Lectures Healthcare Procurement & Value Chain Management
1. Introduction to healthcare purchasing & supply management
This summarizes what the topic is about. There are always exam questions related to the basic of
what is going on here. We see a triadic relationship between three very important actors in the
healthcare sector.
1. Healthcare user: someone who needs care, or might need care in the future, individuals.
2. Healthcare provider: hospital, general practitioner, physiotherapist.
3. Healthcare purchaser: sometimes called the healthcare payer. This one is special because in
many countries we don’t expect the healthcare user to pay directly for healthcare. Most of
the care is actually paid by someone else.
There is always some government regulation. In some countries more than in others. There is a
difference between purchasing for care an purchasing off care!
In the Dutch system we have insurance as healthcare purchasers (Zvw) but we can also think about
municipalities in the social care act (WMO). Government could also be a purchaser for WLZ
(zorgkantoren runned by insurances companies). However in some countries the government is the
most important purchaser. Employers could also do this, think about big companies like Google who
do their own purchase of healthcare (in the US).
Another part is the subcontractor this is about integrated care. How patients should be treated all
along a path way. For example when a purchaser wants to contract integrated care, they make one
provider the main contractor, negotiate with them, and they can subcontract whatever healthcare
providers they need to provide this integrated care. Think about the stroke care pathways!
Question: do we only talk about purchasing when there is negotiation? When an individual directly
purchases care (for example cosmetic care) with the supplier (e.g. Bergman Clinics) is that also
purchasing? Yes, this is also purchasing. In a typical purchasing process there would be negotiation,
,but the power difference between the provider and the user, you can’t negotiate about the price,
but maybe you could negotiate about other aspects of the service. So there is not always negotiation,
depends on what relationship is there.
Purchasing for care
What does purchasing cover? ‘’Anything for which you receive an invoice (facturen)’’
Some distinguishes you could use:
• Direct versus indirect spend: everything that ends up in the product is direct spend (for
example a car). Everything else is indirect spend (legal section, machines).
• Goods and services: goods are physical you can touch and see them and some are services
(e.g. legal).
• Incidental versus highly routine: some things you might purchase all the time, while other
stuff you purchase even once every 5 years.
• Customized versus standard
Products can be goods and services!
In healthcare: direct is everything that touches the patient (medicine and for example also gloves).
Non-direct is often more about the legal department, or e.g.
Capital expenditure (CAPEX), investment goods: another category that lasts for more years like the
building, big machines and IT.
Question: is a teacher part of the purchasing spend form Erasmus University?
Does a teacher sends invoices to an university? Probably not. However, this depends if you get a
salary or are you paid per hour? If you get a salary you signed an employment contract and don’t
send invoices to get your salary. So the correct answer is no: personnel is not considered purchasing
spend. The only thing that can happen is when you have temporary labour (uitzendkrachten) then
there are invoices send. So that is part of purchasing spend, but salary not. → Maatschap werk is a
very special case they have their own negotiations. ZZP’ers are purchasing spend, they send invoices.
A classifications of hospital purchases
Lichtenberger et al. (2010) made a different
distinguishing between low-preference and high
preference clinical. Why? The purchasing
approach will be different because with an high
preference clinical outcome as a purchaser you
cannot negotiated with supplier and choose the
product because the doctor might say: I’m not
going to work with this brand. So you need to
involve professionals. With low preference you
don’t have to involve them, maybe a bit. And with
basic indirects you do not have to involve them.
Illustration of hospital purchases
This gives an idea of different things being
purchased and where it goes to:
,Price differences between care providers
A research in England showed that between the 100 most purchased items in hospitals there are big
price differences. The biggest different is even 118% between the lowest paid price and the highest,
of the same product.
Purchasing ratio
= purchasing costs / the total costs of an organisation. Purchasing costs can vary from 10-95% of total
costs of an organisation. You can imagine that for example Albert Heijn has a very high purchasing
ratio, everything they sell is purchased → retailers. For example for pharmaceuticals the research,
production etc. is a bigger costs than purchasing costs. What ends up in the pills is a part of the costs,
but not the highest cots. The same for services companies, they have high personnel costs, and low
purchasing costs.
Purchasing rations in four Dutch care sectors (2017)
Question: what would the purchasing ratio of a Dutch insurance company will be?
This depends on how you calculate it. But if you look at the total annual budget of an insurance
company and you will look at how much of that budget they spend of purchasing of care with
hospitals, physiotherapists etc. You would get to 92-96%. From every euro about 95 cent is being
spend on healthcare purchasing. From that remaining 5% they have to pay their personnel, their
buildings etc. and some of it might be positive market.
Formal definition of purchasing
‘’The design, initiation, control and evaluation of activities within and between organisations aimed
at securing inputs from suppliers at the most favourable conditions.’’ – Based on Van Weele (2010)
and Wynstra (2006), adapted for this specific course.
This definition is applicable for purchasing off and for care.
Favourable conditions
What do you have to keep in mind while negotiating about purchasing products. A generic list from
purchasing industry:
• Price
• Other costs
• Quality (conformance, durability, functionality, safety)
• Deliver (reliability, speed)
• Flexibility
• Technology (innovation)
• Sustainability (child labour?)
, Applicable as well to:
• Purchasing for care? Yes
• Purchasing off care? Would insurers also question this? This would be interesting to research
what they use.
The 6-step purchasing process – Van Weele (2010)
What this model says: there is always someone for whom you are purchasing. Think about
professionals who use the gloves. You then first define specifications and then go to the market to
see: who is out? To select suppliers and then you have to draw up a contract where you talk about
price and quality etc. Then you might place an order: okay I want 100 items of this. Then you have to
sometimes chase it up, or at least monitor, that is wat expedite & monitor is about. Then we might
have an official follow-up process where you evaluate if everything is delivered on time and right.
Then you might purchase again with this supplier. The contract is in the middle: there are things we
do to get to the contract and things we do after the contract.
➢ That first part is often called: tactical purchasing/sourcing. We are trying to find out the best
sources for what we need.
➢ The second part is: operational purchasing. We check if everything is going fine.
The purchasing wheel – Van Raaij (2016)
The first one was simple, but this one is more complete and more important. The other one suggests
that you do it (linear) and then it stops. But in reality that is not how it works. Whatever you have
done, is input again for the next time you are looking for a similar product. So we use this one for the
rest of the course.
It makes sense to start with the sourcing analyses. Once you have specified what you need, you
should also need to reflect on what is going to be my strategy. Am I going to put a large emphasis on
putting the lowest price, for some products you might, for other products price should be on the
secondary or tertiary. Am I going to try to find the one single best supplier, or as a strategic decision,
maybe decide to have 3 suppliers, because I want to spread the risk. These strategic choices do you
make on what your purchasing. You make strategic decisions about what is going to be important
and how am I going to purchase this (sourcing strategy development). So supply selection, select 2
or maybe 5 suppliers. If you want to do, multiple sourcing.
→ When I purchase electricity, I want one supplier who is the most reliable in e.g. Rotterdam. But
purchasing surgical gloves, the one doctor wants this, the other that, so maybe more handy to have
more suppliers.
Once we have the contract, got into the operational part -> identify that you really need something
in this point of time. That triggers that you set a purchase order, the supplier fulfils the order. The
invoice come in and we have to approve it. And once it’s approved we also pay for it.
