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Procurement challenges & opportunities in the healthcare sector

Updated: May 3, 2023

- why engagement, collaboration & communication is key

As the healthcare sector continues to evolve and become more complex – and more competitive – it’s imperative for healthcare providers to assess their procurement goals and processes to see how they stack up.

August Consulting’s lead consultant Bill Porter shares his insights on the procurement challenges and opportunities in the healthcare sector, including industry reforms, impacts of organisations’ procurement policies and culture, change management strategies, and the value and benefits of using data to inform procurement strategies.

Let’s start with the challenges.

Some of the key challenges the industry is facing include:

  • the growth of robotics and associated unfunded additional costs

  • the continued high level of clinician preference restricting product rationalisation

  • the continued Prostheses List reforms

  • reduction in benefits of supplier agreements

These issues are exacerbated by increasing supply chain costs and uncertainty, coupled with the challenges of retaining a skilled workforce, and reduced hospital margins adding additional pressure on all areas to reduce costs.

How can we address these challenges?

There are various ways organisations can address these challenges, such as improving group-wide collaboration within your organisation to improve buying power, and developing innovative supplier partnership agreements that provide a win-win for both parties.

With the tightening of hospital margins, organisations should consider product rationalisation with both staff and clinicians, and explore the possibility of forming buying groups with other healthcare organisations to improve the buying power of smaller hospital groups.

How can we use data to develop procurement strategies?

As data management tends to be poor in many hospitals, it makes it difficult for procurement teams to maximise contractual benefits.

With the introduction of more advanced analytics, quality data becomes a game changer.

By recognising that poor data means lower profits, upgrading ERP systems, material masters and purchasing capability is imperative.

Further, suppliers will offer better deals for organisations that provide accurate data. In turn, this means hospital staff can make more informed buying decisions with easily accessible contractual information.

How can organisations respond to industry reforms?

The current prosthesis industry reforms are forcing organisations to review their commercial arrangements with their key suppliers, including considering alternative products that are coming off the prosthesis list.

Understanding the financial impact of these reforms is critical to having the right engagement with clinicians and doctors to help develop mitigation strategies for procedures which will have a significant margin impact.

Reviewing best practice and potential product rationalisation will also maximise funding potential, and support redesigning supplier contracts to maximise benefits of multiple categories or total spend.

How can organisations implement change management strategies within the sector?

Supply and wage cost increases, prosthesis reforms and insurer funding that doesn’t match cost increases is driving the need for change within the sector to maintain margins.

Procurement teams need greater communication with all stakeholders and a clear understanding of the need for change and desired outcomes.

Further, clearly defined change management processes, financial business cases and resourcing requirements have to be understood and approved by key stakeholders.

If needed, a detailed education, training and roll-out plan should be communicated and agreed by key stakeholders.

The timing and number of change management projects should be aligned with internal resourcing and activity levels.

What about organisations’ procurement policies and culture?

Internal procurement policies and delegations don’t tend to be easily accessible or clearly understood by key staff that need to react to clinician demands.

Therefore, where possible, procurement team members should make regular site visits to get feedback on contracts and systems, and provide details on benefits achieved and future planning.

Further, procurement teams must ensure key stakeholders are included in the contracting process during planning, contract development and evaluation.

Organisations with hospital-centric cultures often result in hospital-level contracts that don’t maximise the organisation’s total buying power.

Suppliers work hard to encourage individual hospital agreements to reduces the total purchasing power.

How can they improve this?

Hospital group executives could – and should – introduce hospital key performance indicators (KPIs) that encourage hospitals to work together, and the procurement team could develop contracts that provide improved outcomes based on group-wide targets.

Also, if they’re not already in place, supplier policies could be developed and enforced to ensure the control of off-contract purchasing, introduction of new products and access to key staff.

To achieve your procurement objectives and remain competitive, it’s critical to assess your current practices to not only help address these industry challenges, but unveil opportunities to improve your procurement strategy and see significant improvements in your organisation.

August Consulting offers a range of tailored, scalable procurement and supply chain services, specifically for the healthcare sector.

Need more information about procurement in the healthcare sector?

To explore how we can help you optimise your procurement and supply chain processes, contact us by phone, email or via our social media channels.


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