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Waardegedreven Inkoop

Value-based procurement

  • Healthcare providers
  • Procurement

Procurement costs are an important part of total healthcare costs. They’ve nearly doubled in ten years, yet the increased value for patients is often unclear. In this study, Gupta Strategists demonstrates the importance of (medical) procurement and states why it should be a top priority for every hospital. Gupta also gives practical tips for improving procurement results.

Development of strategic sourcing should be a top priority

The importance of medical supplies for patient care is immeasurable. The procurement costs of Dutch hospitals have nearly doubled in ten years, reaching EUR 8 billio in 2015, which represents about 30% of the total costs. This growth is driven by expensive medicine, additional medical supplies and ICT spending. But what value have patients gained from this in terms of healthy years of life (QALYs)? Spending on non-medical items such as food and electricity has barely increased in the past ten years. Looking at healthcare trends such as moving care out of hospitals and increasing outsourcing, it’s expected that procurement costs will grow to reach 50% of the total costs. This requires hospitals to take on a new role: moving from price-focused sourcing to director and integrator of (medical) technology. Hospitals are still poorly equipped for this new role. That’s why procurement deserves a central place at the management table.

In practice, delivering procurement-based results is tough, but achievable

In practice, it’s tricky to achieve attractive procurement results. Gupta identifies two reasons for this. First, suppliers have many advantages over hospitals: they have strong relationships with doctors and a deep understanding of their market. Kees Isendoorn says: “If a doctor tells the procurement team that he wants suture X from brand Y, the game is already over. The supplier can then charge more than the regular value of the product. Second, procurement specialists, users and consumers are often blinded by the ‘medical’ sticker.” Jurre de Bruin adds: “While lots of people enjoy shopping at Lidl because it offers good value for money, the price of medical supplies is somehow irrelevant. So we easily pay EUR 300 for a pair of glasses that should only cost EUR 30. Hospitals in India as well as companies like Tesla show that a critical, entrepreneurial view can help lower costs.”
This tough reality doesn’t take away from the fact that it’s completely feasible to achieve good sourcing results. For example, one hospital structurally reduced procurement costs by 18% within twelve months, without sacrificing on the quality of medical care for their patients. Comparing the procurement results of various Dutch hospitals also shows that there are significant differences and therefore opportunities for improvements. In this study, Gupta also shares a series of practical recommendations for improving short-term sourcing results.

Once the foundation is in order, hospitals must shift to value-based procurement

Value-based procurement means that hospitals, together with suppliers, work to increase value (quality versus costs) for patients. The emphasis is no longer on the transaction and prices, but on partnerships and healthcare outcomes. This next step requires a knowledge upgrade for buyers and cooperation between hospitals. Collaboration is necessary to reach the scale required to build up the relevant expertise. From there, hospitals and suppliers can develop new forms of healthcare and redesign the entire patient journey (such as hospital care at home). Kees Isendoorn: “IT can make significant contributions to healthcare, for example by supporting telemonitoring or providing treatment advice. Integrating these values into healthcare processes at a time when more and more services are being outsourced requires hospitals to take on a director role. Procurement can be the driving force behind this.”

Download the full report 'Waardegedreven inkoop' (in Dutch) here »

In the media

FD

The Dutch newspaper FD (Financial newspaper) published an article on Gupta Strategists's study 'value-based procurement'

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