Good Practice
Healthcare Procurement – Outcomes Are What Matters

I spent two days last week at the UK’s Health Care Supplies Association conference in Manchester. We’ve been reporting on the domestic UK issues on our Spend Matters UK/Europe site, but we thought it was worth drawing some conclusions and issues together that might have relevance more widely around Europe. The conclusion though is simple – in healthcare procurement, outcomes are what matters.

Different countries have very different healthcare systems of course, but actually anyone involved in buying these services, public or private sector, faces similar issues. For me, the most interesting points were around the difference between cost and value in the health environment. In particular, the objective of health services is to deliver the right health outcomes for users. So it seems sensible for procurement to focus strongly on those outcomes, and the contribution we can make towards them.

That suggests we need to distinguish between those costs that truly do not have an impact on health outcomes of patients and those that do have an impact.

Let’s look at three cost areas as examples. In the first case, we might consider costs or spend categories such as energy or stationery (pens, paper, envelopes and so on). Any hospital will have spend categories like this, and in these cases, the product or service is of no real interest to the patient. Whatever price is negotiated for the electricity supply, or whichever supplier provides the pens the doctors write with, will have no impact on how quickly I recover from my hip replacement operation or how effective and long lasting the hip implant proves to be.

In these cases, it is reasonable for the objective of procurement to be driving down the unit cost and the demand as much as possible within sensible limits (e.g. at some point, reducing the temperature in the hospital will have negative effects!)

At the other extreme, consider medical prosthetics such as the hip implant. The purchase cost of this is significant, but when we put it in the wider context of the total cost for the medical treatment, and the health outcomes for the patient, the purchase price is a small element of the whole.

On the total cost side, we have the logistics and inventory cost, medical training for staff to use the implant, the cost of the actual surgery and the patients subsequent stay in hospital, rehabilitation and follow up care later. Together these costs far outweigh the purchase price of the implant.

That’s before we even consider the health outcomes and the benefit or utility to the patient. How much more should we be prepared to pay for a hip that allows the patient a full and active life, compared to one that causes pain, maybe restricts their employment opportunity, or requires further treatment (with further cost)?

Then there are spend areas that sit somewhere in the middle. They may not have quite such a direct effect on the patient as the type of hip implant used, but they could still impact on health outcomes, for instance in terms of recovery time. So hospital catering is a good example. If we simply drive down the cost of the food in the hospital, at what point does that affect the recovery of patients or their fitness to undertake operations perhaps? Clearly, we cannot and must not just drive towards the lowest cost purchase. Again, value and health outcomes must come into it.

There are complicated issues to consider here. But if we simply get obsessed about cost reduction, then the wider value and health outcomes will not be optimised. Saving a bit of money in one place may well push additional costs into another part of the system.

Of course, procurement should still ensure that whatever we are buying, we understand the market, suppliers and cost structures. We should run competitive processes and negotiations to ensure we buy everything at a fair, value for money price. But too much focus on simple cost reduction in the health sector would take procurement down the wrong path, and could have negative effects on health outcomes.