Why strategic partnerships with suppliers are key to a successful procurement strategy
Last edited: | Value-based Procurement - Back to overview
In the last three years, procurement strategies in healthcare for medical goods have undergone a reinterpretation of value, tied to patient outcomes. Having a larger surface of contact for the purchasing executive is leading to previously unrealized stabilities across cost, and reliably supporting the operation of critical hospital functions.
To quote a scoping of the then available literature in 2021:
“[A] . . . short-term perspective of cost reduction, usually does not take into account the needs of patients and the total costs of acquiring medical equipment . . . neglecting the role of different stakeholders, including patients and providers in the whole process as well as the challenges facing the health system.”
Strategies have changed in recent years, in line with the recommendations of the scoping. Seeking better patient outcomes tied to cost involves a wholesale rethink of how providers fund their various models for delivering care. The US has its own analogue in value based procurement (VBP). A large expenditure for all large healthcare providers, in all regions, will continue to be the supply of medical products.
Rethinking one of healthcare’s biggest external expenditures
A healthcare provider’s supply chain in the US accounts for upwards of 30-40% of external expenditure. It’s around a quarter of spend for similarly large regions and healthcare systems, where the figure was around 10-20% pre-pandemic, and steadily rising year on year since 2020.
C-Suite and VPs are focused on a renewed procurement strategy as part of a values-based funding model. A recent McKinsey survey of healthcare providers’ leaders indicates the broad and urgent endorsement of procurement decisions sponsored and directed by clinical leaders and their key workers. With valuable first-hand knowledge of how products perform, clinicians - as partners in procurement decisions, are also fully aware of the intense scrutiny upon the procurement executive.
“There's a lot of pressure on all hospitals to stabilize the expense; our purchasing executives have a mandate to really reduce the amount of expenses,” says Robert E. Del Guidice, Clinical Administrative Director for Diagnostic Laboratory Services at a large cancer centre that has recently been ranked as one of the best US hospitals for cancer. Robert deals with a mammoth operation - 13.4 million laboratory medicine procedures in 2022 - and is a pivotal decision maker in the purchasing of medical devices and goods for blood collection and analysis.
Leveraging his insights and experience with front line feedback from his clinicians, aligned with the purchasing power of a large healthcare provider is part of the procurement strategy engaging the supply chain.
Where next for aligned procurement and supply?
“Supply chain is now viewed as less transactional and more strategic; we recognize just how essential it is to the day-to-day functioning of the health system,” says an executive quoted in this McKinsey article.
In the same survey, VPs and C-Suite were united in pursuing further investment in the key areas that support a values-based procurement strategy.
Dashboards, analytics and forecasts build trust. Manufacturers receive direct input from clinicians and patients with regards to updates, forecasts and product development. Clinicians have constant dialogue with manufacturer and distribution, aided by systems that anticipate a surge in demand and manage stock effectively.
Expanding the definition of value
But we can also add another foundational component to VBP; to foster a continual habit of expanding upon what value means. And this is where a larger surface area for contact with a supplier really demonstrates an advantage. For his diagnostic laboratory services , Robert illustrates this advantage in action:
- He has a cohort of newly graduated staff joining from his extern program, and his direct patient care teams need to be trained in the new product.
- He’s recently switched to a different brand with whom he first had contact when they helped out promptly at the height of the pandemic.
- Right now, he wants peace of mind that his front line team, all trained specialists numbering 180, are all familiar and absolutely competent with the product.
So where else can value be located and realised? Let’s get an idea of Robert’s high-throughput screening (HTS) facilities(figures from Y22):
- 1.6M: outpatient visits: many of which will involve blood collection from Robert’s staff
- 13.4M: pathology/laboratory medicine procedures - most of which involve Robert’s HTS facilities
There are several ways for a supplier to meet Robert at cost. For manufacturers of single-use medical products, savings and stability may be extracted from their own supply chain, for example; sustainability and strategically located manufacturing bases.
- Sustainability - constantly examining when wastage can be avoided is also a cost saving for the supplier for their own materials and energy consumption. Using less material is a saving at scale and an avenue where savings can then be identified.
- Strategic manufacturing base - acquiring a strategically chosen location for manufacturing, in line with a rigorous Code of Conduct, ensures a steady supply of stock.
But value can be realized in other ways!
Let’s focus on the one hundred and eighty staff Robert has to train:
- Without interrupting outpatient engagement
- Ensuring that his HTS facilities are receiving quality samples from all of his staff
And these labs are delivering critical analysis to the entire hospital. Any interruption, rescheduling or repeat blood collection engagement with the patient will score negatively with patient feedback, which is an outcome tied to funding. So here, continuity supports stability, and for the patient, that will be one less headache, and a regular appointment.
Safety and value, it’s in our blood
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