Incompetent at procurement? Then you are probably REALLY incompetent!
How competently a hospital or an entire national healthcare system handles procurement is a good measure of general management competency. By that measure, most hospitals – and most healthcare systems – are pretty useless.
Pharma, medtech and non-medical products make up around 30% of the budget at most hospitals – and that percentage is rising.
Savvy purchasing is difficult. Management needs to work closely with physicians, without letting the more powerful doctors off the leash to buy the medical equivalent of a new Ferrari.
So procurement is a good proxy for management competency.
On that basis, this is an industry staffed by incompetents. Granted, Europe generally seems to be better than the USA, where most purchases of complex products come with a non-disclosure agreement, but inefficiencies and poor practice are still rife.
The upshot?
American hospitals have no idea whether they get a good price. Look, for instance, at 2012 research quoted by Prof. Eugene Schneller. This found that there was a fivefold difference in prices charged for a total hip replacement between five hospitals in New York city. Most of the difference was explained by differences in the price paid for the implant, which varied by several multiples. Each hospital privately thought that it had secured the best price on the market for these implants.
In Europe, most medtech sales aren’t closed by a smiling salesman telling you that the deal you’ve just struck is so good that you will now have to sign an NDA.
Nonetheless, price opacity remains the norm. The London Procurement Partnership recently started comparing the prices its university hospital members were paying. In one case, it found that the hospital buying the highest volume of product was nonetheless paying the highest unit price.
In Belgium, I gather that healthcare institutions are still basically banging the rocks together. I am told that most hospitals there still regard the prices they pay as secret. The Dutch are even worse: municipal hospitals are explicitly exempted from being forced to do open public tenders.
So is anyone getting it right? Outside Europe, I am told that Quebec is extremely advanced – “25 years ahead of us,” as on Belgian put it. Almost every product is aggregated and bought in bulk in a near-compulsory eProcurement system.
Germany is also achieving much higher levels of price transparency and consolidation. Around 50% of medtech products in 2013 will likely be purchased through frame agreements negotiated by procurement hubs. Helios, probably the best-run private hospital chain in Europe, no longer allows medtech and pharma sales reps to visit its hospital premises.
This may well explain why Germany pays between 20% and 40% less for medtech than the Netherlands, where doctors have more power and purchasing is fragmented. Assuming an average 20% saving, German procurement practices would be worth around a billion euros a year to the Dutch: €50 for every man, woman and child in the country.
Informal financial rewards for procurement choices are still, sadly, the norm across Europe. I am told that, in the Benelux, it is common to find medtech companies funding a research project in exchange for a juicy deal. In the UK, consumable suppliers generously fund an extra nurse or two in a hospital, only to miraculously see their market share there soar to 80-90%.
And this is Western Europe. In Romania, a private company was recently asked to procure cancer drugs for the state. Oddly enough, much of the new product was then sold abroad.
Aside from criminal behaviour, the blockages are not technical, but cultural. If you run your hospitals as hotels, if you fund them with public money and little accountability, if you leave purchasing power in the hands of doctors who have little interest in balancing the accounts, then you get massive wastage.
And you won’t even know it.
We would welcome your thoughts on this story. Email your views to Max Hotopf or call 0207 183 3779.
