European Hospital Purchasing Practices - Rationalisation and Reform
HBS Consulting, January 2003, Pages: 108
Changes in hospital purchasing - the challenge for the medical device industry:
Both the public sector and the medical device industry are taking a close look at the processes involved in public procurement.
This has been driven by the realisation that hospital purchasing is one area where savings can still be made.
As a consequence of this, purchasing practices are undergoing a process of rationalisation and reform across Europe.
A fuller understanding of the factors influencing hospital purchasing will enable those involved in the medical device
industry to make the most of upcoming changes in procurement.
This is an area where companies who stay ahead of trends will be able to avoid the worst effects of the drive to make savings and can benefit from developments in electronic procurement, rather than being stung by a more price driven market and by a shift in negotiating power towards purchasers.
The predominant influences affecting procurement include changes in hospital funding, which have a significant knock on effect on purchasing, the European and national regulatory environment, group and consortium purchasing and electronic procurement.
EU and national procurement regulations: protecting €1200 billion:
European community public procurement regulations have sought to standardise public procurement practices across the region.
Across the EU, public procurement accounts for more than €1200 billion each year (approximately 14% of the total GDP of the EU).
The scale of public procurement has therefore made it essential to ensure transparency and to protect public funding from corruption and favouritism.
The downside of the extensive legislation that has been introduced to achieve this is that purchasers and suppliers become entangled in bureaucracy.
National regulations governing procurement vary across Europe, further complicating the process.
Changes in hospital funding: the drive to make savings:
Hospital procurement rationalisation aims to make savings. The impact of this on the medical device industry has been to foster a more price driven market with a strong incentive
for suppliers to provide added value in terms of service, better deals etc.
One of the most significant changes in recent years affecting purchasing has been driven by changes in the way that hospitals are funded.
Many countries within Europe are now exploring the potential of case-mix based systems of hospital funding, in which hospital funding provision is based on the profile of cases that a hospital encounters and treats.
The most commonly used form of case-mix funding in Europe is Diagnosis Related Group based funding (DRG), which covers in-patient stays, and the treatment given to a patient whilst staying in hospital. DRG schemes are operating in Italy and are currently being piloted in Germany and France, whilst a case-mix based funding scheme that covers patient care from out medical consultation to hospitalisation and out patient follow up has recently been introduced in the Netherlands.
Case-mix based schemes are largely regarded as causing potential problems for medical device industry suppliers selling products to hospitals, since their introduction can lead to more cautious spending by hospital purchasers and a substantial (up to of 30% hospital based services) shift in services to the ambulant and primary care sectors.
However, the improved monitoring of expenditure made possible by case-mix based schemes can also focus purchasers’ minds on the potential of technology that yields longer term cost savings.
Group purchasing: the power shift towards purchasers:
The development of purchasing groups in a number of European countries reflects a wish to endow hospital purchasers with increased negotiating power and to achieve economies of scale, which save procurement costs and ensure uniformity of health care provision.
Example include the recent development of health enterprises in Norway, which centralise purchasing for groups of hospitals within geographical areas, and the introduction of NHS Supply Confederations, which will include all hospital and primary care Trusts in a certain area, in the UK. It is planned that the Supply Confederations will manage procurement for over 80% of NHS Trusts by March 2004.
The development of large purchasing groups may simplify negotiations between medical device suppliers and purchasers, since companies do not have to deal with each hospital individually. However, large purchasing groups are able to exert considerable leverage on suppliers and can demand lower prices and high service provision.
Electronic procurement: new challenges:
Electronic procurement has attracted growing attention from hospital purchasers, European governments and suppliers.
E procurement services developed by medical device manufacturers, such as Global Health Exchange (GHX), which was founded by Johnson and Johnson, Baxter, GE Medical, Abbott and Medtronic, have become more established in Europe and, in GHX’s case, have formed links with purchaser focussed e procurement services such as Belmin/Caps, which supplies a large number of NHS Trusts with an e procurement service.
However, medical device suppliers are also wary about the possibility of the widespread uptake of e procurement and have justifiable concerns that the development of this technology may benefit purchasers at the expense of suppliers.
In addition, the development of e procurement systems in Europe is patchy and diverse. Different hospitals and regions have adopted different e procurement systems.
There is a lack of uniformity on terms of information security provision, with the EU failing to establish clear guidelines for electronic signatures.
Companies may be justifiably concerned that the development of e procurement systems, especially when coupled with the use of purchasing groups and consortiums, will result in greater price pressure being placed on suppliers, with e marketplaces providing minimal benefits for suppliers in terms of savings whilst involving additional work in terms of the development of online catalogues and technical interfaces.
The spread of e commerce in the public sector appears to be inexorable however. Companies must adapt to ensure that they benefit as much as possible from this change.
Early company involvement in e procurement and working with hospital clients to develop e procurement systems will help to ensure that the e procurement solutions that are developed address the needs of suppliers as much as those of purchasers.
It is also important that personal relationships with purchasers and other decision makers in hospitals are maintained despite the encroachment of the electronic age. The development of e marketplaces in the hospital sector should never be a replacement for talking to and listening to the people who will use products.
The new balance:
Achieving the balance between satisfying the needs of purchasers with their requirements for lower costs, new procurement systems and processes, with industry needs to squeeze profits from an ever more competitive commercial environment and the need for resources for R&D reinvestment will challenge the best management teams in the industry.
Deciding how far to pander to the needs of purchasers may well be the most important decision companies will make in the future.
1) Executive Summary
<BR>
<BR>2) Introduction and European Overview
<BR>
<BR>Methodology
<BR>Definitions
<BR>Background
<BR>- OJEC
<BR>- SIMAP
<BR>- Time lines for EU Tenders
<BR>
<BR>3) Trends affecting hospital purchasing across Europe
<BR>
<BR>Electronic procurement and tendering
<BR>Forms of e-procurement
<BR>Advantages and Disadvantages of e-procurement
<BR>Advantages of e-procurement for suppliers
<BR>Advantages of e-procurement for buyers
<BR>E-procurement and the medical device industry
<BR>E-procurement Systems Active in Europe
<BR>EU Policy on e- procurement
<BR>Challenges for e- procurement
<BR>Group purchasing and its implications for the medical device industry
<BR>NHS Supply Confederations
<BR>Regional Health Enterprises – Norway
<BR>Review of funding allocation to hospitals
<BR>Longer-term contracts
<BR>
<BR>4) The Benelux Hospital Purchasing and Tender Market for Medical Devices
<BR>Organisation of the Health Care System
<BR>Regulation of Medical Devices
<BR>Outline of the Procurement Process
<BR>Case studies
<BR>Opportunities and challenges
<BR>Recommended Strategies
<BR>
<BR>5) The German Hospital Purchasing and Tender Market for Medical Devices
<BR>Organisation of the Health Care System
<BR>Regulation of Medical Devices
<BR>Outline of the Procurement Process
<BR>Case studies
<BR>Opportunities and challenges
<BR>Recommended Strategies
<BR>
<BR>6) The French Hospital Purchasing and Tender Market for Medical Devices
<BR>Organisation of the Health Care System
<BR>Regulation of Medical Devices
<BR>Outline of the Procurement Process
<BR>Case studies
<BR>Opportunities and challenges
<BR>Recommended Strategies
<BR>
<BR>7) The Italian Hospital Purchasing and Tender Market for Medical Devices
<BR>Organisation of the Health Care System
<BR>Regulation of Medical Devices
<BR>Outline of the Procurement Process
<BR>Case studies
<BR>Opportunities and challenges
<BR>Recommended Strategies
<BR>
<BR>8) The Scandinavian Hospital Purchasing and Tender Market for Medical Devices
<BR>Organisation of the Health Care System
<BR>Regulation of Medical Devices
<BR>Outline of the Procurement Process
<BR>Case studies
<BR>Opportunities and challenges
<BR>Recommended Strategies
<BR>
<BR>9) The Spanish Hospital Purchasing and Tender Market for Medical Devices
<BR>Organisation of the Health Care System
<BR>Regulation of Medical Devices
<BR>Outline of the Procurement Process
<BR>Case studies
<BR>Opportunities and challenges
<BR>Recommended Strategies
<BR>
<BR>10)The United Kingdom Hospital Purchasing and Tender Market for Medical Devices
<BR>Organisation of the Health Care System
<BR>Regulation of Medical Devices
<BR>Outline of the Procurement Process
<BR>Case studies
<BR>Opportunities and challenges
<BR>Recommended Strategies
<BR>
<BR>11) Conclusions and recommendations
<BR>
<BR>12) Sources of information of tenders and public procurement
<BR>
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