NHS Supply Chain Product Availability and Pricing

Vernacare has received confirmation that NHS Supply Chain has delisted 3 of its medical pulp products, however these products remain available directly from Vernacare. Please contact vcorders@vernagroup.com.

NHS Supply Chain Product Availability and Pricing

Vernacare has received confirmation that NHS Supply Chain has delisted 3 of its medical pulp products, and an increase of 9.5% has been applied to a number of products from Vernacare’s medical pulp range.

The delisted Vernacare products are:

104AA200/FSL083 – 1 Litre General Purpose Bowl

110AA100/FTL002 – 1 Litre Jug

116AA200/FSX014 – Multicup (300ml)

Background

In June 2017, in support of NHS Supply Chain and the Business Services Authority (BSA), Vernacare and HPC Healthline implemented an 11% catalogue price reduction for Vernacare’s medical pulp products:

  • Both Vernacare and HPC Healthline had experienced rising input costs, exacerbated by the fall in value of the pound following the outcome of the UK referendum on membership of the European Union.
  • Consolidating volumes in partnership with HPC Healthline provided fixed-cost efficiencies and stability, mitigating the pressures of rising input costs and provided for sustainability of supply.
  • As part of the Carter Report’s goals of transparency and reduced product lines, Caretex was withdrawn from the market, passing on projected savings to the NHS in the form of an 11% price decrease for the lifetime of the Medical Pulp Framework Agreement.
  • This pricing agreement was based upon volume-dependent fixed costs.

In August 2017 NHS Supply Chain released details of a Mini Competition for the supply of medical pulp products.

New, punitive Supplier conditions were part of the terms for participation, along with threshold pricing which was up to 40% below current catalogue rates. This, combined with a lack of clarity within the Mini Competition documents, meant that Vernacare and HPC Healthline were unable to submit any products for consideration without the risk of impossible liabilities.

Pricing

Unfortunately, this significant reduction in manufacturing for the NHS undermines the fixed-cost efficiencies achieved by the Vernacare/HPC Healthline collaboration and from which the June 2017 savings were achieved.

As a result of product delisting, Vernacare has experienced immediate cost pressures due to loss of volumes with further variable cost pressures anticipated in 2018.

Fixed Costs:

There are a number of fixed-costs in the production of Medical Pulp Products that do not reduce in line with a loss of product volume:

  • Production/Distribution Labour
  • Factory Overhead Absorptions (e.g. capital equipment and maintenance personnel)
  • Energy

As these costs are largely unchanged by a reduction in volume, the fixed cost element for the production of each unit is directly affected by the NHS Supply Chain Mini Competition outcome.

Variable Costs:

All input costs, including variable costs, are driven by and impacted by volume. For example, Vernacare’s agreements for the purchase of over-issued newsprint (OIN) are volume-dependant, and the loss of volume as a result of the award of the NHS Supply Chain Mini Competition will result in +10% pricing immediately. The same applies to Distribution and Transport, Packaging, Chemicals and other raw materials

At all times, NHS Supply Chain was made aware of the impact which “cherry picking” from the full product range has upon the cost base for medical pulp manufacture, and that delisting Vernacare products would make the savings achieved through Vernacare and HPC Healthline’s collaboration untenable.

This was communicated to NHS Supply Chain in May (prior to the implementation of the collaboration), and Vernacare informed NHS Supply Chain of the additional unit cost impact in early November – as soon as details of the Mini Competition were announced.

Regrettably, NHS Supply Chain refused to consider the input cost impact of the Mini Competition on Vernacare’s manufacturing base throughout November, and deliveries were delayed until an outcome was achieved 04/12/17.

As detailed above, the award has directly undermined the 11% saving provided in June, with Trusts now subject to +9.5% increase on all product lines supplied via NHS Supply Chain, effective immediately.

NHS Supply Chain Catalogue Product Delisting

NHS Supply Chain have now awarded 3 Medical Pulp products to an alternative supplier on a Sole Award basis for a minimum of 12 months. The winning supplier for these products, equating to 27% of the market volume, is subject to ICNS for:

  1. Failure to supply the NHS
  2. Product quality issues

As part of the Mini Competition Terms and Conditions, Vernacare’s equivalent products were to be delisted from the NHS Supply Chain Catalogue from 31/10/17, meaning that Vernacare ceased manufacture of these products for supply to the NHS.

The delisted products above remain available directly from Vernacare. Please contact our Customer Services Team for further details at vcorders@vernagroup.com or by calling 01204 529 494.