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.

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?AnswerSupplier Evaluation or Vendor ratingThe 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’sCompetence 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 & serviceControl systems in respect of inventory, costs, budgets, people & informationCash 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’s3.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 2Who is this CMU I keep hearing about?  AnswerThe 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 e-commerce within the pharmaceutical supply chain, and attempted to manage the pharmaceutical market more strategically through the Pharmacy Market Support Group (PMSG).

Questions1.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 resourcesCMU 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 •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

Questions1. 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? AnswerA 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.

Questions1. 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 resourcesIntelligent Procurement article - document linked on Procurement Training page of PDIG websitePMSG Webpage http://cmu.dh.gov.uk/pharmaceutical-market-support-group-pmsg/

PDIG Presentation on PMSG and NPSG Andy Alldred Nove 2011http://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? AnswerSelling to the community or to GP’sThere 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 hospitalsIt 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 resources1.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 LicensingThe 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 resources1.EMEA website www.emea.eu.net2.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