May 17, 2020

Deloitte: introducing Value-based procurement in healthcare

Sean Galea-Pace
4 min
Deloitte: introducing Value-based procurement in healthcare
What is the future of procurement in the healthcare industry? Let’s find out

Procurement will play a major role in the future of the healthcare indus...

What is the future of procurement in the healthcare industry? Let’s find out

Procurement will play a major role in the future of the healthcare industry. With the sector in a period of transition as a result of rapid digital transformation, embracing the latest technologies to increase efficiency and drive cost savings is essential. Healthcare Global explores Deloitte’s report, “How to eat the Value-based Procurement elephant?” and looks at the digital transformation journey healthcare procurement is on.

Future of procurement in the healthcare industry

The sector is moving away from ‘traditional’ lowest price procurement strategies and product buying. Instead, there has been a noticeable shift towards quality, services and solutions. One of the biggest challenges that the industry faces is juggling the balance of costs and quality. This is where Value-based Healthcare (VBH) comes in. 

VBH is a healthcare delivery model in which providers, such as hospitals and physicians, are paid based on patient health outcomes. Under the value-based care agreements, providers are financially rewarded if the health of their patients improve and they live healthier lives in an evidence-based way. By the same reasoning comes Value-based procurement (VBP). VBP is regarded as a way to deliver whole-life cost savings and service improvements across product pathways beyond traditional, narrow price-based measures. True VBP remains in its initial stages of practical implementation as the level of understanding differs amongst stakeholders, while healthcare providers continue to struggle with the challenges of practical implementation.

Future of procurement in the healthcare industry

In Deloitte’s survey, there were four main drivers identified:

  1. Cost reduction

Respondents confirmed that sourcing services and integrated solutions are considered an opportunity to simplify and reduce the supplier base. Sourcing solutions enables devices, consumables and related services to be combined in one contract which will optimise the total cost of ownership inherently. 

  1. Risk reduction

Services and solutions allocates risks to the supplier side. Compatibility risks are reduced when the device and the related services are sourced from the same supplier under the same solution. 

Deloitte survey future of procurement in healthcare

  1. Improved solution offering from the supplier side

Price transparency and visibility is important to increase and accelerate the implementation of solutions by healthcare providers. It provides the industry with a clear understanding of the different components included in the solution or service. The key benefits of this are:

  • Allowing trust to be built up in the supplier. This is because solutions are often perceived or effectively used as a strategy for being intransparent and generating pricing markets. 

  • For the healthcare provider, price transparency is considered a necessity for practical implementation and financing a solution.

  • A discussion to be held with both suppliers and healthcare providers to create tailor-made solutions to the specific needs and financial capabilities of the healthcare provider.

  1. Stricter quality and safety requirements from regulators and for accreditation purposes. A range of regulatory requirements and changes encourages hospitals to move towards services and solutions to place ownership and follow-up of compliance with the supplier. 

How to make Value-based procurement a success

Deloitte’s survey found that over half of survey respondents have had little to no experience of using VBP. This showcases that VBP isn’t fully on their radar… yet. However, this could be because many have a different understanding of exactly what it was, with some interviewees considering qualitative criteria already as a form of VBP. The report highlights two key areas that distinguish VBP:

  1. The exclusive focus on patient impact in the evaluation methodology and definition of specifications.

  2. A financial analysis that goes further than solely cost of ownership of the goods, services or solutions purchased.

Value-based procurement requires a systematic approach and strategy for implementation, which includes the necessary organisational buy-in and clear focus. To make it a success, Deloitte recommends:

  • Using a user-focused approach

VBP isn’t relevant for all purchases. It’s important to determine the most appropriate categories to introduce Value-based procurement as well as make the necessary resources available for implementation. These aspects should be taken into account: 

  • The potential impact or benefits that can be achieved.

  • The readiness of stakeholders to embrace change.

  • The complexity and number of stakeholders involved.

Deloitte survey future of procurement in healthcare

  • Implement Value-based procurement step-by-step

A successful VBP rollout requires a multidisciplinary approach and a high level of involvement of internal stakeholders that are open to change. Active stakeholders must be introduced on both a management and operational level. The procurement organisation should have enough maturity to drive change to a Value-based procurement model.

  • Obtain cross-function support within the organisation

A successful VBP rollout requires a multidisciplinary approach and a high level of involvement of internal stakeholders that are open to change. Active stakeholders must be introduced on both a management and operational level. The procurement organisation should have enough maturity to drive change to a Value-based procurement model.

Procurement in the healthcare sector is moving towards a more value-orientated approach. Deloitte’s survey shows that healthcare providers must formulate a clear plan to drive this strategy forward in a bid to successfully embed Value-based procurement into their supply chain ecosystems.


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Apr 30, 2021

The challenges to vaccine distribution affecting everyone

Jonathan Colehower
5 min
The challenges to vaccine distribution affecting everyone
Jonathan Colehower, CEO at CargoChain, describes the COVID-19 vaccine distribution challenges impacting every country, organisation and individual...

While it is comforting to know that vaccines against COVID-19 are showing remarkable efficacy, the world still faces intractable challenges with vaccine distribution. Specifically, the sheer number of vaccines required and the complexity of global supply chains are sure to present problems we have neither experienced nor even imagined. 

Current projections estimate that we could need 12-15 billion doses of vaccine, but the largest vaccine manufacturers produce less than half this volume in a year. To understand the scale of the problem, imagine stacking one billion pennies – you would have a stack that is 950 miles high. Now, think of that times ten. This is a massive problem that one nation can’t solve alone.  

Production capacity 

Even if we have a vaccine – can we make enough? Based on current projections, Pfizer expects to produce up to 1.3 billion doses this year. Moderna is working to expand its capacity to one billion units this year. Serum Institute of India, the world’s largest vaccine producer, is likely to produce 60% of the 3 billion doses committed by AstraZeneca, Johnson & Johnson and Sanofi. This leaves us about 7 billion doses short. 

Expanding vaccine production for most regions in the world is complicated and time-consuming. Unlike many traditional manufacturing operations that can expand relatively quickly and with limited regulation, pharmaceutical production must meet current good manufacturing practice (CGMP) guidelines. So, not only does it take time to transition from R&D to commercial manufacturing, but it could also take an additional six months to achieve CGMP certification. 

The problem becomes even more complex when considering the co-products required. Glass vials and syringes are just two of the most essential co-products needed to produce a vaccine. Last year, before COVID-19, global demand for glass vials was 12 billion. Even if it is safe to dispense ten doses per vial, there is certain to be significant pressure on world supply of the materials needed to package and distribute a vaccine.

It is imperative drug manufacturers and their raw material suppliers have clear visibility of production plans and raw material availability if there is any hope of optimizing scarce resources and maximising production yield.

Distribution requirements

It is widely known by now that temperature is a critical factor for the COVID-19 vaccine. Even the regions with the most developed logistics infrastructures and resources needed to support a cold-chain network are sure to struggle with distribution.

For the United States alone, State and local health agencies have determined distribution costs will exceed $8.4 billion, including $3 billion for workforce recruitment and training; $1.2 billion for cold-chain, $1 billion vaccination sites and $0.5 billion IT upgrades.  

The complexity of the problem increases further when considering countries such as India that do not have cold-chain logistics networks that meet vaccine requirements. Despite India’s network of 28,000 cold-chain units, none are capable of transporting vaccines below -25°Celsius. While India’s Serum Institute has licensed to manufacture AstraZeneca’s vaccine, which can reportedly be stored in standard refrigerated environments, even a regular vaccine cold chain poses major challenges.

Furthermore, security will undoubtedly become a significant concern that global authorities must address with a coordinated solution. According to the Pharmaceutical Security Institute, theft and counterfeiting of pharmaceutical products rose nearly 70% over the past five years. As with any valuable and scarce product, counterfeits will emerge. Suppliers and producers are actively working on innovative approaches to limit black-market interference. Corning, for example, is equipping vials with black-light verification to curb counterfeiting.

Clearly, this is a global problem that will require an unprecedented level of collaboration and coordination.

Disconnected information systems 

While it is unreasonable to expect every country around the world will suddenly adopt a standard technology that would provide immediate, accurate and available information for everyone, it is not unreasonable to think that we can align on a standard taxonomy that can serve as a Rosetta Stone for collaboration. 

A shared view of the situation (inventory, raw materials, delivery, defects) will provide every nation with the necessary information to make life-saving decisions, such as resource pooling, stock allocations and population coverage.

By allowing one central authority, such as the World Health Organization, to organize and align global leaders to a single collaboration standard, such as GS1, and a standard sharing protocol, such as DSCSA, then every supply chain participant will have the ability to predict, plan and execute in a way that maximises global health.

Political influence and social equality 

As if we don’t have enough stress and churn in today’s geopolitical environment, we must now include the challenge of “vaccine nationalism.” While this might not appear to be a supply chain problem, per se, it is a critical challenge that will hinge on supply chain capabilities.

In response to the critical supply issues the world experienced with SARS-CoV-2, the World Health Organization, Gavi, the Vaccine Alliance and the Coalition for Epidemic Preparedness Innovations (CEPI) formed Covax: a coalition dedicated to equitable distribution of 2 billion doses of approved vaccines to its 172 member countries. Covax is currently facilitating a purchasing pool and has made commitments to buy massive quantities of approved vaccines when they become available.  

However, several political powerhouse countries, such as the United States and Russia, are not participating. Instead, they are striking bilateral deals with drug manufacturers – essentially, competing with the rest of the world to secure a national supply. Allocating scarce resources is never easy, but when availability could mean the difference between life and death, it becomes almost impossible.

Global production, distribution and social equality present dependent yet conflicting realities that will demand global supply chains provide complete transparency and an immutable chain of custody imperative to vaccine distribution. 

The technology is available today – we just need to use it. We have the ability to track every batch, pallet, box, vile and dose along the supply chain. We have the ability to know with absolute certainty that the vaccine is approved, where and when it was manufactured, how it was handled and whether it was compromised at any point in the supply chain. Modern blockchain technologies should be applied so that every nation, institution, regulator, doctor and patient can have confidence in knowing that they are making an impact in eradicating COVID-19.

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