Module 3
Contents
1. How do we decide which suppliers to use?
2. Who is this CMU I keep hearing about?
3. 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?
Question 1
How do we decide which suppliers to use?
Answer
Supplier Evaluation or Vendor rating
The purpose of vendor rating is two-fold. Firstly, it provides the
buyer with objective information on which sound judgments
relating to supplier selection can be made. Secondly, it enables the
buyer to provide the supplier with an indication of their
performance, and where improvement if necessary can be made.
It is important that suppliers are involved in the design of
assessment techniques, so their performance is measured accurately
and results can be interpreted effectively to
facilitate improvement. The aspects of
supplier performance that should be
considered for monitoring are summarised
in 'The Ten C's of Effective Supplier
Evaluation':
The 10 C’s
Competence
of the supplier to undertake the tasks required.
Capacity
of the supplier to meet the purchaser's total needs.
Commitment
of the supplier to the customer in terms of quality cost & service
Control systems in respect of inventory, costs, budgets, people & information
Cash resources & financial stability ensuring that the selected supplier is
financially sound & able to continue in business into the
foreseeable future.
Cost
commensurate with quality and service.
Consistency
the ability of the supplier to deliver consistently and, where
possible, to improve levels of quality and service.
Culture
the supplier and purchaser share similar values.
Clean
the supplier and his products should satisfy legislative and
other environmental requirements.
Communication the supplier communicates efficiently and transactions are
conducted electronically.
Many purchasers develop an approved suppliers list
that limits the suppliers they will deal with to those
that have passed an accreditation process. However
the view of CMU is that this contravenes the
Competition Act (see additional resources paper on
Competition Act).
This is a piece of European Legislation which seeks to
control anticompetitive behaviour by either buyers or
sellers.
It is CMU’s view that an approved suppliers list may
represent anticompetitive use of the NHS monopoly
supplier position. We therefore have developed a list
of inspected suppliers. These suppliers have been
inspected by QA according to a risk assessment
template agreed by the National QA Group.
Information about these suppliers is shared within
the NHS so only one inspection is required.
Questions
1. Describe supplier appraisal.
2. Name at least 5 of the 10 C’s
3. Why may it be anticompetitive to use an approved
suppliers list.
Additional resources
1. See Separate Paper on Competition Act - document linked on
Procurement Training page of PDIG website
2. CIPS Guide to Supplier Evaluation www.cips.com
Question 2
Who is this CMU I keep hearing about?
Answer
The Commercial medicines Unit (CMU)
Founded in 1991 as NHS Supplies, CMU is the purchasing
arm of the NHS for England (similar organisations exist in
Scotland Wales and Northern Ireland). CMU’s aim is to
achieve best value for the NHS on the goods and services it
purchases. As part of a reorganisation the NHS Logistics (or
stores) side of NHS supplies was split from the contract
administration section which now operates independently
(as NHS Supply Chain outsourced to DHL).
CMU acts as a centre of knowledge and expertise in purchasing and
supply for the NHS.
The procurement of pharmaceuticals in secondary care is governed by
European public procurement legislation which imposes strict procedures
and timetables on government procurement activities (See below). CMU
staff have expertise in this legislation.
Most secondary care contracts for pharmaceuticals are administered by
CMU. The different purchasing groups are assigned a CMU buyer or
buyers who administer the contracts within that group. The buyers and
the pharmacists work closely together sharing their complementary
expertise.
Some degree of national coordination of the purchasing groups is provided by
the National Pharmacy Supplies Group (NPSG), where regional representatives
agree on strategic options. More recently CMU have moved to encourage ecommerce within the pharmaceutical supply chain, and attempted to manage the
pharmaceutical market more strategically through the Pharmacy Market Support
Group (PMSG).
Questions
1.What is the difference in function between NHS Logistics and CMU?
2. What are the complementary skills of pharmacy and CMU staff?
3.What is the function of the PMSG?
Additional resources
CMU Website http://cmu.dh.gov.uk/
NPSG and PMSG How Do We Add Value Andy Alldred
http://www.ghp.org.uk/groups/UAS@GK/JTHYST/PSYSJN
Question 3
What is OJEU?
Answer
OJEU relates to The Supplies Directive 93/36/EEC which covers the
purchase, lease, hire or rental of goods or equipment. It is also referred to as
European Public Procurement Legislation and governs all public
procurement including pharmacy. The legislation is meant to ensure a level
playing field for all potential suppliers within the EU for any public
procurement activity over a certain value. All contracts to the value of a set
fee (around 170,000 Euros (£100,000) must be advertised in OJEU (Official
Journal of the European Union) – under the Supplies Directive 93/36/EEC
There are three types of OJEC adverts available
Open Procedure – Must allow 52 days for tenders to be completed, all
suppliers requesting a tender must be allowed to
participate.
Restricted Procedure – Allow 37 days for request to tender and then a
further 40 days for the tenders to be completed
and returned. We can be selective about which
suppliers receive a tender.
Negotiated Procedure – No notice following an unsuccessful
open/restricted procedure, otherwise 37 days
from despatch to closing date. Used for R&D,
technical or artistic reasons for sole supply.
Extreme urgency due to unforeseen
circumstances.
Tendering Procedure
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All Tenders must be issued at the same time with the same closing date
All tender exercises are operated under a closed tendering system and
opened by the NHS CMU Offers Administration team
Tenders are then input into Phate/Pharos and adjudication documents
issued at Trust level. PHATE is a national tendering and contract
management software package developed by CMU. It allows electronic
interchange of information between suppliers CMU and trusts and the
development of market intelligence by CMU.
Samples of lowest offers are assessed
Regional adjudications take place at consortia level first, then at a
regional level
One representative from each consortia, QC, Drug Procurement
Specialist and NHS CMU attend the final adjudication.
Awards are then issued to suppliers
Contract information on CD Rom issued to Trusts
Trust savings information provided back to the Trusts (only if the Trust
has provided usage information at the beginning of the tendering
process)
OJEC award notice issued
Debrief suppliers if requested
Questions
1. Why is it useful for the NHS for suppliers to get a debrief?
2. What are the three types of OJEU advert?
3. Why would PHATE market intelligence be useful to NHS
buyers?
Additional resources
OJEC Website http://www.ojec.com/
Question 4
Why should we worry about destabilising the market? Can’t we just
award to the cheapest tender?
Answer
A market is a term used in a commercial sense to define a discrete area
of sales within which products compete. An example might be the
market for anaesthetic inhalation anaesthesia although this may be
broken down into day stay and conventional anaesthesia (or by
geography) depending on how the market was being segmented.
For many products (e.g. oral antibiotics), the secondary care market is a
small part of the whole (typically around 6%) and as such our influence
on the totality is small. However for some products (mostly
injectables) secondary care is the majority of the market and hence our
actions have a big effect. It has been shown that our behaviour has
directly contributed to product shortages (see “Intelligent
Procurement” Article - document linked on Procurement Training page of
PDIG website). How can this be so?
It goes like this:• We tender for the product and continuously award to
the cheapest.
• Suppliers realise they have to be cheapest to win the
contract AND that nothing else (e.g. ability to supply,
packaging and presentation) matter.
• In order to be the cheapest suppliers cut costs and
concentrate only on those products where they have
large volumes (and hence low unit costs).
• The number of suppliers in the market falls, quite often
to a single supplier.
• If anything happens to that supplier to disrupt the
production then a shortage occurs as there is no
alternative.
This scenario was played out with a whole series of products including
Digoxin, Furosemide, Glycopyronium, Sodium Chloride and Water
Injections.
It was recognised that the “supply risk” needed to be reduced for many
products and hence the award decisions being made by procurement
groups around the country needed to be more joined up and strategic,
especially for a discrete number of critical products. This lead to the
creation of the Pharmacy market Support Group (PMSG).
This group consists of representatives from each contracting group who
meet to prepare advice on an agreed list of critical products. A longer
term view is taken on the awards leading to a consideration and
reduction of the supply risk associated with an individual market.
Questions
1. Which types of products are likely to be considered as critical by the
PMSG?
2.Why does a concentration on price alone tend to reduce the number of
suppliers in the market?
3.Define “supply risk”.
Additional resources
Intelligent Procurement article - document linked on Procurement Training page
of PDIG website
PMSG Webpage
http://cmu.dh.gov.uk/pharmaceutical-market-support-group-pmsg/
PDIG Presentation on PMSG and NPSG Andy Alldred Nove 2011
http://www.ghp.org.uk/ContentFiles/PDIG%20Andy%20Alldred%20Presentation%20-%20Nov%202011.ppt
Question 5
Can we sell pharmaceuticals to GP’s or the community, other
hospitals or to abroad?
Answer
Selling to the community or to GP’s
There are often different prices offered to hospitals compared
with elsewhere. As a result it may appear superficially to be
attractive to sell on products to GP practices for example. This
would save money for the NHS and (if a surcharge is made) make
money for the trust. There are several reasons why this should
not be done however.
• Normally the prices offered are to the hospital alone. Thus
selling on would be defrauding the company and could be a
criminal offence. At best it would be breaking the contract and
could lead to its cessation by the supplier.
• If the practice became widespread then the offering of
preferential prices to hospitals could well cease.
• Companies are very concerned about this “grey” market as it eats
into their profits and distorts their sales information.
• The returns to the trust are likely to be small.
• The Chief Pharmacist has written to trusts saying we should not
undertake this sort of activity.
Please note that the long standing practice of supply by trusts to community clinics
and to GP’s of products like vaccines etc. is not likely to cause difficulties.
Selling to other hospitals
It is sometimes possible to obtain bigger discounts from suppliers for single drops
to a hospital or store. This is usually because doing so reduces their logistics costs.
In these cases hospitals may sell on the product to a series of hospitals. This is
normally with the full knowledge and agreement of the supplier. Occasionally the
usage of individual trusts is disclosed to the supplier. This activity is part of the
contract of sale and is obviously acceptable to both parties. The arrangements
become less clear when trusts do not disclose selling on to other hospitals to the
supplier. There is now also the need for a wholesaler dealers licence if a hospital
wishes to trade medicines (rather than supply for issues to patients). Each case
needs to be looked at on its individual merits.
Selling Abroad
Trusts will be asked from time to time for products which are no longer
required to be sent abroad, perhaps as part of a response to a disaster. The
requests sometimes ask for out dated or condemned stock. The RPSGB
has strict guidelines on this activity (link). These state that medicines
must be in date and of suitable quality to be used in the UK. In these
cases these medicines which are perhaps no longer used due to changes in
practice can be supplied. It may be that trusts would wish to satisfy
themselves that they cannot sell on these products to another trust, and
that the charity organisation is bona fide before proceeding.
Questions
1. What guidelines exist for the supply of medicines for use
abroad?
2. Why is it in our interest not to supply medicines for
secondary care to GP’s or community pharmacists?
3. Which document details the standards for practice in
contracting?
Additional resources
1. MHRA website for wholesaler dealing
http://www.mhra.gov.uk/SearchHelp/GoogleSearch/index.htm?q=wholesaler%20dealer
2. Chief Pharmacists Letter on exporting of medicines document linked on Procurement Training page of PDIG website.
Question 6
How does licensing work?
Answer
Before 1968 there was no licensing of medicines or of the
manufacturers of medicines. However the impact of
Thalidomide and the tragic effects on pregnant mothers lead
directly to the Medicines Act. Under this legislation
manufacturers and wholesalers of medicines as well as the
individual medicines themselves have to be licensed to
assure the public of their quality and safety.
Manufacturers and Wholesale Dealers Licences.
In order to manufacture and supply medicines, it is necessary to obtain
the appropriate licence. The Medicines and Healthcare products
Regulatory Agency (MHRA) inspect against standards that are drawn
from The Medicines Regulations 1971 (SI 1971 No 972) as amended by
Amendment Regulations 1972 (SI 1972 No 1226), 1977 (SI 1977 No 1053)
1983 (SI 1983 No 1730), 1992 (SI 1992 No 2846 and 1993 (SI 1993 No 883).
Extracts from these Regulations are found in the ‘Orange Guide’ (Rules
and Guidance for Pharmaceutical Manufacturers and Distributors 1977,
MCA, 1977, The Stationary Office ISBN 0-11-321995-4).
Specials
There are certain exceptions to the licensing rules. Products can be
dispensed (Section 10 exemption) as specials. That is they are designed
specifically for an individual patient. These medicines need to be dealt
with in a different way to licensed medicines and trusts require a specific
policy (6 below and 4 below).
a) National Licensing
The MHRA is an executive agency of the DoH, safeguarding public
health by ensuring that all medicines on the UK market meet appropriate
standards of safety quality and efficacy. The medicines require a licence
(product licence).
The Committee on Safety of Medicines (CSM) is a section within the
MHRA which advises the licensing authorities on issues relating to the
quality, safety and efficacy of medicines to ensure appropriate public
health standards are met. They make the decisions about which drugs
merit a licence and which do not. Details of the licence approval are
available in the SPC. Use outside this specification is unlicensed (and
often termed “off label”). The MHRA or CSM decision is made totally
independent of the cost of the medicine.
b) European Licensing
The European Medicines Evaluation Agency (EMEA) mirrors the MHRA
in the UK. Products passed here can be marketed within the EU. Within
the EMEA, the equivalent to the CSM is the Committee for Proprietary
Medicinal Products (CPMP).
c) Reference Licensing
It is possible to obtain a European licence via a reference state.
That is the product is successfully licensed in one EU state and
that submission is used as a subsequent basis for further
licensing within the EU.
It should be noted that licensing is nothing to do with patents.
A medicine MUST be licensed before it can be used as a
medicine. A patent merely prevents the manufacture by other
than the patent holder.
Questions
1. Name three ways a product can be licensed.
2. What are the advantages and disadvantages to a supplier
of an EMEA licence?
3. How does a special differ from an off label medicine?
4. Why is it that many cytotoxic reconstitution units within
hospitals are not licensed?
Additional resources
1. EMEA website www.emea.eu.net
2. MHRA website http://www.mhra.gov.uk/
3. CSM website
http://www.mhra.gov.uk/Committees/Medicinesadvisorybodies/CommitteeonSafetyofMedicines/index.htm
4. Rob Lowe’s talk on licensing - document linked on Procurement
Training page of PDIG website