An Introduction to Procurement for Pharmacy
Staff
Procurement and Distribution Interest Group
Why 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."
How 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
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?
Contents
Module 2
1. How can I help the pharmacy ordering office to obtain a new medicine?
2. Why should I talk to procurement when I don’t work there?
3. What training is available in pharmacy procurement
4. Industry can offer value added services. Are these ok to access and how should we
deal with them ?
5. What is the best way to manage reps?
6. How do we go about sourcing a product out of hours when procurement staff are
not here?
Contents
Module 3
1. How do we decide which suppliers to use?
2. Who is this CMU I keep hearing about?
3. Just what is OJEU?
4. Why should we worry about destabilising the market? Can’t we just award to the
cheapest tender?
5. Can we sell pharmaceuticals to GP’s or the community, other hospitals or to
abroad?
6. How does licensing work?
Module 1
1. Why do all the packs of medicines in the dispensary change every so often?
2. A few of the packs we buy are labelled poorly. Why is this and why do we
still buy them?
3. Why do we keep getting shortages?
4. What is Homecare and what is it used for?
5. What is a Parallel Import (PI) and why do we use them?
6. People talk about “supply chains” all the time. What is that and what is the
difference between ordering from a wholesaler and other routes
7. How are medicines priced as they are?
Question 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.
Contract Areas in UK
Division
London
East of England
North West Division
Contains
All trusts within the M25
Essex, Bedfordshire, Herefordshire, Suffolk Peterborough and
Norfolk.
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.
Lincoln, Leicester, Derby and Nottingham
East Midlands
South Central
South East
South West
The following are administered
separately.
Northern Ireland
Scotland
Wales
Buckinghamshire, Berkshire, Oxfordshire and Hampshire
Kent & Medway Surrey and Sussex
Bristol, Dorset, Cornwall and Devon, Somerset, Wiltshire and
Gloucestershire.
Northern Ireland
Scotland
Wales
CMU buyers and procurement pharmacists bring different
types of expertise to the contracting process.
Expertise of Pharmacists
Clinical use of medicines
Suitability of products for use
Quality Assurance aspects of medicines
Market (competition, introductions)
Local issues around choice of medicines
Local usage patterns
Local Clinical Pharmacy Networks
Expertise of CMU Buyers
Legal aspects of procurement
Administrative backup for contracting
Alternative methods of purchasing
Market (competition, introductions)
Market price information (from national
contract system PHATE)
Typically 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 2+2 model. Suppliers or
the NHS retain the right to terminate the contract at the end of each 2-year period.
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.
The 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.
Revision Questions
1.
2.
3.
4.
What is the role of CMU in the procurement of medicines?
What is The 2+2 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_121260
Paper “Summary of Procurement Contracting Arrangements May 10” Kevan Wind
- document linked on Procurement Training page of PDIG website
Question 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.
Important Points Around Packaging and Labelling
1. 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.
2. 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.
3. 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.
4. 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.
Additional Resources
NPSA guidance on labelling
http://www.npsa.nhs.uk/corporate/news/npsa-alerts-healthcare-workers-to-new-guidance-for-injecting-adults-andadolescent-patients-with-intravenous-cancer-drug/
MHRA guidelines on labelling of medicines
http://www.mhra.gov.uk/home/groups/comms-ic/documents/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
Revision Questions
1.What information is required by procurement staff in order to make correct decisions
around products used in CIVAS or cytotoxic reconstitution units?
2.How are the labelling and packaging of medicines assessed by secondary care?
Question 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.
Factors Involved in Recent Failures of the Pharmaceutical Supply Chain
a)Increased Need for Profitability
The 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.
b)Reduction in Price of Generics
The 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.
c)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.
Factors Involved in Recent Failures of the Pharmaceutical Supply Chain
d) Reduced Stock Holding
The 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.
d) Increase in Manufacturing Standards
Regulating 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).
Factors Involved in Recent Failures of the Pharmaceutical Supply Chain
g. Lack of Good Usage Information
Whilst 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.
Potential Solutions
A)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.
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.
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. These
documents are normally produced
by MI staff and posted on NELM.
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
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@GK/JTHYST/PSYSJN
Questions
1.Name three causes of shortages
2.What is the PMSG and why is it important in managing shortages?
3.What is Solutions and how could it be useful?
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.
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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 all
medicines homecare in a trust.
NHS needs to improve both clinical
and financial governance of homecare
Additional resources
CMU Homecare Group Website
http://cmu.dh.gov.uk/homecare-medicines-review-group/
Hackett Report
http://cmu.dh.gov.uk/homecare-medicines-review-group/
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 don’t 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:1.Manufactured (often in the UK).
2.Exported by manufacturer to intended market.
3.Supplied to wholesaler in intended market.
4.Sold to parallel importer by wholesaler in
intended market.
5.Re-imported back into the UK.
6.Repackaged or relabelled with
UK label and PIL according to licence.
7.Sold to UK market.
Parallel Imports
In primary care where community pharmacists are paid according to the Drug
Tariff prices, profits from PI’s 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.
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.
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 PI’s 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.
Purchasing Arrangements
To overcome the potential difficulties, & maximise the benefits, purchasing of
PI’s is normally undertaken in the following way: 1.Parallel Imports will be purchased on regional contracts administered by NHS
CMU. This ensures they are advertised & tendered in a formal manner.
2.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.
3.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.
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/2004/Pages/140604b.aspx
Questions
1.List the steps that are involved in a parallel import being available to the UK
market.
2.Name four advantages of parallel importing to the NHS
3.Name four disadvantages of parallel importing to the NHS.
Question 6
What is the difference between ordering from a wholesaler and other routes
The pharmaceutical
supply chain is complex.
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.
Features of Direct vs Wholesaler Distribution
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.uk/
CMU Wholesaler contract specification.
Questions
1.Name three members of the pharmaceutical supply chain.
2.What is an agency scheme?
3.Give two advantages to a trust of a wholesale distribution model.
Question 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
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 Schemes
“Hide” 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 Discounts
A 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.
Different types of discount
Type of Discount
On Line Discount
Retrospective Discount
Advantages
Available immediately
Able to pass on to directorates easily
Simple and easy to deal with
Prices look good.
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Free Stock

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Settlement or Prompt
Payment Discount
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Disadvantages
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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
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
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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.
Gives access to lower prices than
would otherwise be possible (PPRS)
Popular to companies

Allows larger discount than would
otherwise be the case
Payment relatively simple (although
still have to reconcile the payments
vs. deliveries).

Costly and difficult to price goods correctly
on pharmacy computer system
Can be difficult to allocate discount fairly
to users.
Have to pay money in advance (thus
creates cash flow problems)
May end up paying more than necessary if
ordering activity low.
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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/ourwork/commercial/pprs/Pages/default.aspx
Explanation of the Competition Act – document linked on Procurement Training page of
PDIG website
Questions
1.Explain the PPRS and how it affect prices in the UK
2.Why might a company accept low sales in the UK as a result of a high market
price?
3.Explain the difference between on line and retrospective discount.
Kevan Wind 14.2.12.