It is the company’s biggest UK deal. The drive to outsource the work of NHS Logistics – already a winner of repeated supply chain awards – has been attacked by health service unions.

Unison is already balloting about 1,000 of its members over strike action. The result is due to be announced next Monday, the first day of the Trades Union Congress’s annual conference. The deal will increase friction over the “privatisation” of the NHS between the union and the government ahead of the Labour party conference.

The move to outsource purchasing of everything from beds and bandages to medical devices and office supplies has also alarmed suppliers to the NHS, who fear a price squeeze.

The Association of British Healthcare Industries argues the government risks creating a near-monopoly purchaser for the NHS that it says will damage small companies and stifle innovation.

According to DHL and Department of Health sources, the deal is expected to generate savings of about £1bn, or about 5 per cent of turnover, for the NHS over the lifetime of the contract. John Allan, DHL’s chief executive, said the company was being paid on the basis of the savings it would generate and the volume of business it achieved.

According to DHL, the existing in-house arrangement currently provides about 45 per cent of the NHS’s non-pharmaceutical supply needs, with the remaining NHS organisations acting alone or in consortia. There will be no requirement on NHS organisations to use the new business, to be known as NHS Supply Chain, but John Pattullo, DHL’s chief operating officer, said the aim was to grow its share of the market “significantly” – up to perhaps 70 to 80 per cent.

“We will have to convince NHS trusts and hospitals that we have something to offer,” he said. DHL will use Novation, the biggest US medical supplies company, as a subcontractor.

Mr Pattullo attempted to calm fears that DHL/Novation would seek to cut the 500,000 separate lines that the NHS now uses and cut their price, at the expense of quality and innovation.

There would be moves to simplify the range of items on offer, he said. But the company would set up a dozen product councils, involving clinicians and buying experts, to seek out new and innovative products.

“People with new ideas will be able to offer them to an organisation that already has about 45 per cent of the market and that’s not a bad starting point,” he said.

Staff transferred will retain a defined benefit pension equivalent to the generous NHS one, the company said. It estimated that 1,000 new jobs could be created over the decade as the business expands. But Unison said: “This is taking an award-winning not-for-profit business that shares the savings it makes with the NHS and handing it over to a profit-making one.”

The deal, however, represents “world-class best practice”, according to Allan Waller, president of the Chartered Institute of Logistics, who was brought in by the NHS commercial directorate, which negotiated the deal, to assess the contract.

DHL already has a small outsourced contract with NHS Logistics and acts for healthcare suppliers in other countries.

http://www.ft.com/cms/s/46c05e98-3c7a-11db-9c97-0000779e2340.html

Health Direct notes that this outsourcing of NHS supplies is by far the biggest privatisation project within the NHS. On July 01, 2006 NHS reform falters as Labour ministers pull advert we warned about the pace of NHS privatisation.

Additionally Health Direct notes that John Allan, DHL’s chief executive, said the company “was being paid on the basis of the savings it would generate and the volume of business it achieved.”

It’s worrying that nothing was mentioned about patients’ security when this is a growing area of concern: June 23, 2006 Trusts criticised for outsourcing patient records to cut costs when the Unison union says it has evidence of an incorrect incident report which led to a patient being given the wrong treatment, and has examples of other typing errors in the private transcription services which could lead to life and death decisions.