PRODUCTS & SERVICES
enrichment for purchasing professionals. How, might you ask? Much of the work in healthcare procurement is largely tactical, routine, and product based. VBP requires a strategic approach, where procurement professionals must think differently, uti- lize relationship and change management skills. Additionally, procurers will be better able to contribute to health system’s strate- gic goals (e.g., improved patient outcomes and asset utilization) instead of merely contributing by way of temporal effi ciency gains and cost savings. With health systems actively exploring the adoption of VBP in the U.S., Europe and the U.K.,
such an
approach is worthy of consideration. What follows represents an overview of the chal- lenges and opportunities VBP presents to providers. This article is Part 1 of a series in which we will also discuss the challenges and opportunities VBP presents for suppli- ers, payers and fi nally patients.
Navigating the VBP minefi eld Value-based procurement is essentially life-cycle costing for healthcare. The focus moves to maximizing efficiency across patient pathways from clinging to price/ product. The attraction? From a commer- cial perspective it’s an opportunity to save 10 percent of the cost of a $5,000 procedure rather than 10 percent of a $1,000 product. Operationally, the healthcare facility gener- ates spin off benefi ts of improved effi ciency and throughput by focusing on the patient pathway instead of the product. So, the question you may be asking is, if this approach is so good and relevant to today’s environment why isn’t VBP com- mon practice across healthcare? Here are two reasons why VBP hasn’t received suf- fi cient traction in provider organizations, although variants of it are successful in other industries.
Take for example, the high-tech and logistics industries. Dell and FedEx agreed to a value-based arrangement in which FedEx Supply Chain would be Dell’s ser- vice provider. As part of the initial arrange- ment, Dell wanted FedEx Supply Chain, by way of its operations and investments in innovation, to continually reduce costs in adherence to Dell’s “every dollar, every year” mantra. FedEx Supply Chain was rewarded for enhancing its profi tability through its services, whereas Dell was rewarded for getting the lowest costs. This arrangement proved problematic as FedEx Supply Chain took much of the risk at a set price with no guarantee of return-on- investment within the three-year contract
term, and FedEx Supply Chain grew frus- trated with Dell’s requests to renegotiate the three-year agreement every six months. Ultimately, Dell and FedEx Supply Chain entered into a VBP contract that ensured their interests were aligned. The approach added costs to FedEx Supply Chain, but FedEx Supply Chain was amenable to the arrangement because as it helped Dell save money and use fewer parts, FedEx Supply Chain also won. How, exactly, did FedEx Supply Chain win? Dell recognized that its request would be burdensome to FedEx Supply Chain, so Dell agreed to its service provider for investing in innovation and process improvements, as well as offered additional incentives for waste reduction.
Challenge No. 1: Lack of understanding how to sell and buy value
It has been said that ”value is in the eye of the beholder.” With multiple stakehold- ers across healthcare and non-healthcare industries, the potential scope for inter- pretation expands. To address this, the fi rst stage for a VBP project is to set out clearly what value means to your health system. This can be achieved by mapping current processes, highlighting areas of challenge or opportunity, the cost associated with the processes and the step change targets that you need to make a difference. For example, in orthopedic hip replacements, saving 30 minutes of OR time could enable delivery of care to additional patients, thereby generating more revenue. Any- thing less would be an intangible benefi t.
Challenge No. 2: Trust
A lack of transparency exists in terms of what health systems value and what suppliers can do to support realization of the value. Unfortunately, the status quo is incentive misalignment wherein which the procurer is incentivized to get the lowest unit cost while the supplier’s representa- tive is incentivized to secure certain vol- umes and/or at the highest potential price. The result is a “sales pitch” that offers the world at a fraction of the cost (which won’t be realized), while the suppliers experience perceived high-profi t margins. Another supplier tactic that inhibits trust in the buyer-supplier relationship is bundling highly discounted extra services that require buying certain higher-cost/ premium peripheral products or the inclu- sion of support services as a kicker if you hit a specified level of spend. Whether perception is reality or not doesn’t matter.
This approach continues to fan the fl ames of mistrust in the mind of procurers. Based on our experiences, value-based proposals from suppliers have been viewed by procurers as a ploy for pre- mium pricing but nestled deep within the fi ne print of accepting ancillary support products, rather than the delivery of inno- vation and benefi t to the health system. n the other side, value-based requests from procurers have come across as scattered and incomprehensible.
The path forward: A CLEAR frame of reference However, procurers and suppliers can reconcile these points of contention and ensure mutual value by conditioning each party to collaboratively adhere to “CLEAR” principles. Concise - Information supplied should
be concise and follow the guiding elements outlined below. Linear - Map out the patient pathway
and identify the challenges that need to be addressed by the solution and how all stakeholders benefi t when successful. Evidence - Provide references to ”real- world” evidence where the solution has delivered tangible and measurable benefi ts consistent with the goals of the health system. In cases where the health system is uncertain of what value means, suppli- ers should use this evidence to help health systems design specifi c value defi nitions and metrics. Avoid - Overstating savings claims/pro-
ductivity benefi ts using fractions of time to forecast productivity gains. Results - State how the improvement in clinical/operational results can be isolated to show a direct correlation to the sup- plier’s solution.
This approach basically boils down to
contracting for value. Though relatively foreign in healthcare, contracting for value is more common in other industries. McDonald’s is a well-known global brand, but many may not be aware of its unwavering belief that everyone in the McDonald’s “system” (including its suppli- ers) can and should win. This is at the heart of McDonald’s strategy to consistently con- tract for value (for all parties involved). In line with this strategy, McDonald’s refuses to conduct business with strategic suppliers on a transactional relationship – but instead insists suppliers have long-term relation- ships that drive business value and achieve McDonald’s key business outcomes. This continues to result in McDonald’s having
hpnonline.com • HEALTHCARE PURCHASING NEWS • September 2021 43
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