Title: Procurement Basics
1Procurement Basics
An Introduction to Procurement for Pharmacy
Staff Procurement and Distribution Interest
Group
2Why Should I Spend Time on this Programme?
A word from David Webb...
"Welcome to the procurement training programme.
My name is David Webb and I'm Director of
Specialist Pharmacy Services for South East
England.
Procurement is an essential, though often
underrated, element of medicines optimisation.
This training resource developed by Kevan Wind,
Procurement Specialist for London and East of
England (based at Southend Hospital NHS), and
supported by the Guild of Healthcare Pharmacists
Procurement and Distribution Group will help you
develop a better understanding of the issues in
procurement and the relevance of this activity to
clinical practice. Getting 'the right drug in the
right form at the right dose to the right patient
at the right time' is predicated on timely access
to cost-effective medicines."
3How This Works. The course is split into three
modules to make it easier to complete. You can
undertake them all at once or one at a
time. In any order. Together the modules
build to give you a basic understanding of the
way medicines are procured in secondary and
tertiary care in the NHS. Why we do it that way
and how it fits in with the other parts of the
pharmacy service elements and particularly
medicines optimisation and management. We have
tried to anticipate and answer the questions non
procurement staff would ask about the way we do
things so the course is structured as a series of
questions that we hope we have then given the
answers to. Thanks I hope you enjoy this
activity and more importantly learn
something. Kevan Wind
4- Contents
- Module 1
- Why do all the packs of medicines in the
dispensary change every so often? - A few of the packs we buy are labelled poorly.
Why is this and why do we still buy them? - Why do we keep getting shortages?
- What is Homecare and what is it used for?
- What is a Parallel Import (PI) and why do we use
them? - People talk about supply chains all the time.
What is that and what is the difference between
ordering from a wholesaler and other routes - How are medicines priced as they are?
5- Contents
- Module 2
- How can I help the pharmacy ordering office to
obtain a new medicine? - Why should I talk to procurement when I dont
work there? - What training is available in pharmacy
procurement - Industry can offer value added services. Are
these ok to access and how should we deal with
them ? - What is the best way to manage reps?
- How do we go about sourcing a product out of
hours when procurement staff are not here?
6- Contents
- Module 3
- How do we decide which suppliers to use?
- Who is this CMU I keep hearing about?
- Just what is OJEU?
- Why should we worry about destabilising the
market? Cant we just award to the cheapest
tender? - Can we sell pharmaceuticals to GPs or the
community, other hospitals or to abroad? - How does licensing work?
7- Module 1
- Why do all the packs of medicines in the
dispensary change every so often? - A few of the packs we buy are labelled poorly.
Why is this and why do we still buy them? - Why do we keep getting shortages?
- What is Homecare and what is it used for?
- What is a Parallel Import (PI) and why do we use
them? - People talk about supply chains all the time.
What is that and what is the difference between
ordering from a wholesaler and other routes - How are medicines priced as they are?
8Question 1 Why do all the packs of medicines in
the dispensary change every so often? To
ensure the NHS achieves best value for money
around procurement, and sources medicines from
the most efficient suppliers, medicines in the
NHS secondary care service are purchased
collectively within contracts organised by The
Commercial Medicines Unit (CMU). This section of
the Department of Health (formerly PaSA or NHS
Supplies) employs pharmacy buyers to manage our
contracts for us. The buyers are not pharmacists
but experts on procurement and help pharmacists
manage the contracts. Contracts are binding on
Trusts as well as suppliers. For this reason in
the unusual event of a trust not being able to
comply with a contract, the reasons should be
given (ideally at the time of adjudication) to
CMU for explanation to the supplier involved.
9Contract Areas in UK
Division Contains
London All trusts within the M25
East of England Essex, Bedfordshire, Herefordshire, Suffolk Peterborough and Norfolk.
North West Division Lancashire, Liverpool, Cheshire, and Staffordshire
North East Division Northumberland, Newcastle Gateshead, Tyneside, Sunderland, Durham Darlington, Teeside.
Yorkshire Yorkshire. NB Yorkshire undertake their own tendering but cooperate with the rest of the NHS on procurement matters.
West Midlands Birmingham, , Shropshire, West Bromwich, Coventry and Northants.
East Midlands Lincoln, Leicester, Derby and Nottingham
South Central Buckinghamshire, Berkshire, Oxfordshire and Hampshire
South East Kent Medway Surrey and Sussex
South West Bristol, Dorset, Cornwall and Devon, Somerset, Wiltshire and Gloucestershire.
The following are administered separately.
Northern Ireland Northern Ireland
Scotland Scotland
Wales Wales
10CMU buyers and procurement pharmacists bring
different types of expertise to the contracting
process.
Expertise of Pharmacists Expertise of CMU Buyers
Clinical use of medicines Legal aspects of procurement
Suitability of products for use Administrative backup for contracting
Quality Assurance aspects of medicines Alternative methods of purchasing
Market (competition, introductions) Market (competition, introductions)
Local issues around choice of medicines Market price information (from national contract system PHATE)
Local usage patterns
Local Clinical Pharmacy Networks
11Typically contracts are tendered every two years.
(Some are shorter when we expect rapid market
changes (e.g. in a highly competitive
market). However so long as both supplier and
pharmacists are happy, a contract can be extended
once (to make four years). This is the so called
22 model. Suppliers or the NHS retain the right
to terminate the contract at the end of each
2-year period.
12- Advantages of the Model
-
- Preferential and transparent prices are made
available to the NHS. - Products are assessed for quality (labelling and
packaging) and competition is maintained in
critical markets. - Administration input reduced for NHS Trusts, NHS
CMU and the pharmaceutical industry. - Option for longer-term contracts with suppliers
should facilitate stable prices and continuity of
supply. - Less changes for dispensaries.
- Suppliers and the NHS can place more emphasis on
contractual performance which will be one of the
criteria used for contract extension.
13The details of the contract are held centrally by
CMU on their website (The CMU Pharmacy
Catalogue). Access is password controlled and
specific to the hospital of the user.
Important Aspects to Consider As Contracts
Change Before adjudicating the contract. Are
there any local clinical issues that need
resolution? Are all CIVAS, cytotoxic
reconstitution, non sterile manufacturing and
prepacking issues resolved with respect to
offers? After the contract has been
adjudicated. Do any price changes affect
decisions around prepacks? Do any price changes
affect decisions around formulary choices? Do any
pack changes mean products have to be stored
differently? Do any pack changes mean ward stock
lists need adjusting? Do any pack changes mean
ward staff need to be notified about using
different diluents etc.
14- Revision Questions
- What is the role of CMU in the procurement of
medicines? - What is The 22 model?
- What aspects should be considered once a new
contract has been decided? - What is the Pharmacy Catalogue and how can it be
accessed? -
- Additional resources
- CMU Website http//cmu.dh.gov.uk/
- NHS standard terms and conditions of contract for
the purchase of goods and supply of services
http//www.dh.gov.uk/en/Publicationsandstatistics/
Publications/PublicationsPolicyAndGuidance/DH_1212
60 - Paper Summary of Procurement Contracting
Arrangements May 10 Kevan Wind - - document linked on Procurement Training page of
PDIG website
15Question 2 A few of the packs we buy are labelled
poorly. Why is this and why do we still buy
them? Answer The adjudication process is a
compromise, the democratic decision of a number
of trust representatives and what is ideal for
one site may not match another. The following
issues are considered to be important.
16Important Points Around Packaging and Labelling
-
- All packs are assessed by the NHS QA team using a
standard risk assessment tool. This categorises
risk into high medium or low. High risk
products are only awarded if there is no
alternative and QA would then issue a Safe
Medication Bulletin to highlight the specific
issue and advise about mitigation techniques. - If you find a pack that has issues you should
report it to your pharmacy office who can comment
about alternatives and inform CMU about the
problem. - Some requirements of the NHS (e.g. extended
stability information for injections) are not
available on the SPC but are stored on another
CMU website called PharmaQC where they are known.
- There is little primary research to indicate what
type of packaging reduces picking errors. It is
not clear whether all packs should look identical
(to force users to read labels) or whether
differentiation between packs (by means of colour
or design) can help. Colour coding is NOT
recommended. The National Patient Safety Agency
(NPSA) have issued a Design for safety document
on labelling.
17- Additional Resources
- NPSA guidance on labelling
- http//www.npsa.nhs.uk/corporate/news/npsa-alerts-
healthcare-workers-to-new-guidance-for-injecting-a
dults-and-adolescent-patients-with-intravenous-can
cer-drug/ - MHRA guidelines on labelling of medicines
- http//www.mhra.gov.uk/home/groups/comms-ic/docume
nts/publication/con007554.pdf - Link to PharmaQC
- http//cmu.dh.gov.uk/medicines/pharmaqc-database/
- Risk Assessment Tool (QA Group)-
- document linked on Procurement
- Training page of PDIG website
- Safe Medication Bulletin example
- document linked on Procurement
- Training page of PDIG website
-
18Question 3 Why do we keep getting
shortages? Answer
The marketplace for medicines is very different
to other types of market in that there are an
unusually small number of customers with an
unusually large number of suppliers.
Pharmaceuticals are developed by manufacturers
after years of research. These medicines are
protected until patent expiry (and thus supplied
from a single source). Subsequently their
manufacture is augmented by generic competition.
The customer for this market is almost
exclusively the NHS. These facts make the
procurement of medicines a unique challenge. It
is a tribute to the competence of the
manufacturers, distributors and the
pharmaceutical purchasers that continuity of
supply has in the most part been maintained.
There are now external factors at work however
that has resulted in an increasing level of
supply failures. It is important that these
factors are understood by all those in the supply
chain so that appropriate action can be taken.
19- Factors Involved in Recent Failures of the
Pharmaceutical Supply Chain - Increased Need for ProfitabilityThe costs of
drug development are increasing as regulating
authorities require more information on products
before licensing. There is an increased
requirement on pharmaceutical companies to deal
in profitable pharmaceuticals. This means that
companies either discontinue or divest themselves
of products at an earlier stage than has been
practice. These processes disrupt the supply
chain. - Reduction in Price of GenericsThe NHS has been
effective in awarding contracts for generic
medicines on the basis of price. The suppliers
of these products have concentrated on price
rather than supply performance. Moreover generic
companies can only recoup sufficient profit if
they contract for large volumes and hence strain
their manufacturing capacity. - Reduced Number of Suppliers in Markets The
reducing returns on generic drugs has resulted in
a rationalisation of the number of suppliers.
There are now single suppliers for many critical
products (Adrenaline, Glycopyronium, and
Diamorphine). Obviously any disruption to these
single suppliers leads to failures in supply. -
20Factors Involved in Recent Failures of the
Pharmaceutical Supply Chain
- Reduced Stock HoldingThe process of reducing
costs by lowering stock holdings has been
on-going in most logistic operations. However
the user demand for pharmaceuticals is probably
more variable than most, and the consequences of
failure more severe. There is also a lack of
investment in up to date technology, especially
in the NHS. This means that extrapolating
savings made in markets like foods and the car
industry are not always appropriate. -
- Increase in Manufacturing StandardsRegulating
authorities rightly demand increasingly stringent
standards in the manufacture of medicines.
Raised manufacturing costs lead to
rationalisation of production facilities. Some
products are made in a single site globally.
This increases fragility of supply. For example
a recent Caribbean hurricane lead to a temporary
global shortage of a branded antibiotic as the
worlds supply was manufactured there. Some
manufacturers are struggling to meet standards
leading to supply failures (e.g. vaccine supply
to UK).
21Factors Involved in Recent Failures of the
Pharmaceutical Supply Chain
- Lack of Good Usage InformationWhilst primary
care has accurate national (PACT) data on use.
For hospitals (secondary care) the CMU provide
usage information achieved through the PharmEx
database which uploads purchase information from
trusts. However gaps exist because not all
homecare orders are made through the pharmacy
systems and if a service is outsourced to a
commercial provider usage information may not be
collected.
22- Potential Solutions
- Prevention
- More coordination of procurement decisions.
- The Pharmacy Market Support Group (PMSG) is
tasked with making strategic awards on NHS
medicines contracts to try and maintain
competition in the specialist hospital market
which is particularly prone to market
consolidation and hence a higher risk of
shortages. -
- The PMSG membership reflects, or has access to,
an appropriate range of expertise drawn from the
NHS. The PMSG liaises with representatives from
contracting groups engaged in tendering
processes. -
- The PMSG has developed a work plan which focuses
on developing strategies for critical product
areas where there are concerns about matters such
as continued availability and competition in the
market.
23- The terms of reference of the PMSG are
-
- anticipate critical generic product shortages and
to propose and co-ordinate preventative measures - prevent potential market monopolies being
developed - encourage new entrants into critical markets
- assist in managing branded products that have
just come off patent - monitor the effectiveness and advantages of
contracting in the UK hospital sector through
benchmarking, audit and quality assurance ensure
items are market tested regularly - inform new and existing suppliers about the
contracting process - develop strategies to discourage unsuccessful
suppliers from undermining contracts - co-ordinate contracting with Wales, N.I. and
Scotland.
24- B) Fire Fighting
- Once a significant shortage has developed, CMU,
the Department of Health and senior procurement
staff (called the Rapid Alert Group) cooperate to
develop strategies to overcome the difficulties.
- These could involve the provision of advice to
trusts on recommended plans of action. - These may involve-
- Obtaining alternative products from overseas
markets. This may be unlicensed or need
relabelling before use. - Liaison with alternative manufacturers (either
commercial or NHS sterile manufacture) to boost
production. - Local strategies within trusts to
- preserve stock.
- Therapeutic alternatives. Thesedocuments are
normally produced by MI staff and posted on
NELM. -
25 A useful resource is produced by UCLH. This
website (Solutions) gives details of current
shortages and suggestions of alternative sources
of product. See www.uclhsolutions.com
26- Additional Resources
- CMU Website Strategic Groups
- http//cmu.dh.gov.uk/medicines/strategic-groups
- Solutions website
- http//www.uclhsolutions.com/
- PDIG talk by Andy Alldred on NPSG PMSG. How
do we add value? - http//www.ghp.org.uk/groups/UAS_at_GK/JTHYST/PSYSJN
-
- Questions
- Name three causes of shortages
- What is the PMSG and why is it important in
managing shortages? - What is Solutions and how could it be useful?
27- Question 4. What is Homecare and What is it used
for? - Answer
- Homecare is a way of delivering specialised
service and medicines direct into a patients
home. - Drivers for Homecare Services
-
- Provision of extra services to patients in their
home that may deliver real quality of life
improvements. - Reduction of workload to secondary care trusts
pharmacy departments. - Ability of tertiary referral centres to treat
patients back in the community who are
geographically distant from the centre. - VAT is not payable on services whereas it is on
goods into secondary care. Thus these services
can be funded out of tax revenue. - It may be less problematic to obtain services
from homecare companies than to provide them in
house. - NB Many of these drivers are also addressed by
the outsourcing outpatients model. This is
outside the scope of this module but PDIG is
currently doing some work on this. -
28Current position of homecare services
- A rapidly growing market in England with 1
billion worth of medicines being distributed in
this way - Established companies with new market entrants
- The NHS needs to be a more co-ordinated customer
to maximise potential of homecare - Chief Pharmacist responsible for allmedicines
homecare in a trust. - NHS needs to improve both clinicaland financial
governance of homecare
29Additional resources CMU Homecare Group
Website http//cmu.dh.gov.uk/homecare-medicines-re
view-group/ Hackett Report http//cmu.dh.gov.uk/h
omecare-medicines-review-group/
30- Question 4
- What is a Parallel Import (PI) and why do we use
them? - Answer
- The answer is that because of the relative
strength of the pound vs. the euro in 2012 we
dont but this could change in the future. - A parallel import is a product that has been
imported into the UK from another part of the EU
under the free movement of goods act. Before
they can be imported however they have to be
licensed in the UK as a parallel import. (see
licensing later). So the chain of events that
ensues is as follows- - Manufactured (often in the UK).
- Exported by manufacturer to intended market.
- Supplied to wholesaler in intended market.
- Sold to parallel importer by wholesaler in
intended market. - Re-imported back into the UK.
- Repackaged or relabelled with UK label and PIL
according to licence. - Sold to UK market.
31Parallel Imports In primary care where community
pharmacists are paid according to the Drug Tariff
prices, profits from PIs go to that pharmacy
business. As a result of this the Prescription
Pricing Authority (PPA) imposes a 10 clawback on
prices for branded medicines to account for this.
Any cost savings made in secondary care however
go back to the NHS. It is important that
Pharmacy Services recognise the potential
benefits of parallel imports but also the risks.
Good governance need to be in place to ensure
that any activity is measured and responsible
and maintains patient acceptability safety,
availability of medicines, as well as offering
cost effective procurement of medicines.
32- Advantages Disadvantages of Parallel Importing
- Price
- PI price may be significantly lower than UK
price. - UK price may rapidly fall to match PI price.
This may leave an existing arrangement, which
must be honored in which goods are more expensive
than new UK price. - Price may be subject to an adjustment for
exchange rate changes. - It may be difficult to identify the profit
margins being taken by traders. -
- Product
- Product may be less acceptable to clinicians or
patients. Existing suppliers may exploit this
factor. - Product may be labeled confusingly (e.g.
different languages on blister). - Product could have different appearance to UK.
- Product may be counterfeit.
- Product may have been stored inappropriately at
some point in its history. -
33- Advantages Disadvantages of Parallel Importing
- Supply
- Supplies may be limited or only available
intermittently. - As a result of the extended supply chain
arrangements (and often action by the
manufacturers to limit supply)there are more
supply problems with PIs than conventional
products. - Supply chain is complicated, and delivery times
may be long and unpredictable. -
- Purchase Arrangement
- Parallel importing may compromise existing
purchasing arrangements. - It may be difficult to satisfy auditors that
these types of entrepreneurial arrangements are
arranged with probity. - Arrangement may involve significant capital
outlay (if product has to be bought in bulk). - Payments to traders will need to be made more
quickly than usual (normally within 7 days). - Relationships with manufacturers may be damaged.
-
- Licensing
- May take considerable time to obtain licences for
specialist hospital products.
34- Purchasing Arrangements
- To overcome the potential difficulties,
maximise the benefits, purchasing of PIs is
normally undertaken in the following way - -
- Parallel Imports will be purchased on regional
contracts administered by NHS CMU. This ensures
they are advertised tendered in a formal
manner. - All contract items supplier companies are
investigated by Quality Assurance. Checks are
made on supplier premises facilities as well as
individual products. Special checks are made on
labeling. - Only those products with a current British or
European Licence (standard or for parallel
importation) will be considered. An active
response from the EMEA will be required before a
European licensed product is considered
acceptable to e imported.
35- Additional Resources
- Link to European Association of
Euro-Pharmaceutical Companies. - www.eaepc.org
- ABPI website explanation of parallel imports
- http//www.abpi.org.uk/media-centre/newsreleases/2
004/Pages/140604b.aspx -
- Questions
- List the steps that are involved in a parallel
import being available to the UK market. - Name four advantages of parallel importing to the
NHS - Name four disadvantages of parallel importing to
the NHS.
36Question 6 What is the difference between
ordering from a wholesaler and other routes The
pharmaceutical supply chain is complex.
37 The Pharmaceutical Supply Chain. Pharmaceutical
wholesalers are fairly unique in that they
provide a twice daily delivery to primary and
secondary care pharmacies and stock most products
required by their customers (full line
wholesalers). They are paid by the
manufacturers for doing this by being given 15
of the cost of the goods. Thus for a community
pharmacist 85 of the price goes to the
manufacturer and 15 to the wholesaler. Often
part of this discount is given back to secondary
care (often as much as 11) as an incentive to
use that particular wholesaler. Wholesalers also
distribute contract products (at contract prices)
on behalf of some manufacturers to secondary
care. These products do not qualify for
discount. Agency Schemes Some manufacturers do
not allow wholesalers to distribute their
products. These have to be purchased direct from
the manufacturer. The supply position has become
more complex lately with direct to pharmacy
schemes. Using these manufacturers use
wholesalers as a distributor rather than selling
the product to them direct. This allows the
manufacturers to pass on a lower distribution fee
to wholesalers. GSK, Pfizer and many other
companies operate these agency schemes through
a restricted number of wholesalers.
38Features of Direct vs Wholesaler Distribution
39- Additional Resources
- BAPW http//www.bapw.net/
- AAH http//www.aah.co.uk/
- Alliance http//www.alliance-healthcare.co.uk
/ - Phoenix http//www.myp-i-n.co.
uk/ - Mawdsleys http//www.mawdsleys.co.u
k/ -
- CMU Wholesaler contract specification.
-
- Questions
- Name three members of the pharmaceutical supply
chain. - What is an agency scheme?
- Give two advantages to a trust of a wholesale
distribution model. -
40Question 6 How are medicines priced as they
are? Answer There are a number of factors that
impact on the pricing of pharmaceuticals in the
UK. 1. Pharmaceutical Price regulation Scheme
(PPRS) The PPRS covers all branded licensed
medicines marketed in the UK so long as the
manufacturer is affiliated to the ABPI and has a
turnover over a certain threshold. PPRS is a
voluntary agreement between the branded pharma
industry and government regulating the market
price of pharmaceuticals. Under this scheme,
company profits are pegged to investment in
capital and research, and thus prices are
controlled, although companies have the right to
modulate prices within their portfolio. The
PPRS also limits the number of changes to pricing
policy that are allowed, and hence provides
market price stability (at least of community
list price). This is the principle method of
cost containment of prices for the UK government,
although other would argue it allows pharma
guaranteed profits.The PPRS did not cover
generic medicines. Currently the DoH has a
separate scheme that caps the price of many
generics. This generic pricing scheme is
negotiated with the generic manufacturers
41- 2. Reference Pricing
- Governments around the world regulate the price
of pharmaceuticals by a variety of means. One
involves referencing the price to the UK price.
As a result of this manufacturers prefer to have
a high UK price, even if this affects their sales
in the UK. - This could then mean though that the drug is not
cost effective, particularly if it undergoes a
NICE appraisal. As a result of these two
conflicting imperatives there has been an
invention of elaborate pricing mechanisms in the
UK. - a) Patient Access SchemesHide the real price
of the medicine by giving users a rebate or
capping the doses that are paid for according to
the details of the scheme (clinical effect,
length of treatment etc.) - b) Retrospective DiscountsA payment is made
back to the user based on volume used or some
other measure. - NB NICE and PPRS allow patient access schemes but
not all patient access schemes go through NICE. -
42 Different types of discount
Type of Discount Advantages Disadvantages
On Line Discount Available immediately Able to pass on to directorates easily Simple and easy to deal with Prices look good. Difficult to identify separately Difficult to keep for pharmacy May not have earned it, leading to retrospective penalties May be less value than retrospective discount Not always offered. Savings not as obvious
Retrospective Discount Easy to separate money into a separate account Easy to identify how much saved Only receive discount once earned Cheaper to supplier than on line discount Not easily traced Have to wait for money Difficult to pass on to users in a fair way May vary depending on performance Complicated to keep track of.
Free Stock Gives access to lower prices than would otherwise be possible (PPRS) Popular to companies Costly and difficult to price goods correctly on pharmacy computer system Can be difficult to allocate discount fairly to users.
Settlement or Prompt Payment Discount Allows larger discount than would otherwise be the case Payment relatively simple (although still have to reconcile the payments vs. deliveries). Have to pay money in advance (thus creates cash flow problems) May end up paying more than necessary if ordering activity low.
43- 4. Competition Act
- The Competition Act has been introduced by the
EEC to limit unfair practices such as loss
leading and predatory pricing. After a
pharmaceutical manufacturer (Napp) was
prosecuted, this has had the effect of limiting
the range of prices available within the market. -
- Additional Resources
- PPRS Explanation on DoH website
www.doh.gov.uk/pprsjuly.htm - PPRS explanation on ABPI website
http//www.abpi.org.uk/our-work/commercial/pprs/Pa
ges/default.aspx - Explanation of the Competition Act document
linked on Procurement Training page of PDIG
website - Questions
- Explain the PPRS and how it affect prices in the
UK - Why might a company accept low sales in the UK as
a result of a high market price? - Explain the difference between on line and
retrospective discount. -
- Kevan Wind 14.2.12.
44End of Section 1