issues, and cases of firms that look at least as dodgy as Medpro winning major PPE contracts. Is there a logic to this or has the government chosen to pursue Medpro because of Mone’s profile, know there would be more publicity given her involvement and that would show the authorities were taking action?
  • Mone claims that she has an email from an official on the PPE team saying, “the gowns have been approved by technical”.  But that seems to be pre-delivery so the approval was before anyone had seen the actual delivered product, which seems odd. Maybe there were samples? But the gowns were apparently inspected by Uniserve, the logistics provider appointed by the government, from July 2020 in China.  And £122 million was paid out in the summer of 2020 for the gowns, which would usually suggest the buyer is content with what has been delivered. 
  • The government says that random testing in April 2022 found that 54 of the 60 randomly selected Medpro gowns weren’t sterile. But that is almost two years after delivery. Even if those tests were accurate, Medpro lawyers may argue that the gowns might have become unsterile in the intervening almost two years, perhaps because of sub-optimal storage conditions?
  • As a buyer, if I have inspected the goods, told the supplier they meet my specification, and handed over the payment as per the contract, then it is pretty unusual, and very difficult to go back a year or two later and say, “hang on a minute, I’ve had another look and I don’t like that stuff I bought from you after all”. In my experience, the supplier would be likely either to laugh or (if they valued my business) say something vaguely sympathetic such as, “Peter, you said it was fine – you must appreciate we can’t really do anything at this stage, terribly sorry”.

However, the fact that Mone lied about her and Barrowman’s involvement and personal gains from the deal is a major issue working against them. There is also the question of alleged bribery. This has been part of the investigation, but there has been no hint as to who it was that Medpro might have  bribed. Their political contacts? PPE procurement people? Other officials?  Flows of money are usually relatively easy to check, unless it is literally £50 notes in a brown envelope, so that’s still an  interesting unanswered question.

In any case, this is likely to be a big story through 2024, not least because Labour will emphasise “Tory sleaze” when it comes to the UK election. Labour has also promised to appoint a “covid corruption commissioner” to look into PPE contracts, so this story will no doubt run and run.

The Sunday Times has really got into its investigations recently, and after its excellent expose of the UK’s HS2 rail programme, last week it looked at another issue with a definite “Bad Buying” angle.

Babylon Health, set up in 2013, was going to revolutionise healthcare. Ali Parsa, the founder, is a serial entrepreneur whose previous venture, Circle Holdings, also had some issues (he stepped down from Circle before he set up Babylon). Circle ran Hinchingbrooke Hospital in England, the first fully outsourced hospital. Initially, it seemed to go well, and Parsa was a highly visible cheerleader for the operation, but after a couple of years, Circle pulled out leaving the NHS to pick up the pieces.

But with Babylon, Parsa seemed to have a real product that could benefit everybody. It was an AI powered diagnostic platform that could tell you what health problem you had after a short online consultation. The “app” scored better than doctors on medical tests, Parsa claimed, and could provide excellent diagnosis and care at a fraction of the current cost. For the permanently hard up health services in the UK and US, it seemed too good to be true – and of course it was. However, Parsa used political connections to win business, as the Times reported. Between 2015 and 2022, the company had 22 meetings with government ministers.

“Babylon’s deals with the NHS, which saw it receive at least £22 million over the past three years alone and helped it to woo investors, were in part due its links with the Conservative Party and the backing of Hancock, the health secretary from 2018 to 2021. The Tories received more than £250,000 in donations from individuals and companies with stakes in Babylon Healthcare, including Hancock, whose failed Tory leadership bid in 2019 received £10,000.”

However, the newspaper’s investigation found high-pressure sales techniques and some claims for the product that were simply false. For example, at the Royal College of Physicians in 2018, Parsa showed how Babylon’s AI used a phone’s camera to analyse the facial expression of a female patient to pick up subtle cues that a doctor might miss. This is how the Times describes it.

“This is a real consultation,” Parsa said on stage. “This is what we have built. None of this is a show.”

It was a show. The facial-analysis tool, a prop for a demo, never made it to market. The “patient” in the video was an executive assistant at Babylon… This sleight of hand was a small example of a culture fixated on form over substance, a trait common in Silicon Valley but dangerous in healthcare.” 

Indeed, the much vaunted AI was little more than a decision tree written in Excel based on doctors’ knowledge. Soon, sceptics began testing it and found that it could easily mistake a heart attack for a less serious panic attack, or an ingrowing toenail for gout. I remember various people on Twitter talking about how dangerous it was and calling out Babylon as a con.

But the firm managed to raise $1.2 billion from investors between 2013 and a stock market float in 2021, and at one point Babylon was valued at some $4.2 billion. But after that float, some badly judged deals started affecting the firm’s finances, just as more expert voices also pointed out the technical failings. For instance, the Royal Wolverhampton NHS Trust signed a ten-year deal for a digital-first GP service that would allow patients to use Babylon’s digital tools. But Babylon cancelled the contract in 2022, saying it just could not afford to invest in the service.

Finally in August this year, the firm collapsed into administration and the remnants were picked up by a couple of trade buyers. Parsa has pretty much disappeared, as has most of his own fortune.

It all reminds me a little of the Theranos scandal – the fake blood testing equipment launched by Elizbeth Holmes (who is now in a US jail). Babylon was not as fake as that, and Parsa is not accused of wrongdoing, but the principal of something that everyone wanted to work, but really was built on sand, is the same. And there is also FOMO – the “fear of missing out”. This is an extract from the Bad Buying book section on Theranos.

“Buying failure come into this because retailer Walgreen’s spent $140 million with Theranos over seven years, hosting around 40 blood-testing centres in their stores. They got very little benefit from that and recovered some $30 million after a lawsuit and settlement following the eventual disclosure of the issues.  Amazingly, as Bad Blood reports, Walgreens’s own laboratory consultant, Kevin Hunter, had seen early on that something wasn’t right with Theranos. But the executive in charge of the programme at Walgreen’s said that the firm should pursue the pilot because of the risk that CVS, their big competitor, would beat them to a Theranos deal.

Again, buyers wanted to believe that something was real, even in the face of mounting evidence that it wasn’t. This relates back to comments around believing the supplier … it is easy for a naïve or gullible buyer to be sucked into believing what the supplier wants them to believe.

Suppliers will take advantage of this tendency – whether it is the relatively innocent “yes, we can install this new IT system in six months” or the more dangerous “this equipment will find hidden bombs”.  And FOMO – the fear of missing out to the competition – is something else suppliers will use, and that can lead to bad decisions.  It’s not just physical goods either. The top consulting firm selling its latest “strategy toolkit” will mention that the potential client’s biggest rival is also very interested”.

One day, there is little doubt that a real AI-powered system will be really useful in the world of medical diagnoses. So maybe Parsa was just ahead of his time?  But that is two of his “innovative” businesses that have cost health services time and money without much benefit in return. So I’d be very careful next time he announces he has a great idea…

There was an unhappy reminder of the pandemic and the PPE Bad Buying saga recently when several hundred pallets of PPE (mainly aprons, it seems) were discovered apparently dumped in Calmore, near Testwood Lakes Nature Reserve in the New Forest (near to Southampton). No-one knows how it got there…

Some of the material involved was identified as coming from a supplier caller Full Support Group (FSG). Now there is an interesting story about that firm. It was relatively late in the PPE saga when it became public that it was in fact the largest single supplier of PPE in the UK into the health system, with estimates that close to £2 billion had gone to FSG to buy huge quantities of PPE.  It was not immediately apparent though because the firm was already a major supplier to the NHS pre-Covid, so the pandemic purchases were made using existing framework contracts, which did not show up on registers of new contracts.  (That’s a weakness of the transparency rules by the way, but let’s save that for another day).

I had some personal communications with the founder and CEO of the firm, ex-nurse Sarah Stoute, and I’m still not really clear whether FSG and its leaders are amongst the heroes of the pandemic or the villains. In terms of heroes, the owners took huge risks when they saw the pandemic starting, and committed to buy PPE mainly from China at their own risk in late 2019 and early 2020 as prices started rising. That could have literally bankrupted the firm if the market had moved the wrong way but those stocks helped the NHS get through the crisis – and of course prices went up and up, benefiting the firm’s bottom line.  

The owners also tried to advise the NHS and the PPE buyers about the suitability or otherwise of some of the new sources of PPE that started coming on board. Now that might be seen as self-serving – “buy from us rather than these unsuitable new suppliers”. But Stoute was proved right on some occasions where (as we now know) the government bought PPE that was unsuitable or didn’t meet specifications – or was bought from firms that turned out to be run by crooks, basically.

The counter argument basically runs that the owners made huge profits as shortages grew and bought themselves a Caribbean villa for £30 million, an equestrian centre and a country mansion in the south of England for £6 million.  As I say, they took substantial risks, but maybe buying villas wasn’t the most tactful thing to do quite so quickly. I think I might have waited a couple of years at least!

But back to this dumping of stock. Clearly that was nothing to do with FSG or with the NHS or individual NHS trusts. However, we do know that the NHS some time ago appointed firms to help with disposal of unwanted PPE, most of which was sitting in shipping containers around the country (some was still being held by suppliers to).

So the most likely explanation is that someone was contracted to dispose of PPE, they probably then passed on the task to another firm, and maybe another one again, util it ended up with a bunch of criminals who offered a cheap price for disposal then simply dumped it.

Sara Stoute has also said that the reason this stock is surplus is that it wasn’t stored correctly – their lawyer said, “the PPE became unusable because of the way it was stored after delivery, not due to wrongdoing on their part”. If that is true, that is another indictment around the whole story of mismanagement we’ve seen unfortunately from the beginning of this saga.  As well as the money (and time) wasted, the disposal issue highlights the “wasted” carbon emissions embedded in the product and now the pollution and waste disposal risks and costs around it.  Not a happy tale, all in all.

Imagine you are a Head of Procurement. Workload is growing and you are suffering from staff shortages. Your team can’t keep up. So you go to your boss with a proposition. You and a handful of the team are prepared to work a few evenings in order to catch up with the work. But the firm will pay your own limited company, Procurement Excellence Ltd, on an outsourced service basis. Maybe £100K’s worth or work should help get up to date.

It would be interesting to see the reaction of the firm, but I suspect the Head of Procurement might not be in their post for long after that. However, a parallel situation in the UK’s health service has led to hospitals contracting with their own medical staff in exactly that manner. And that cannot be acceptable.

A report in the Observer over the weekend revealed that UK NHS health Trusts are paying businesses owned by their own doctors to perform services, often using the Trust’s own facilities.

“At Manchester University NHS Foundation Trust, three top surgeons including a clinical lead and a former clinical director are the owners of Fortify Clinic , a company offering “end to end” services to tackle waiting lists. The firm was paid £1.3m by the trust for work in 2022.”

In another case, a Sheffield firm owned by three consultants (doctors) was sold to a private health provider for £13 million after winning a number of these “insourcing” contracts. Trusts are facing long patient waiting lists and declining standards of care and public health in the UK following Covid. Strikes by nurses and ambulance staff don’t help either. So these private firms carry out operations “out of hours”, in the evenings and weekends, often using the Trusts’ own facilities and sometimes even some of their own staff. But the firms are paid as external suppliers.

One driver of this is the pension situation for high-earning individuals, including many doctors. The “lifetime cap” on pension pots means that a doctor might face a crazy marginal tax rate if they earn “too much” and their pension contributions breach the limit. But if the money flows into a business, it can be managed in a more tax-efficient manner, presumably.

Although the pension situation is pretty stupid, it does apply to everyone, not just doctors. The government should address it – but doing do just for medics would rightly bring cries of “unfair” from others in a similar situation. But the tax position is no excuse for hospitals agreeing to this approach, which is fraught with problems.

The conflicts of interest are obvious and significant. Trusts are awarding contracts – without competitive process, I suspect – to their own “friends”.  The decision-making “buyers” are almost certainly close to those benefitting from the contracts. There are also conflicts for the medics involved. There may be less incentive for instance to work harder, more efficiently or rapidly if you know you will get a substantial contract and more income if the backlog of work grows rather than shrinks. And are the hospitals charging these firms for the use of their facilities? They should be, otherwise external private healthcare providers could cry “foul” for unfair procurement.

I worked in a factory one holiday when I was a student, making insulation for pipes (I’m pretty sure it was asbestos, but that is another story…) Work pretty much stopped after lunch on many Friday afternoons, just to make sure there was overtime for those who wanted it on Saturday. I’m not suggesting a surgeon would do the same quite as overtly, but even if they resist the temptation, a conflict of interest has been created.

It is also just another step towards the privatisation of the NHS. What is interesting is that this is not being driven by some secret political strategy. It is being driven by incompetent political management, resulting by staff within the NHS taking action in their own interest (and sometimes that of the patient too) that is leading to a de facto two-tier health service. It has already happened in dental services; now we are seeing it more widely, as more and more people who can afford it “go private”.

If you see a consultant (doctor), and they tell you that the waiting list within the NHS is 6 months, but they could do it for you privately next week, in the same hospital, using the same excellent facilities, for a few thousand pounds, what do you say? But if the doctor’s firm is making large amounts of money out of this, can they really offer unbiased advice – “Doctor, will my condition get worse if I wait six months for NHS treatment”? What are they going to say?

Finally, are procurement teams involved with this at all?  I’d like to think some might have pointed out the st issues. If not, perhaps they should start now.

The UK’s National Audit Office recently refused to sign-off the accounts of the Department of Health and Social Care (DHSC) for 2021-22.

A lack of sufficient, appropriate audit evidence and significant shortcomings in financial control and governance” meant that NAO head Gareth Davies was unable to provide an audit opinion on the accounts of the UK Health Security Agency (UKHSA).  Even taking the “challenging context” into account, Davies called the UKHSA’s inability to produce auditable accounts “unacceptable”.

UKHSA replaced Public Health England in October 2021. That was a challenging time because of Covid, but even so, the financial management of the new organisation appears to have been chaotic.  

UKHSA was unable to provide the NAO with sufficient evidence to support balances relating to £794m of stock, and £1.5bn of accruals from NHS Test and Trace, which were transferred from DHSC, or to support £254m of stockpiled goods transferred from its predecessor organisation, Public Health England (PHE). DHSC had not resolved issues with its management systems, financial controls and records, which the C&AG reflected in his report on DHSC’s 2020-21 accounts”.

Internal controls were lacking; there weren’t even effective bank reconciliations, something the smallest business would expect to have in place. “Shortcomings in the introduction of a new accounting system, combined with a reliance on temporary staff, meant that UKHSA was not able to provide the NAO with evidence to support key balances and transactions in the accounts”. So goodness knows what was happening in terms of errors or even fraud at that time.

Moving on to the wider Department, NAO “was unable to obtain the evidence needed to support £1.36bn of stock, due to issues related to inventory management”.

DHSC did not carry out end of year stock counts to check items including PPE (personal protective equipment) and Covid lateral flow tests, “as it was unable to access 5 billion items (which cost £2.9bn) that were stored in containers”. Whilst that might be excusable, or at least understandable, there was also a lack of adequate processes to check stock in warehouses, which is less so.

There was also a write-down of £6bn in terms of pandemic related purchases. £2.5bn of that is items already purchased but no longer usable, or where the market price is now way below what was paid. £3.5bn was a write-down on PPE, vaccines and medication which DHSC has committed to purchase, but no longer expects to use.

Taken together with the £8.9bn written-down in its 2020-21 accounts, over the last two financial years, DHSC has now reported £14.9bn of write-down costs related to PPE and other items”. 

And if you are thinking, well, at least that’s it, there is more salt to rub into the wounds.

DHSC estimates that ongoing storage and disposal costs for its excess and unusable PPE will be £319m. At the end of March 2022, the estimated monthly spending on storing PPE was £24m.”

So that’s £15 billion of taxpayer’s money gone. It has been in effect a huge transfer of wealth from the UK economy and citizens to a range of largely non-UK manufacturers and of course to a whole bunch of crooks, conmen, exploitative agents and middlemen, many with political connections, and the occasional genuine business person, all involved in the supply chain somewhere.  Every issue of Private Eye seems to have more examples – taken from the company accounts that are now emerging – of firms making huge margins, often 50% or more, on the PPE, tests and so on that were supplied during the pandemic.

We’ve discussed the reasons for this disaster many times over the last couple of years A failure to prepare and mis-management of the emergency PPE stocks; catastrophically bad demand planning which led to huge over-ordering;  incompetence in terms of drawing up specifications; a lack of even basic negotiation, cost analysis and supplier due diligence; political interference and nepotism; these drivers all feature. But as the NAO lays out the cold, hard numbers, we can say with confidence that when we construct the league table for the all-time costliest failures in UK public procurement, this is right at the top.

Reports in the Guardian last week suggested that Michelle Mone, business woman and member of the British House of Lords, benefited directly from PPE contracts which the government awarded during the pandemic.

Mone and her husband had denied that they gained personally from £200 million worth of PPE contracts, following disclosures that they lobbied politicians including Michael Gove for PPE Medpro to be awarded the business. That enabled the firm to secure a place on the government’s “VIP lane”, which prioritised certain companies that were offering to supply PPE. Many of the firms in that group were recommended by politicians, although others came via recommendations from civil servants, advisers or other prominent people.

Mone’s lawyer last year said she “did not benefit financially and was not connected to PPE Medpro in any capacity”.  But already there was evidence that she was involved, and now leaked documents produced by the bank HSBC appear to show that her husband, Douglas Barrowman, was paid at least £65 million from PPE Medpro. Funds were then distributed via offshore accounts and trusts, and some £29 million of that ended up in a trust benefitting Mone and her children.

Separately, PPE Medpro is being investigated for fraud by the National Crime Agency. It is not clear if that is linked to the government’s dispute with the firm over the quality of gowns supplied as part of the contract, which did not meet quality standards (according to the NHS).

Leaving aside the specifics on Mone and Barrowman, who appear to encapsulate the moral bankruptcy of many of the PPE “middlemen” and agents who exploited the pandemic to make excess profit, the case does highlight again some of the weaknesses in PPE procurement. It is easy to be wise after the event of course, but with billions made by some very dodgy people, it is not unreasonable to ask what went wrong. Here are a few of the key issues – we have previously discussed much of this of course!

  1. The PPE procurement team was slow to ensure that the specifications provided to suppliers were exactly what NHS users needed. That meant it was not the suppliers’ fault that some unusable goods in the early days of Covid did meet those specifications. In other cases, it may be that the supplier was at fault, but the waters are muddy. And whilst time was of the essence, surely samples of items should have been provided before huge consignments were shipped and paid for. It also took a while to get basic supplier due diligence in place.
  • The idea of having some sort of prioritised potential supplier system to evaluate offers was in itself reasonable, given so many firms were approaching the buyers. But it should have been a totally transparent process, with the “rules” in the public domain, and it should not have been based primarily on “knowing the right people”.  A simple pre-qualification process with a handful of questions would have worked better than what was put in place. I am also amazed that no senior civil servant spotted that the focus on MPs’ mates would look unfair or worse once exposed. The “Private Eye” test (how will this look on the front page of the Eye / Guardian / FT)  should have highlighted the issue here.
  • Again, whilst acknowledging the pressure to secure supply was incredible, I don’t understand why buyers didn’t delve a little deeper into the cost structures of the suppliers and establish how much margin was being made by those intermediaries. That would have enabled at least some attempt at negotiations to moderate the margins. The lack of curiosity there fuels the conspiracy theories that the buy-side was complicit in helping firms and individuals to rip off the public purse. Just saying “oh, we paid the market price” – which was in effect itself determined by whatever price was offered by those exploitative firms – was not good enough really.

Finally, I have still seen no real explanation of why the estimates of PPE requirements early on were so far out and led to the huge over-ordering of stock, with at least £4 billion worth wasted. That is still costing us now, as PPE is sold off cheaply, or even burnt, whilst we still pay millions for storage. It may be that there was nothing malicious or incompetent behind that, but it would be good to understand how we went so wrong. After all, that was a clear error, one that cost the taxpayer billions.

It’s usually  a sign of desperation in terms of the public finances (in the UK anyway)  when politicians suddenly start talking about “efficiency savings”. It’s even more serious when they start building them into future forecasts of public expenditure before identifying where the “savings” might actually come from.  

There is nothing wrong with looking for savings from procurement or internal efficiencies, an any good manager should be doing so continuously. But if you really wanted to run such a proper programme across the UK government, you would need to plan and think carefully about how you structure and resource that, which areas you will focus on and so on.  I was involved in the Gershon efficiency programme way back in the mid-noughties and whilst it probably did not deliver everything it wanted to, it was a serious attempt to address difficult issues such as cross-departmental collaboration and a structured category management approach to central government buying.

Last week, Rishi Sunak, the Chancellor, announced a new efficiency drive. “The drive will be spearheaded by a new Chancellor-chaired “Efficiency and Value for Money Committee” that will cut £5.5 billion worth of waste – with savings used to fund vital public services”.

Set up a committee – I’ve always found that’s a great way of making savings! But when you look closely at the announcement, it seems to apply mainly to the NHS and the arm’s length bodies (“Quangos”).  They “will be expected to save at least £800m from their budgets”.  The Arm’s Length Body Review will see savings supposedly come from “better use of property, reduced reliance on consultants, increased digitisation and greater use of shared services, as well as the use of benchmarking to drive efficiencies”.

What has the last government been doing all these years to leave these savings on the table?!  It’s a good job the Conservatives are now in power to sort it out!  Hang on a minute – they’ve been in office for over a decade now. It’s taken quite a while to realise that issues such as “reliance on consultants” are costing the taxpayer a fortune.  

Meanwhile, the “£4.75 billion worth of savings agreed with the Department of Health and Social Care will come into effect financial year 2022/23.”  So together that gives us £5.5 billion in “savings”, which more than covers the £5.5 billion target previously mentioned. So are central departments not covered by this? It’s not clear.  We may come back to where exactly these huge health savings are going to come from.

The other element of the announcement is this. “The Treasury will also launch a new Innovation Challenge to crowdsource ideas from civil servants on how government can reduce waste and improve public services, with winners selected this Summer and best ideas becoming Government policy…. A 2015 Innovation Challenge received 22,000 responses with 16 measures implemented”.

I predict there will be many ideas from civil servants, and the most common will be “stop Ministers coming up with stupid f***ng policy ideas that will never work and cost a fortune”.

Consider great historical examples such as NPfIT in the NHS, ID Cards, privatisation of probation, FireControl, Universal Credit, most PFI programmes, the aircraft carrier programmes … etc.  Maybe it would also help if we didn’t give PPE contracts to friends of friends and then waste billions because of over-buying and not checking the specification.

But back to the new “efficiency programme”. We’ll know quickly if it really means anything when we see if and how it is to be resourced, and how often this committee is going to meet. The methodology of measuring “savings” is also key. I’m sure the DHSC will find a way of showing Treasury that it made the “savings”, yet somehow it managed to overspend its budget at the same time… and yes, I am deeply cynical about all this!