Value-Based Procurement In Healthcare: Why We Really Need The Competitive Dialogue…Urgently!

February 5, 2018


It’s become a truism that value-based care requires hospitals and other health providers to adopt a different, more proactive mindset towards the treatment of patients. It’s another truism that emerging technologies now play and will continue to play a crucial role in improving health outcomes, health system performance while reducing the cost of healthcare.

But how do hospitals go about procuring the new healthcare technologies that will produce the desired results? Well, it is true that new innovative procurement approaches are now being discussed in Canada, at least in some quarters, but the harder truth on the ground is that they’re rarely being implemented. In fact – and this statement is not intended as an attention getter – most procurement approaches now in use across Canada stifle rather than encourage innovation.

Take, for example, the request for proposals (RFP), the mainstay of procurement for tapping the creativity of the market. In contrast with the pure tender, which comprehensively prescribes the features of the thing being acquired, the RFP specifies the outcome being targeted, leaving it to the bidder pool to determine how the products or services will be provided.

So far so good. But in the traditional Canadian RFP approach the substance of the proposals received – including the all-important price submitted on the closing date – is rarely negotiated. Why is that? Because there is still a widespread belief in Canada that negotiations are illegal. This mistaken view finds its roots in the seminal 1981 Supreme Court of Canada decision in R. v Ron Engineering and Construction (Eastern) Ltd, which barred negotiations where the bid call document disclaims negotiations and instead focuses on the lowest price submitted. This false start has resulted in a colossal missed opportunity to optimize value for money over the years, both in terms of the details of the solution being acquired, and the final pricing. We know anecdotally (based on an informal survey I conducted 10 years ago) that without any negotiations, proposal prices conceal a premium ranging anywhere from 20 to well over 100 per cent to account for the risks inherent in rigid procurement processes. As any astute business person would, suppliers price unknown risks whenever they can and at their earliest opportunity – at the bidding stage.

Value-based procurement is called for especially when procuring advanced healthcare technologies intended to achieve outcomes and solutions that optimize value for patients. As hard as it may be to break old habits, we need to unfasten ourselves from the traditional RFP. There are better ways.

One such better way is the Competitive Dialogue, a highly effective type of innovation procurement noted by the Ontario Centres of Excellence (OCE), but without explanation as to its workings. New to Canada from Europe, the Dialogue’s procedure allows a buyer to hold separate but contemporaneous negotiations with qualified parties. Here the buying hospital and each bidder collaborate in real time to devise a solution that truly meets the needs of the hospital, and typically results in a much lower price tag.

The Dialogue allows for a free-flowing discussion between the hospital and each qualified supplier. Ideally, at least four to five parties should be pre-qualified. After the hospital has identified the suppliers having the potential to provide a responsive solution, the hospital holds several rounds of negotiations with each supplier, initially to identify a solution that meets the needs of the hospital, and later to engage in detailed contractual negotiations with each supplier. When the Dialogue closes, several responsive solutions are available to the hospital. The so-called ‘prescriptive document’ – that is, the key bid call document – should reserve the right of the hospital to disqualify some suppliers in the earlier rounds so that contractual negotiations are undertaken with two or three suppliers, no more, in the latter rounds.

After the Dialogue is closed, each remaining supplier is invited to submit a final tender (ISFT) to finally determine the successful proponent. Of significance, unlike the RFP process where the suppliers’ responses focus on the outline of a single solution, the Dialogue produces a variety of different and more responsive solutions. The magic of the Dialogue is to allow for the kind of interactive creativity that is so essential when procuring advanced technologies.

While the broad strokes of the Dialogue process are easy enough to decipher, the implementation itself is made more challenging by the multiple court-fashioned procedural fairness requirements that hospitals must comply with. These apply from the very start to the end of the Dialogue and include the standard legal and ethical duties of fairness, accountability, openness, and transparency. How these duties play out in real time is everything.

So there is no legal impediment to negotiating the value being procured. In fact, deep inside the newly-implemented Canadian Free Trade Agreement (CFTA) (effective, July 1, 2017), lurks a helpful provision. Article 512 provides a roadmap to negotiations, albeit leaving it to the procuring entity to figure out how to navigate the all-important legal and ethical fairness requirements.

While useful steps have been taken to promote various types of innovation procurement – the helpful primer released by Ontario’s Ministry of Government and Consumer Services is but one example – what is needed now in Canada is clear leadership from provincial Ministries of Health in truly getting behind value-based procurement. Ministries must provide concrete and detailed support – as was done in Belgium recently. At a client-hospital meeting I attended a few months ago, the CEO announced that the hospital would henceforth have two CEOs, one focusing on the blue zone, clinical matters, and the other on the green zone, business matters. “This means that the green zone needs to be managed like any other company”, the slide said, “and as a result will require the implementation of well-known management concepts and techniques.”

The hospital enthusiastically embraced supply chain management (SCM), adding that SCM “should become a core competency in hospitals”. The hospital had obviously done its homework: the Ministry of Health representative was on hand to confirm that legal changes would be brought to the regulatory framework to accommodate the role of private sector companies in the morphing healthcare environment. With the endorsement of the Ministry and its Board of Directors, the hospital earmarked a handful of private companies to begin to define the new type of public-private partnership it feels it needs to help it improve health outcomes, health system performance, and reduce the cost of healthcare.

This article will be published in Canadian Healthcare Technology