Few of us think much about how hospitals and other health care organizations buy the products used to provide patient care – everything from MRI machines to bandages.
Recently, however, policy makers at the federal and provincial levels have started taking an interest in how we buy – or procure – in the health sector, suggesting a need to reform these systems to ensure the adoption of innovations and support “economic prosperity.”
As a health policy professor who has spent time studying procurement arrangements across several Canadian provinces, I see numerous opportunities to improve procurement in the health care sector. Unfortunately, it’s not clear that the reforms proposed by the federal and provincial governments will fix what’s broken.
Governments have been pushing procurement to produce savings in the health sector since at least the mid-1990s, with steady moves to aggregate spending through joint buying groups across and within provinces and territories. While bulk purchasing can be useful, the buying culture that’s emerged has prioritized upfront costs above other considerations.
Lately, however, industry representatives and clinicians have been pushing back on the focus on purchasing price in some areas. Both in Canada and internationally, the focus for offerings like medical devices and ehealth technologies is increasingly on forwarding “innovation” and “strategic procurement.” Unfortunately, it’s business-as-usual for everything else – meaning that hospitals continue to emphasize low upfront costs when it comes to everyday items like bed linens.
Consider the lowly diaper, which no one would consider a health “innovation.” And yet when I asked a patient advocate about procurement recently, “diapers” was the item she cared about. In my research, I have found that for products like diapers, health care organizations tend to buy the ones that offer the lowest upfront cost while meeting minimum requirements.
But saving on upfront costs doesn’t mean saving on costs – a cheap diaper may cost more because of the labour required to change patients more frequently or to change and wash bed linen in the event of leakage. As well, paying higher costs on such “lowly” items could lead to better patient outcomes – a more comfortable and better fitting diaper may encourage patients to be more mobile and socially active. Reformed procurement systems should take into account not just the upfront cost of an item but its long-term value, whether novel and innovative, or old and ordinary.
Another problem with current procurement reform efforts is their narrow focus on economic benefits. It makes sense to consider how investments in health systems – which now take nearly 50% of provincial budgets – can contribute to local industries, but why stop there? Leading health systems like Kaiser Permanente have implemented environmentally preferable purchasing programs – buying products with fewer negative impacts on the environment or human health. This should be a natural for the health sector, given its massive environmental footprint. Another natural interest should be human rights and ethical procurement. The British Medical Association has been active in supporting “fair medical trade.” And spurred by the efforts of a committed surgeon, the English NHS began to require that suppliers actively manage labour standards for products where the risks of worker abuse and child labour are significant, beginning with surgical instruments. Reformed procurement systems – described in various guides – should support markets that not only provide opportunities for economic development, but also demand fair labour practices and ensure low carbon.
The health care sector should stop focussing on products that are cheap and instead focus on products that bring value – inside and outside health care. Value can come in the form of better outcomes, reduced nursing requirements or increased patient satisfaction. Value might also come from providing a home market for Canadian firms and supporting the development of a vibrant health products industry. Value should also come from combating slavery and environmental degradation.
The truth is, procurement has long been seen as a “back office” support function, whose value lies in reducing costs so that money may be redirected to “front line” care. As well, procurement by governments and within the broader public sector is highly regulated to conform with the rules of trade law and policy. Intra-national trade agreements, provincial legislation and directives, and court judgments uphold rules whose purpose is to make public sector buying opportunities open to global companies, not to make them responsive to local needs. For example, international trade laws mean that Canadian hospitals aren’t permitted to favour Canadian companies.
There are significant problems to be overcome before health care procurement can live up to its potential. The health sector will have to play a much bigger role in policy debates about the legal framework that governs public sector purchasing. Legislation may need to change, and buying arrangements be reformed. But one of the biggest challenges may be just thinking differently about what procurement is actually for. To paraphrase the UK Sustainable Procurement Task Force, “too often the business side of healthcare – the purchasing, the employment, fails to reflect the policy goals of healthcare. The result – a sector that misses opportunities to do more to lead by example to achieve its own policy goals.” We need to start seeing procurement in health care not as simply buying products, but as buying health – healthy environments, healthy economies and healthy people.
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Very well written Fiona!
The procurement system is like a freight train on a closed circuit that cycles through the same process every 4-5 years and it wonders why the same results are achieved. The Canadian Budget system is systematically set to focus on up-front costs and the spin off costs of “cheap” purchases seem to go unnoticed. (ie: Bio-medical repair, product replacement, injury to staff/patient, increased staff time etc. etc..).
Hospital equipment and supplies also requires a high level of pre an post sale support and/or training. This value is easily overlooked in lieu of price which in turn results in a reduction of service that is expected in the industry.
Great summary and agree completely with need to focus on procurement as an enabler to improve total value in health care and not simply cost alone. This is done in other sectors such as large build P3 projects, aerospace projects, etc.. So why can’t we apply the more holistic and value-based approach in health care procurement? The answer is we can and we must in order to unlock another value element in health care that will improve access, quality and sustainability while supporting the value-based innovation economy at the same time. The OHIC report (www.ohic.ca) defines value and outlines many of the value elements (table 1). In addition RFP scoring must be more standardized across the health system and among all purchasers in order to effectively assess, measure and validate value-based procurement in health care.
Fantastic !! So true.. Insightful
Great article Fiona. Procurement for hospitals in Ontario is locked in a bureaucratic tangle of provincially-funded and private-sector buying groups ostensibly offering the value that you describe. Procurement may be viewed as a back office support function whose value lies in cost reductions that permit funding to front line or direct patient care, but there seems to be little accountability to hospital senior leadership or the community to quantify that value. Additionally, many hospitals not only consider low upfront price as an indicator of procurement value but also the supplier’s ability to invoice in accordance with the hospital’s annual funding and budgeting calendar and/or use consignment, vendor-owned or just-in-time inventory tactics.
Perhaps a beginning for Canada could be the translation, at a federal level, of what strategic procurement in health care is and how value is created. Mapping broad health care policy Goals to procurement Strategies and multi-year Actions that include inter-provincial cooperation and local sourcing and have measurable performance (ex. Economic Value Add, Lean Sigma-Style Metrics, Lower Patient Adverse Events/Incidents) seems congruent with Canada’s own core values. Delivered federally, each province could be asked to ratify an accord and then implement and report on these procurement strategies with CIHI or another body reporting progress. And, perhaps a health care consumer feedback loop would also encourage hospitals, provinces and federal government officials to take a strategic view of health care procurement and remain accountable for creating/maintaining value.
In the meantime, an Accounting-style shortcut may be simply funding procurement decisions that are based upon TOTAL cost of ownership (including the extra linen cleaning, opportunity costs, and “what ifs” for that lowly cheap diaper) rather than UPFRONT cost.
Try Asking Canadian hospitals what the per hour costs for Surgical ORs in Canada and you often get a blank stare. This is an example of a metric that all hospitals should know but do not. with the current crop of new hospitals Canadian taxpayers are getting the impression that they are being well served, however as my father, a GP, used to say….change the outside and inside environments of a restaurant but keep the chefs and other staff and chances are that the meals and service will be the same.
We need to get more managers in hospitals with significant business learning, not to make our healthcare closer to the US model, but to make us understand the business aspects of healthcare in Canada
Excellent article. Absolutely loved the ideas of tying long term health outcomes with procurement and linking the hospitals to the local economy. Zayna Khayat makes a very good point about connecting health innovation in our healthcare community with the hospitals.
Well written summary of the problem. I can cite far too many examples of low up front cost with high operating cost purchases. I would also add the cost of the procurement fad of the day issues such as no more than a 15 day inventory (which resulted in dumping emergency spare parts).
Well said Fiona. It is time to start buying health and better patient outcomes. This is what patient-centered care is all about, isn’t it? Procurement is at the heart of value-based health care. We need to change the price-based procurement policies and processes that have existed for decades and are no longer serving our health care systems well. Other countries have started doing this already.
Bravo Fiona for framing these issues and opportunities for innovation in procurement of innovation. It is high time that procurement policy meets health policy … meets economic/industrial policy. At the end of the day, the incredible health tech innovations that are poised to help modernize and transform our health system (many of which are being developed right here in our own backyard, and could help them be Canada’s next global industries) will continue to bypass Canada if they are viewed as commodities and die on the procurement vine.
Interesting rethink on procurement, and has useful ideas, but in the long run Dr. Fullerton is right, fixing procurement is not going to generate much incremental value.
There are much bigger issues that we should look at.
We have pushed the number of Acute care beds down to the lowest rate per 1000 in the developed world (source OECD see link below).
Canadian Infant/Perinatal Death rates are among the worst in the developed world.
Canadian hospitals are much more dependent on Human Resources than most of the developed world.
Canada would be much better off if we focused on how to organize, or let the system organize for effectiveness, rather than focusing on how to optimize an administrative subset.
The recently quashed merger of Hospitals and the CCAC in the Mississauga Halton LHIN seems like the type of innovation we need. That merger would have allowed for streamlining care and reducing barriers to access. Its unclear where the value of merging LHIN’s and CCAC’s lies.
All data referred to is embedded in the following link
The problem with lack of continuity of thought within health care policy & professorship is that old ideas are introduced as new ideas.
Cost savings through procurement efforts have been tried for years.
Beyond that, new technologies and new medical equipment evolves and usually cost more not less.
Simple cheap syringes have been replaced with safety syringes and while being “safer” they do cost more.
Savings through procurement efforts is a very old concept that just can’t keep up.
I agree with you, Dr. Fullerton. Thanks to the Ontario Regulation Act “safety-engineered needle” These injuries cost the Canadian health care system an estimated $45 to $73 million per year. The point is, should the hospitals and procurement companies always wait for the Ontario regulation act?
There isn’t enough funding available and it’s unfortunate that hospitals want to see savings upfront.