Rethinking public-private partnerships in healthcare procurement

The Covid-19 crisis is shining a light on the huge challenge that many countries are facing in procuring indispensable healthcare equipment to combat the virus, such as ventilators and personal protection equipment. The global supply chains for these products were initially interrupted by a halt in production in China, and then inundated by skyrocketing demand from every nation hit by the pandemic. In the midst of this emergency, all national authorities are competing against one another to keep their healthcare systems functioning and to guarantee medical assistance to their citizens.

In many countries, long before the outbreak of the pandemic, health budgets were already being squeezed, putting authorities in the difficult position of having to curb costs while avoiding cutting services. In light of this, some health systems have put measures in place for procurement to keep the prices of medical technologies, equipment and pharmaceuticals under control. Leading the way are the national health systems in Italy and the UK, with strong policies for centralizing procurement through the creation of central purchasing bodies both at a national level (such as the NHS Supply Chain in the UK or CONSIP in Italy) and a regional level (here in Italy). Thanks to their purchasing power, these bodies are better prepared to guarantee continuity in the supply chain in case of emergency, a crucial element to ensure the resilience of healthcare services and in turn the community at large.

In the Italian context, centralized procurement has helped mitigate the problem of fragmented demand. The management teams of the central purchasing bodies have also demonstrated an impressive capacity to respond to this global emergency, even though investments in skilled resources have always been minimal (or non-existent). Yet despite all this, two problems have emerged.

The first has to do with coordination. In the current scenario, better coordination would have been beneficial from the outset between the central committees on a national and regional level. On one level, national and regional champions should have been assigned with handling procurement for specific products through global agreements with qualified market players. This operation could have been run by the Ministry of Foreign Affairs or institutions such as the Red Cross, both capable of moving in an institutional network and on the global market. On another level, the territorial procurement network could have been leveraged to encourage even small local enterprises to contribute any missing links in the supply chain.

The recently-issued Liquidity Legislative Decree represents a decisive push toward greater coordination in contending with the Covid-19 phenomenon, beyond the roles that the Civil Defense Agency and the Special Commissioner already play. Case in point, Article 42 of this decree sets down the decision of the Health Ministry to appoint a commissioner to head AGENAS (the national agency for regional healthcare services in Italy), who is responsible for monitoring and supporting regions as they implement the government’s directive.

Appointing special commissioners to deal with complex situations is nothing new in Italy. In fact, this is often the chosen path to guarantee a rapid response in a context characterized by high fragmentation, both in terms of actors and rules. However, the real capacity to face an emergency will not depend solely on the creation of new coordination centers but on the managerial and leadership skills of the designated commissioner as well, based on a proven track record and solid knowledge of the healthcare system. Fortunately, the nominee in question, Domenico Mantoan, fits the bill, as he is one of the most capable and competent managers in the entire sector.

The second problem has to do with governance of centralized procurement, which has always been seen as a spending review tool and a way to fight corruption. Yet all too often this approach ends up undermining the strategic function of procurement, fostering a bureaucratic approach to enforce formal respect of the rules. As a result, procurement turns into a excessively-controlled system that penalizes people for taking responsibility and inhibits innovation. So we’ve missed a chance to activate forms of strategic procurement based on closer public-private collaboration. Such an initiative could have supported the development of a national biomedical supply chain, for example, which in turn would have allowed a more rapid response to the shock in procurement that is reverberating across the globe.

Despite all this, the emergency we are experiencing today has once again spotlighted the incredible creativity of Italian entrepreneurs, who have not only reacted quickly to problems in procuring healthcare equipment; they’ve also invented incremental innovation. For an example we can look to Intersurgical, a company based in Mirandola (Modena), which is producing a double ventilator that uses the same apparatus to support two patients at the same time. The idea was the brainchild of two doctors working in hospital wards which were being overrun by the virus. So as we can see, the outcome of this emergency is the creation of short-term partnerships between the market and university research centers, typical reactions to major crises.

The Covid-19 emergency and the pressures generating on procurement and supply chains provides an opportunity to reflect on the procurement system of public healthcare. The current crisis is also mapping out certain development trajectories that policy makers must take into serious consideration (and not only in Italy). EU Directives from 2014 have already moved in this direction. So we don’t need more legislation; we need concrete solutions.

We can only hope that this emergency will pave the way to public procurement 2.0, with faster decision-making on awarding procurement contracts. Today, according to the data collected by the MASAN Observatory (Observatory on Management of Public Procurement and Contracts in Healthcare) of CeRGAS (Centre for Research on Health and Social Care Management) at SDA Bocconi School of Management, it can take up to three years to award a procurement contract from the moment the call for tenders is put on the table. We would also expect to be better able to interiorize the risk dimension in tender specifications and in assessment criteria for tender bids, both in technical and economic terms. Along with this, sophisticated systems should be introduced to evaluate the qualifications of suppliers, and innovative projects should be implemented based on public-private collaboration.

The solutions that have proven most effective during the first two months of this emergency are the outcome of communication, collaboration and the creation of a public-private network, which we hope will lead to greater trust between the players in both systems. This will be the key to the actual ability to shift gears from ordinary to strategic procurement. To do so, we need to make sizable investments in the public management engaged in procurement processes, and establish a set of rules that supports reasonable risk-taking (because no risk means no innovation). This will serve to dialogue more constructively with the market, to co-design and craft contracts which can motivate greater value creation for society as a whole. More and more often, in fact, it’s long-term investors who reward the creation of value (and not only financial value). Policy makers should be the first to adopt a long-term perspective along with a more holistic approach, viewing procurement as a real approach to economic and social development, and not only as a cost center.