A Healthy Supply Chain Supports Better Quality Care

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As pressure on health sector budgets increases, the value of understanding and maximising procurement spend within a hospital cannot be understated, writes Megan Main, CEO of Health Purchasing Victoria.

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“Clinicians play an increasingly vital role in supporting a healthy supply chain. At HPV we invest up front in engaging and leading clinicians in this process so that our sourcing program is shaped by clinical need.”

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When you consider that non-labour costs typically comprise up to 30-40 per cent of a health service’s budget, procurement spend represents a significant lever of control for hospital CEOs and CFOs to control rising costs.
The establishment of Health Purchasing Victoria (HPV) in 2001 led to a framework for collective hospital procurement that has delivered significant sector-wide savings. In the past 2013-14 Financial Year, HPV achieved savings of approximately $59.2 million for the sector. When we talk about savings, we are highlighting the money saved through either cost avoidance or cost reduction as a result of buying from a HPV contract.
HPV manages approximately $600 million of the estimated $4 billion in Victorian supply chain spend through its collective contracts.
Initially our role was focused on managing collective contracts for low-cost, high-volume medical consumables. However as our sourcing footprint increases to include more services and equipment categories our focus is shifting to identifying longer term value.
A recent HPV purchasing initiative, Group Buy, aimed to identify ways to unlock more value during a contract lifecycle. Group Buy was trialled within HPV’s Equipment sourcing stream to consolidate one-off small volume equipment purchases across the state. Group Buy essentially gives suppliers on our equipment contracts the opportunity to submit their best price for bulk quantities by way of a mini bid competition. A completely transparent process, the hospitals are able to choose from any supplier within the panel.
We are already seeing some encouraging benefits from this initiative. A pilot trial was completed in May 2014 for the HPV Defibrillators collective contract – three health services participated and were able to achieve an additional cost reduction of $31,000 (nine per cent) in addition to the 19 per cent already achieved through the contracted ceiling price. An additional Group Buy in November 2014 was conducted for the defibrillators, physiological Monitoring Equipment and Anaesthesia Gas Delivery Systems contracts.
So far, eight health services have begun using Group Buy for their equipment purchasing, and as more health services come on board, the potential for efficiencies and cost savings will increase.
The data connection for procurement savings
In order for new areas of procurement savings to be identified, our purchasing data must be reliable and
robust. Without common identifiers, product codes and descriptions can be described and coded in myriad ways across disparate information sources. Without data visibility we can’t continue to find more savings opportunities for the health sector.
An area in which Australia’s health sector leads the way globally is in the adoption of GS1 standards for health products via the National Product Catalogue (NPC). A single source of product truth sounds simple in theory but when considering the highly devolved nature of the health sector, it is more complex in reality. And internationally, reliance on disparate sources of health product information is still commonplace.
In Australia, the NPC is a master platform for medical product data to communicate standard and accurate price data electronically to Australian health departments and private hospital providers. HPV manages the Victorian Product Catalogue System (VPCS) which feeds directly into the NPC. The VPCS matches and merges product and pricing information from the NPC with HPV contract information.
The single source approach will be a key feature of health IT procurement. Take the example of GS1’s Recallnet Healthcare – again a central and online platform, which as take-up increases will be a central source of therapeutic recall notifications. Recallnet Healthcare replaces the previously manual processing of recall notifications with GS1 reporting that its usage can reduce the current recall processing time from 4-6 weeks to, in some cases, less than 24 hours.
Currently 45, or just over half, of Victoria’s public hospitals and health services are live or in the process of becoming live on Recallnet. This is a promising move that will eventually lead to one source of data on all therapeutic recalls.
From a supply chain perspective, clean, reliable data located in a single source is critical to identifying more procurement savings. In order to find additional savings, we first need to understand where the potential lies. The first step to identifying future savings, particularly for mature contract categories, is to understand what purchasing data trends are telling us.
Clinical engagement
Clinicians play an increasingly vital role in supporting a healthy supply chain. At HPV we invest up front in engaging and leading clinicians in this process so that our sourcing program is shaped by clinical need.
Every year, approximately 150 clinicians and other technical experts participate in HPV reference groups to develop specifications for upcoming tenders, evaluate supplier submissions and provide vital input into our sourcing program.
Best value doesn’t simply mean lowest price. We rely on clinical input to gain insight into the rationale for selecting products that have driven lower total costs or superior clinical outcomes and these may justify a premium price in some cases.
Through regular reference groups, we provide clinicians with a platform to take ownership of sourcing outcomes not only for their health service, but for the state. These groups promote greater inter-health service collaboration among clinicians as well.
In the case of our first state-wide Orthopaedic Prostheses tender in 2011, we worked with a range of metropolitan and regional clinicians on two expert advisory panels and with the Victorian branch of the Australian Orthopaedic Association. We achieved a 10 per cent cost reduction, which equated to $4 million across the State.
The end result was a panel of suppliers which meet strict quality and service criteria as defined by the expert advisory panels.
More recently within the category of Orthopaedic Prostheses, HPV promoted clinical evidence based practice by working with the National Orthopaedic Joint Registry. International benchmarking was also conducted with other Group Purchasing organisations. An ongoing category management group was established to address system inefficiencies and improve service delivery models.
We also aimed to increase price transparency in the Orthopaedic Prostheses category by creating a construct reference guide, essentially a mini product catalogue, aimed at the time-poor clinician. The guide provides an ‘at a glance’ comparative view of Orthopaedic construct types and prices before they are purchased. A construct is a ‘kit’ of individual prostheses products required for various hip or knee transplants.
With myriad product types on the contract, HPV defined 15 to 20 construct types for hip and knee transplants and liaised with suppliers to submit pricing conforming to those defined construct types. By doing so, clinicians accessing the contract have a much more transparent view of the different product combinations and prices across the 9 suppliers on the contract.
We rely on clinicians and experts within hospitals and health services to set the agenda for new sourcing events and categories – this is something that is critical to ensure that we make good supply chain decisions.
At HPV, we are passionate about the fact that best procurement practice ultimately benefits the health and finances of all Victorians.
Megan Main, CEO of Health Purchasing Victoria.
Megan commenced as Chief Executive in February 2008. Previously Megan was Director Supply Chain at Alfred Health. Prior to joining the public health sector Megan held various consulting and line management roles across a range of industries, focusing on supply chain, process improvement and strategy.
About Health Purchasing Victoria
Established in 2001 to improve the collective purchasing power of Victorian public health services and hospitals, Health Purchasing Victoria helps public health care services deliver high quality patient care by ensuring they have a reliable and agile supply chain.
HPV works in partnership with public hospitals and health services in order to understand their requirements facilitate large scale tenders and manage common-use contracts on behalf of the state. HPV also takes a lead in identifying and evaluating opportunities for collective procurement and projects that enhance public health procurement capability.
HPV is responsible to the Minister for Health and works closely with the Department of Health. HPV is an independent statutory authority under Section 129 of the Health Services Act 1988.
More information: www.hpv.org.au