A GIANT American firm is poised to take over the responsibility for spending more than £4 billion a year of NHS money in the biggest privatisation yet seen in the health service, The Times has learnt.

Novation, the Texas-based group, is in the final stages of negotiating a far-reaching contract that will make it and its German partner, DHL, responsible for buying everything from bandages to hip implants for the health service. The move will mark a massive step towards opening up the NHS to outside companies and is certain to inflame simmering tensions within the Labour Party over what is perceived as creeping privatisation.

Unison, the largest public sector union, announced plans yesterday to ballot members on strike action over the move, and accused Tony Blair of accelerating his market-driven NHS reforms. Such action could coincide with the party conferences and put the battle for the soul of the Labour Party centre stage as Mr Blair comes under pressure to set a timetable for his departure.

Many in the party want to draw a line on private sector involvement in the NHS but Mr Blair says that the test of keeping the health service public is whether services are free to the user.

Karen Jennings, head of health at Unison, said: “The Government’s decision to privatise is driven by pure dogma and an obsession with market-testing.”

The Times has learnt that DHL/Novation is expected to take over from the NHS Logistics Authority and much of the NHS Purchasing and Supply Agency, which are responsible for £4.2 billion a year of purchasing and distribution, or about 5p out of every NHS pound.

The disclosure comes less than a month after The Times revealed that the world’s largest private health companies were being asked to submit tenders for control of primary care trusts, which spend 80 per cent of the NHS’s budget. The advertisement was withdrawn soon afterwards for “redrafting”.

Novation has promised big savings by making tougher, more efficient buying arrangements, alarming unions and the medical devices industry. John Wilkinson, director-general of the Association of British Healthcare Industries, has written to Andy Burnham, the Health Minister, to raise a concerns including fears over “the concentration of such buying power in a single entity”. DHL/Novation would make savings by concentrating on a few large suppliers, squeezing out smaller ones that could not compete on price, he said.

That, he added, would have a profound impact on whether patients received new and innovative treatments — which often come from smaller companies — and would undermine the strategy of the Treasury and the Department for Trade and Industry to encourage such companies.

“We support the need for better procurement in the NHS, but nobody in their right mind would hand over this much power to one organisation when savings, not quality, is the target.

“These small, innovative companies are forging the latest medical breakthroughs for patients, yet the Government’s NHS policy is going to send many of them into bankruptcy. Thousands of jobs are at stake and patients will miss out on the latest care.

“We would welcome a system of several purchasing organisations to provide contestability, not this proposed monopoly.”

DHL/Novation will be paid on the basis of the money it saves the NHS, with no similar incentive for quality. The contract is expected to cover a huge range of equipment, from bandages and syringes to pacemakers and hip prostheses. The Department of Health has refused requests to disclose the full list, on the ground that it is a confidential part of the negotiations.

It was no secret that NHS Logistics, responsible for distributing products to hospitals, was due to be privatised, and that DHL/Novation was the preferred bidder. But it appears that the privatisation will go much wider than thought, to include much of the NHS Purchasing and Supply Agency as well.

NHS Logistics employs 1,400 staff in five distribution centres, making an average of 1,200 deliveries a day to 10,000 destinations. Unison represents about 1,000 of its staff.

Novation and other American group purchasing organisations (GPOs) were the subject of a US Senate hearing this year at which criticisms were made of their influence on the market. One witness, Prakash Sethi, of the Zicklin School of Business in New York, claimed that such organisations took part in questionable contractual arrangements, which enriched them “at the expense of healthcare providers, new entrants and the public at large”.

Mr Burnham said: “We are looking at this option to improve the service and we believe there is significant scope to bring down the prices of goods that hospitals buy, savings which can then be reinvested in patient care.

“However, we recognise the concerns of staff and are looking closely at the proposals before making a final decision.”

THE PROS . . .

• Experienced companies that are motivated by profit tend to strike harder bargains
  
  
• Savings made by buying supplies more cheaply can then be used to provide more NHS services
  
  
• By contracting out procurement and logistics, the NHS can cut labour and pension costs
  
  
• Involving private industry sharpens performance by introducing competition and undermining outdated practices

  . . . AND CONS

• Contracts are based on cost alone, with no measurement of quality — so patient care could suffer
  
  
• Having a single purchaser is not a good idea because it puts too much power in too few hands
  
  
• Buying cheap will favour bigger suppliers selling established products, so new entrants with bright ideas will be squeezed out
  
  
• The NHS is already one of the hardest markets to crack, and this will make it even harder

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