Value-based purchasing in healthcare: The next frontier
Value-based purchasing in healthcare: The next frontier Simone Edelmann
Value-based healthcare, or VBHC, stands in stark contrast to the classic fee-for-service healthcare delivery model because “value” in VBHC is defined as improving patient outcomes throughout the entire healthcare journey. At the core of every value-based model is the shift from treating conditions to solving patients’ needs, and payments for health services are therefore based on positive patient outcomes rather than on the number of procedures performed. However, the entire delivery system needs to adapt to achieve these goals, including a shift towards value-based purchasing in healthcare.
This includes the way that healthcare technologies, services, and treatments are purchased. According to MedTech Europe, approximately 70% of all medical technologies are purchased through procurement,1 which is the “formal process (tender) by which public authorities, such as government departments, local authorities or public hospitals, purchase work, goods or services from external companies.”1
Addressing value-based purchasing in healthcare
In a value-based healthcare system, the purchase of health services, technologies, and therapies must also address patient outcomes and needs versus simply focusing on price. Unlike in a traditional tender, where the lowest cost bid would generally be awarded the contract, in a value-based procurement system, the contract is awarded on the principles of value-based healthcare: what matters most to patients – the impact on their health outcomes – as well as the impact on healthcare delivery and management of the total cost of care.1
To highlight the importance and advantages of value-based procurement, we selected just a few outstanding examples where value-based procurement has been successfully implemented. These cases are focused on Europe, particularly Scandinavian countries, where value-based healthcare – and by extension value-based procurement – is more widely accepted and advanced.
Value-based purchasing in healthcare: Real-world examples
Tender for IV catheters based heavily on patient feedback in Norway2
This is an example that puts patient input front and center. Following the purchase of low-price syringes that caused high pain levels and many failed injections, and therefore increased costs, the Norwegian regional health authority Helseforetakenes Innkjøpsservice AS (HINAS) opened a new tender with a twist.
This time, they tested products from competitive bidders for a period of two months and awarded the tender on the basis of a combination of cost and qualitative ratings such as ease of use and perception of pain.3 In the end, the lowest-priced bid did not win, with the winners being more expensive but causing less pain and associated with lower failure rates. One unsuccessful bidder challenged the award in court – which the procurement authority won, as the qualitative criteria were considered relevant and the measures deemed to be an appropriate and objective way to evaluate the products.
Hospital beds at Erasmus Medical Center in Rotterdam, Netherlands4
The Erasmus Medical Center in Rotterdam was looking for a supplier for a connected hospital bed solution. A connected or “smart” hospital bed can continuously generate data points – such as head-of-bed angle, bed height, side rails, and exit alarm status, patient weight – that help allow patients to get out of bed faster and more safely while improving and streamlining patient care.5
In the end, Erasmus decided to sign a 15-year, outcomes-based contract for 840 beds and mattresses. The deal includes a wide array of patient-focused outcome measures (including fall prevention, reduced pressure ulcers, and patient mobilization) as well as cost-of-care outcomes such as improved workflow efficiency and length of stay. Altogether, Erasmus selected the final proposal because they believe that this long-term partnership will provide both a substantial total cost of care savings and improve patient safety, while also elevating employee satisfaction.
Innovative tender for wound care in Sweden 2
This is a great example of value not being the same as cost. The Stockholm County Council, which runs most of the city’s hospitals, was starting a tender for wound care products. Rather than focusing just on price, this innovative tender asked bidders to calculate the total cost of treatment for three hypothetical patient cases. The calculation formula for these costs included a variety of factors: the cost of wound care dressings, the number of dressing changes, staff costs for time spent changing dressings, and transportation costs. Beyond this, the Council asked bidders to calculate the expected impact of any complications that might be caused or avoided by using their product.
In the end, the winning bid went to the supplier who was able to demonstrate the lowest total cost of care, even though they had the most expensive product. They were also able to back these claims up with clinical evidence. By looking beyond unit price and building a total cost outlook into the tender process, the Stockholm City Council was able to make a more holistic decision on the value that their tender might be, versus simply calculating unit cost.
Implantable cardioverter defibrillator tender at Hospital Sant Pau, Barcelona, Spain6,7
The Agència de Qualitat i Avaluació Sanitàries de Catalunya (AQuAS)—the Catalan Agency for Health Information, Assessment, and Quality—and Hospital Sant Pau in Barcelona teamed up for a unique tender for implantable cardioverter defibrillators (ICDs). Up until this time, the hospital followed a standard tender process, buying ICDs whenever they were needed. The relationship ended as soon as delivery was made, and this meant that Hospital Sant Pau was missing out on the continuity of working with a single partner, and not reaping the benefits of the significant amounts of data that ICDs continuously send to manufacturers to help improve patient outcomes.
This time, AquAS and St. Pau used a “competitive dialogue” tender process. Instead of looking at cost alone, they outlined their services needed and asked companies to suggest solutions to address them, with both cost and outcomes as key criteria. A decision was made to go with two providers, establishing a new service contract, where they not only received devices as they needed, but also technical assistance, and a remote monitoring center with each for four years. During this time, the companies shared all ICD data in real time. The results were impressive: a 10 percent drop in outpatient visits, a 10 percent reduction in complications, and increased collaboration along the care pathway.
Tender for imaging services at Karolinska University Hospital in Sweden2
Karolinska University Hospital issued a large, 14-year tender for imaging services—including MRI, ultrasound, and CT scanners. The tender’s criteria clearly highlighted that the hospital wanted to procure full imaging services, including maintenance, upgrades, and full service. There were also R&D and innovation scores built into the tender beyond the standard pricing parameters.
The contract was eventually awarded thanks to the combination of attractive pricing and high quality provided by the bidder. Beyond providing the required technology, they also offered to establish a local innovation hub for research and education focused on improving outcomes in ten high-priority therapy areas. This was especially attractive to Karolinska, who were eager to work with a supplier that would add value and improve the way the hospital treats patients, while also helping to manage costs over the long term.
What do healthcare leaders need to consider?
1) Prepare your organization for value-based procurement. Like value-based healthcare, the concept of value-based procurement is trending upward, and in some areas is in its initial phase of practical implementation. Value-based procurement promises to deliver improved outcomes, cost savings, and service improvements beyond traditional, narrow price-based measures. However, implementing it locally requires understanding and acceptance by both the buyers and suppliers, the mechanisms to calculate “value” beyond cost, and regulatory and governance support and recognition.
2) Your competitors are getting on board. Some companies are already getting a leg up on their competitors by differentiating themselves from the pack with innovative and creative value-based offerings. Now is the time to begin putting capabilities to gather, analyze, and operationalize data into practice within your organization, whether you are a purchaser (like a hospital) or supplier (MedTech or healthcare service provider) in order to keep up.
3) Don’t implement value-based procurement for all purchases. Traditional contracting arrangements are expected to continue to dominate in the short term, so value-based procurement does not need to be established everywhere for every purchase. Its main value is derived in categories where the potential impact or benefit is greatest, not necessarily for routine purchases.8 However, they will continue to grow and become an increasingly important part of the procurement landscape in healthcare, especially for long-term contracts with harder-to-predict outcomes.9
The future of value-based purchasing in healthcare
The move toward value-based procurement and purchasing is well underway, and several examples have shown that the shift from purely economic to value-driven criteria for public health purchasing can be successfully implemented. This momentum seems set to continue, especially in Europe, where value-based procurement is directly supported and endorsed by the European Union. In 2016, the EU’s Directive 2014/24/EU came into effect and embedded in this legislation aimed at modernizing procurement was an emphasis on the importance of value for money and quality.2
The adoption of value-based procurement and purchasing will require a strategic shift for many healthcare companies. It is important that healthcare leaders start considering how their organization embeds the health outcomes that matter most to patients into their purchasing processes and procedures. To do so will require careful strategic planning, as the current procurement model will continue as the shift to value-based care continues. It won’t happen overnight, and may not be right for every tender, but by focusing on the outcomes that matter most to the patient, value-based procurement can be a powerful model that helps organizations to better serve the unmet needs of their patients and drive improved outcomes in the long run.
Want to learn more about effective value-based healthcare, and how you might make it come to life in your organization? Download our ebook highlighting 9 real-world examples of value-based healthcare transforming care delivery below.
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