The Rise of Centralized Procurement in Healthcare
Covid-19 has reinstated the importance of public procurement across the globe with countries using all possible channels including diplomatic relations to procure Covid essentials (vaccines, pharmaceuticals, diagnostics, PPE kits etc). In addition, healthcare spending is likely to increase significantly in the post Covid-19 world. In 2021, healthcare spending is expected to rise by 5.5% in dollar terms 1 .
Interestingly, Covid-19 did not differentiate between the countries based on per capita healthcare spends. For instance, with a per capita spend of over $10,966 in 20192 , the US was one of the worst affected countries. Hence, health administrators are forced to re-evaluate the effectiveness of their existing policies. In most countries there is also a significant ‘political will’ to support these initiatives.
In the context of pharmaceutical care, policy-makers repeatedly face the challenge of trying to balance patient access, effective medicines, affordability, and rising costs.
Changing policies across the world
Countries are redefining their policies of public procurement especially for pharmaceuticals and biologicals. Countries are considering ways to enhance purchasing power, provide greater transparency, improve health outcomes, reduce costs, manage therapeutic freedom and encourage innovation.
In Canada, Quebec and Ontario have both recently announced an intention to move to a “centralized” procurement and/or supply chain model for all government and broader public sector institutions to reduce red tape and costs.
In Europe a shift in policies has also been accelerated due to Brexit, where governments are trying to secure supply chains efficiently. UK’s NHS follows a Medicines Procurement, which is led and coordinated through a structure by the Commercial Medicines Unit it is hosted by NHS England and supported by the National Pharmaceutical Supply Group and The Pharmaceutical Market Support Group.
In March 2020, the European Union has successfully purchased crucial personal protective equipment (PPE) for healthcare workers treating Covid-19 as part of a joint procurement scheme.
Since April 2016, new European public procurement rules have profoundly changed the way public authorities spend a large part of the €1.9 trillion used on European public procurement every year3 . Central to the new approach is higher efficiency and the modernisation of procurement authorities.
Authorities that have already made the transition to eProcurement report savings of between 5% and 20%. Given the size of the total procurement market in the EU, each 5% saved could return around € 100 billion to the public purse.
Benefits in Biosimilars: Case Study Europe
Since the approval of the first biosimilar somatropin in 2006, over 50 biosimilars have been authorized by the European Commission for use in the EU. Biosimilars to originator biologics also feature in drug-tendering processes for off-patent biologics in the EU. And the introduction of off patent biosimilars along with centralized procurement has significantly benefited the buyers in reducing the healthcare costs.
For instance, NHS in the UK is able to achieve as much as a 43% discount for most of the biosimilars procured through the new centralized procurement policies.4
Although price-only and single-supplier (‘winner-takes-all’) tendering can generate the greatest short-term cost savings, as in other industries this approach could have a negative impact on the longer-term sustainability of the biosimilar industry. While most countries continue to follow single supplier models, the European commission is now pushing for multiple supplier/ molecule usage to promote innovation and give therapeutic freedom to the physicians.
Value Based Procurement
Digital tender process along with multi-product policies has helped both the buyers and suppliers in maximizing health outcomes. Value-based procurement is proving to be a key driver to unlocking outcome-based value for health systems and patients.
For Instance, in Europe public procurers can now go beyond the acquisition cost and consider all expenses during the device’s life cycle (for instance, acquisition costs, maintenance costs, and consumables). They also focus on price-quality ratio criteria, which encourage procurers to consider qualitative and economic benefits for the full set of stakeholders along a care pathway (care providers, care staff, the wider care system, etc).
Ireland has published a new national framework agreement for procuring medical technology that encourages procurers to put up to 80% of awarding weight on outcomes and benefits to care providers.5
Suppliers are now able to plan their calendars for product launches as value based tender strategies based on clinical studies. Tender process now presents an option of providing access to innovations at lower marketing/ distribution costs.
As per a recent study; for a medium-size medtech company, proactively investing in line with the value-based-procurement trend over the next three years would lead to 2.5 to 5.0% growth in the top line.6
Case studies Cardiovascular in Europe
Overall, more than 49 million people in the EU are living with CVDs, at an economic cost of EUR 210 billion annually.7 A majority of the cardiovascular drugs are consumed in hospitals. Many of the products are sold through a tender route. For instance, in Germany >80% of cardiovascular procedures are performed in the public sector.
The high cost of treatment in this segment is a key challenge for most countries. The average reimbursement in the US for the two most common PCI procedures in a hospital is around $12,000 per case.8
Centralized procurement and long-term chronic management help in reducing costs and providing better health outcomes. Given the reimbursement scenarios in most developed markets; tender channels become the most important sales channels.
As a result, companies focus on tender-based sales strategies instead of distributor-based sales. The idea is not to approach public procurement as a single and isolated act, but as a tool which can generate important measurable positive changes.
Changing strategies
As the share of tender based public procurement increases, understanding public procurement and tender notices have become extremely important. Traditionally the focus on this sector has remained low. Currently, 15% of the tenders in Europe have no bidders while 44% only have a single bidder.9
Tailor made go-to-market models catering to each country will allow for better targeting of sophisticated public tenders across geographies. This should help improve commercial resource allocation and sales-force capabilities in targeting both clinical and nonclinical senior stakeholders.
Companies need to develop capabilities that enable them to link outcome measures with tender-award criteria. In addition, there is a need to invest in understanding of care pathways, reimbursement pathways, procurement channels, and measurement of long-term health and service outcomes.
To achieve this, players will need to invest in market intelligence and develop capabilities of frontline team members to interact effectively with procurement teams. In particular, team members will need to be comfortable using data to develop and discuss a more quantified value proposition.
