The Department of Health has produced guidance for NHS providers on how to avoid “blanket inflationary price increases” from suppliers.

The NHS has been facing inflationary pressures well above the norm and, increasingly, NHS providers are not receiving uplifts in budgets to cover such price increases, says the Department.

“Our goal, as a minimum, is to ensure non-pay expenditure is inflation-free until at least the end of 2015-16,” it tells providers.

The guidance includes templates and examples of best practice to support “supplier management” in NHS organisations. Its proposed approach centres around engaging with suppliers, and initially involves NHS providers writing to suppliers to advise of a zero inflation policy. However, it also calls for this engagement to taken further.

“Suppliers are likely to be facing similar cost pressures, and this is an opportunity to work together not only to find ways of avoiding inflationary costs but also to potentially further reduce costs. Zero inflation should be seen as a minimum target, with the idea outcome being below-inflation costs,” the Department says.

Providers are advised to send suppliers a personalised letter, the main purposes of which are: to advise suppliers that the provider is facing major financial challenges and, as such, is not in a position to accept price increases; to request written confirmation that there will not be any price increases over the coming year; and to invite suppliers to work in partnership, to identify potential cost-saving activities.

This collaborative approach has “numerous” benefits for both parties, it says. For providers, these include: 

- savings generated across the organisation; 

- sending a clear message to suppliers that price increases are not acceptable under current financial pressures; 

- giving visibility of the procurement department to suppliers; 

- the opportunity to identify and deliver further cost-saving initiatives, with buyers and suppliers working together; 

- raising the profile of procurement, demonstrating that the procurement department can make a difference; and 

- collaborative working across the organisation, with a common goal of making savings to protect front-line staff.

And the benefits for suppliers include the: 

- ability to develop partnership relationships with the procurement team; 

- opportunity to present new/alternative products; 

- opportunity to meet decision-makers, including clinicians; and 

- potentially to introduce mutually-beneficial cost-saving initiatives.

One example of the benefits of adopting a zero inflation policy given in the guidance is at Central Manchester University Hospitals NHS Foundation Trust, where it has resulted in generated inflationary cost avoidance of over £2 million in the financial year 2012-13 and over £1 million logged up until January in fiscal year 2013-14.