Wednesday 21 January 2015

'Gilding the Lily' - Procurement Value in Healthcare: Part I

by Scott Pryde, Account Principal, BravoHealth

'Gilding the Lily': Procurement Value in Healthcare - Part 1
One of the most fascinating aspects of being a Clinical Procurement Specialist is the opportunity to attend hospital procedures. As a layman observing, you can't help but be impressed at the wonders of the human anatomy,the amazing skills of clinical teams and the treatments and technologies that we have invented.

Many of the clinicians, procedures and medical sales reps left a lasting impression on me, but it was that of a young patient suffering from idiopathic scoliosis, and a world-leading spinal surgeon who was performing the surgery that made the deepest one.

The surgeon and the team worked at pace, extreme accuracy and concentration for several hours. As the spine was exposed, the Depuy Expedium rods and screws were implanted. In the middle of the procedure, as he made the screw and rod adjustments, the surgeon turned to me and said; 'this is what they call gilding the lily'( to adorn unnecessarily something already beautiful).

The procedure went well and the young patient would now go on to become a regular visitor to the spinal unit. As they grew the screws would be adjusted and their back gradually straightened. The surgeon would go on to be an integral part of the life of the patient and that of their families.

I was invited because I was responsible for running a procurement exercise in spinal technologies across a region of the UK of which scoliosis devices were a part. Neither I nor the surgeon, were about to let that happen without me knowing exactly what was going on with the equipment as well as how integral it was to his technique and outcomes.

The clinical procurement challenge

At the time the market for scoliosis equipment was at best an oligopoly, and competition was limited to a few large players. Although other minimally invasive techniques and technologies are in the pipeline, there was limited imminent, breakthrough innovation in the pipeline. The technique of the surgeon mentioned above was the cutting edge of innovation.

The surgeon, and his entire team, were familiar with the implants and the equipment and had spent years learning how to use it most effectively.

The team welcomed our initiative, recognising that every pound unnecessarily spent on the cost of the technology was a pound away from the delivery, follow-up and potential expansion of the service (of which there was growing demand for).

As I got to know the surgeon, he unfolded a total cost ownership and health economic case. As it turned out, the surgeon was so skilled in his technique, he could implant the minimal number of screws to achieve the required outcomes and as a result, 'the implant cost was reduced by 35% due to the lesser number of pedicle screws'. He explained that other techniques (and I'd assume less experienced or less capable surgeons) would screw more levels of the spine making the whole procedure more invasive and expensive.

We had a good relationship with the clinical team and the surgeon was willing to negotiate with us but a technology change was not credible. The surgeon had developed a close, supportive relationship with the supplier and urgent orders and inventories were fully consigned and managed by the company. The surgeon's follow up activity and on-going research were also supported by the company.

What would you do to add value in this supply chain ?

Procurement options and barriers

We had to be able to structure and manage a contractual relationship which added value to the clinical team. Our tender and contract would have an evidence based section and we planned to align the commercials of the contract with a monthly review of support, product stability and safety, with penalties for un-anticipated adverse product events, recalls or product change. We also wanted to include an annual review of outcomes and supplier performance. This would have incentivised continuous improvement in the supply chain and provided some compensation for unanticipated product related costs.

But we were restricted in doing this by the rigid contractual mechanisms in place at that time and a lack of capability or resources for on-going contract management.

We investigated the potential for gain share where a percentage of savings could be returned into the scoliosis service for follow-up and research activities transferring the implied research and follow-up funding, built into the product price to NHS control - estimated at around 5% of the price.

But we couldn't confirm that the savings would be returned to the scoliosis service.

We investigated how we could restructure the management of the supply chain, to take ownership for inventories and improve forecasting and management of demand for the implants and equipment. This would reduce the cost and risk to the supplier and reduce the need for expensive medical product rep time being spent on stock keeping. It would also reduce the need for costly emergency stock, logistics and equipment load-kits. This would return around 10-15% of the cost of the technologies from the product price to the service (after investment a real reduction of 10%).

But we couldn't secure the investment in inventories or people to do this, and we didn't have the contractual mechanisms or business intelligence to properly manage demand and compliance.

Lastly, and most importantly, the traditional relationship with the supplier was adversarial and we needed to have a more strategic and co-operative discussion with them that would lead to them changing their pricing and delivery model. This meant incentivising them with the prospect of growing their business (increase revenue), or reducing their cost base (increase margin). We also needed to have a broader discussion about the nature of their business on this category specifically, but also about their entire business model with the NHS, of which this was a small part.

As we couldn't commit to the contractual levers and supply chain initiatives described previously, we couldn't have that discussion with the supplier. It was left as an adversarial price reduction negotiation with no incentives for change.

As a clinical procurement specialist, with all of the constraints to good practice described above, what would you do to overcome these barriers?

I use this story to illustrate a wider more generic point about the challenges of procurement in clinical categories and healthcare generally — that procurement does not have enough influence nor are they adding enough value in healthcare supply chains. Considerable value for providers and suppliers is being left on the table because we are restrained by historical financial and contractual mechanisms and a lack of investment.

In most categories of healthcare spend, we have no service design and demand input, no product specification input, no ownership of the supply chain and no investment capability — and why should we?

The role and value of procurement in healthcare

Healthcare supply chains are inefficient and as a result are expensive and less effective than they could be. Particularly in medical technologies and pharmaceuticals, costs are rising and there are increasingly adverse events and product recalls. Inefficient healthcare supply chains not only detract from scarce resources, but also have a direct impact upon patient care and outcomes (see this article for more discussion on hospital supply chain inefficiencies).

At the same time, most healthcare systems across the world are still struggling to understand the importance of strategic supply chain management and to position their procurement professionals with the relationships, investment and leverage that they need to do their job well and to use commercial levers to drive strategic efficiency, safety and innovation into their supply chains.

The chart below shows the estimated spend of the UK NHS with the rates of change in each category. The pharmaceutical, agency staffing and medical technology categories represent the highest cost pressures last year, but procurement is rarely in a position of strong influence in these categories.

In fact, even in other categories such as facilities management and ICT, where you might expect that they would, procurement have little input to the specification and delivery of the goods and services.

The current financial and economic realities, as well as the encroaching impact on patient outcomes of supply chain inefficiency, mean that this has to change.

Healthcare procurement needs to be enabled to deliver improved value and to use commercial levers and incentives to drive improved safety and outcomes.

Part II of this blog will discuss some ideas as to what needs to happen for procurement professionals to do this. It will include;

  • Broken: relationships, incentives & supply chains
  • What needs to change & why?
  • A place at the top-table
  • Restructured relationships & incentives
  • Procurement raising their game
  • Strategic supplier relationships

For information on BravoHealth: Outcome led Procurement solutions, please click below:

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