An Integrated Approach in Healthcare e-Procurement: The Case-Study of the ASL of Viterbo

The size and growth of Italian healthcare spending for goods and services ask for prompt rationalization programs, with novel purchasing approaches (e-procurement), capable to provide significant reductions in purchasing and administration costs. If several interventions have not yet delivered the expected results, that’s due to lack of problem segmentation and resistance to change of public structures. Health-related purchases require a segmented approach, to take into account the specific needs of different spending items and foster coherent organizational changes. It is therefore of interest to examine the e-procurement project undertaken by the ASL of Viterbo, for its scope, consistence and brilliant results.1 1 Size and peculiarities of healthcare spending for goods and services A 20% share of public healthcare spending (2002, source ASSR2) is for the “purchasing of goods and services” (frequently named “intermediate healthcare consumptions”). Sizeable in percent, this component reaches huge absolute dimensions when referred to the whole Italian public healthcare sector. In one year (2002) the National Healthcare System spends about 17,5 €b for goods and services, a sum of money which is increasing both in absolute terms (it almost doubled from 1997 to 2002) and in percent (21,39%; in 1998, 21,68% in 1999, 22,46% in 2000). The spending for goods and services largely varies in percent among the various Italian regions [5] and the market is further influenced by other complexity factors: − about 350 diverse healthcare structures (ASL, AO and IRCSS3) with different procurement needs (thereby asking for a complex and strongly personalized offering); − about 500 thousand, highly differentiated suppliers (multinationals, mid-size national Companies and local SME’s). 1 The gist of this paper is somehow similar to that of a recent article in bibliography [16]. 2 Agenzia per i Servizi Sanitari Regionali (Regional Healthcare Services Agency). 3 ASL "Azienda Sanitaria Locale" (local health authority), AO "Azienda Ospedaliera" (hospital authority) and IRCCS "Istituto di Ricovero and Cura a Carattere Scientifico" (shelterand-care institute with also scientific purposes). The main issue, however, is the composite structure of the spending, which includes standard supplies for the whole Public Administration (PA), together with highly specific purchases. Introducing e-procurement tools in the healthcare sector asks for a detailed analysis of spending variety, in order to match each purchase type with the appropriate electronic procurement tool, by clearly defining the nature of the need (e.g. operating room specific devices) and planning purchases without inconsistency, thereby supporting both healthcare performance and economy of procurement. Healthcare spending for goods and services can be classified into three4 items: − common for the whole PA, independent from the type of buying Administration (e.g.: phone services, office materials). In 2002, this cost item for the Italian healthcare sector reached 4.2 €b (Consip, 2002), 23% of total (18 €b); − common-but-differentiated (25% of total), existing for all the Administrations but highly differentiated by buying sector (e.g. in healthcare sector: hospitals building maintenance or cleaning); − healthcare-specific (more than 50% of total), composed by drugs and medical devices5. This diversity – as well as the complexity factors indicated above – must be taken into account to devise innovative ways to manage procurement in order to rationalize and reduce spending, before choosing the most appropriate IT solutions. 2 e-Procurement tools The term “e-procurement” indicates the organizational solutions, as well as the supporting information and communication technologies, which offer on-line forms of procurement, more effective and efficient than traditional ones, to industrial, commercial and service Companies [15]. An e-procurement system, when correctly conceived, deals with the whole procurement process and not only its purchasing phase. It requires an overall redesign of the process, taking into account the whole life-time of a product or service [18]. When useful, logistic / Supply Chain Management (SCM) solutions might also be integrated, connecting IT systems of suppliers and clients. e-Procurement solutions include widely different tools, in three areas: e-sourcing; e-requisitioning and e-logistics (the first two are alternative ways to deal with the purchasing phase, while the third one is a complement to both of them, to streamline the whole procurement process). e-Sourcing, preferably applied to with medium / low-frequency purchases, includes web-based models and tools, which allow to perform on-line tenders and contracts, analyze spending and measure supplier performance, in order to optimize supplier, product ad service mix. It refers to both e-auctions, which allow to define a purchase price by accepting competitive on-line price reductions, and various types of electronic tenders, which reproduce the administrative procedures on the web. Auctions are particularly indicated to buy “well defined” supplies in terms of requirements, not 4 This classification, formerly used to identify the economic aggregations of healthcare spending for goods and services, is very useful to single out the most suitable e-procurement tool. 5 Appliances and materials that, separately or jointly, are used in case of injury, disease, handicap, or during a physiological application. requiring to provide and evaluate a specific project. For them, the criterion of lowest price is suitable, without risk of adverse consequences in supply quality. On-line tenders, instead, are more suitable for non standard purchases, which ask to balance quality and price. e-Requisitioning, yields its best results in term of savings when dealing with highfrequency supplies, with limited individual costs, and standardized non-strategic goods, with low consolidated technology [10]. It fully manages orders (from the issuing of purchase requests to the authorization of spending, to monitoring the order progress, up to the payment of supply), with the tool of marketplace. This collects and show the offers of goods and services proposed by admitted, even competing suppliers – with details on characteristics, prices and supply / payment term – to an audience of enabled buyers. With a single IT platform, it performs the whole purchasing cycle (from the choice of good and producer to the issuing of order, to the notification of the order to the supplier). For Italian PAs, this tool became – alternatively in tying and untying mode [1] – the Electronic catalogue of the goods and services which can be purchased at predefined conditions through the Frame contracts (“Convenzioni Quadro”) negotiated by Consip and, more recently, in an experiment of true Marketplace [19], new tool for on-line negotiation useful for purchases of amounts lower than the threshold set by the European Union for public tenders. e-Logistics is the optimized management of inventories (in healthcare structures, those of pharmacy and supply office) and of internal flows of purchased goods, based on Intranet/Extranet technologies, capable to directly link both internal and external players. Independently from purchase process, e-logistics can bring large advantages to the whole procurement cycle, particularly for repetitive supplies / continuous stock replenishment. It’s an innovation closely linked to process redesign and supplier integration, the absence of which might severely reduce the scope of the benefits [12] coming from adopting e-sourcing or e-requisitioning innovative tools. 3 Correlation between tools and spending items In the healthcare sector (more than in others) is paramount to safeguard – together with economy and timeliness of purchases, transparency of deeds and conformance to competition principles among Companies – high quality standards for many products and services purchased [21]. The large differences among spending items indicated above (common, common-but-differentiated, healthcare-specific) and the availability of diverse electronic solutions enforce a profound reflection on which solution suits most which type of good / service, according to a segmented approach. Goods and services within the common spending can be standardized for the whole PA (large utilization, wide offering, repetitive purchasing quantities) and are perfectly compatible with e-requisitioning tools. The best opportunity – in terms of purchase price reduction, administrative costs and delivery time – is to link into a public marketplace, based on contracts negotiated by a single entity (at national, regional or local level). This would aggregate fractions of public demand, knock-down standard supply contracts of large overall amount, perform unified tender procedures for a number of “client” entities [14] and – in the end –lower the final price. The common-but-differentiated spending consists of supplies which must absolutely guarantee to the healthcare buyer the fulfillment of specific needs. It requires the presentation and evaluation of (even complex) projects, for which it’s difficult to define criteria for automatic score attribution. The traditional procedure can be substituted by a tender partially performed on-line, moving onto the web the call, presentation, intermediate and final communications phases – with clear benefits in terms of administrative time and cost reduction – while keeping the offers evaluation phase off-line. To reduce the healthcare-specific spending, a wider e-procurement approach must be used: looking just for the lowest price [12] can be counterproductive, since the requested goods and services are highly specific, and high quality levels are required as well. The maximum benefit can be obtained by reengineering the internal processes, merging several e-procurement methodologies and tools together – healthcare elogistics, on-line tenders, evolved forms of marketplace – as well as providing adequate IT supports to the healthcare cost centers (e.g. hospital wards). 4 Case study: ASL of Viterbo The use of e-procurement tools in healthcare environments is based mostly on solutions pre-defined by external subjects, like the above indicated Frame contracts negotiated by Consip, which – as discussed – do not fully respond to the specific needs of a relevant share of healthcare purchases. An interesting case – for its scope, early start and brilliant results – is the experience of the “Azienda Sanitaria Locale” (ASL) of Viterbo, which introduced well targeted and effective organization and IT solutions for e-procurement within a wider plan to more comprehensively rethink the procurement processes, set-up into various projects driven by the Procurement and Logistics (P&L) Department. The ASL of Viterbo is organized in three areas: hospital services; territory services; administration services. With about 3.200 administrative and healthcare employees, it provides healthcare to the province of Viterbo (859 hospital beds), with a production value of about 350 €m, determined according to the individual spending allocated for each citizen of the province (297.686 as of December 31, 2001). 4.1 Activated projects approach The e-procurement project of the ASL of Viterbo is characterized by a diversified and systematic approach, as well as a direct and decisive role assigned to the hospital wards: they actually deliver the health care and are the main final users of the new tools. The whole procurement cycle was resized, starting from a detailed analysis of the need for goods and services. Specific purchase characteristics were made explicit, spending was mapped in detail – divided among: common, common-butdifferentiated, healthcare-specific – and an organic plan to link procurement needs and e-procurement solutions (according to theory). The ASL relied heavily on the specialized competences of individual hospital wards and involved them in the definition of the new procurement processes, as a necessary complement to the cooperation with external Companies, capable to transfer their technology and management know-how. In the new process model, the wards, in their healthcare duty, assume a driving role, but not the responsibility to decide how to purchase each specific good. Working within a highly integrated procurement process (IT supported), they are informed of their overall consumptions and related stock levels6 and can address the purchasing system directly, to signal specific emerging needs and issue very accurate orders in a very short time. According to experiences, about 2/3 of hospital stocks do not reside in hospital pharmacies (which essentially intermediate the order flow), but directly at wards: without adequate monitoring tools, it is difficult to know ward consumptions in a timely way and the chances of error increase when planning procurements centrally. The use of public and private electronic catalogues for the common spending soon delivered the expected economic benefits, in line with the rationalization program promoted by Consip, with which the ASL of Viterbo instituted a reciprocal cooperation relationship, both to utilize the negotiated contracts for common goods and to test innovative initiatives like the Marketplace, to which the ASL of Viterbo took active part together with other 19 Italian PA’s. In order to improve the procurement and internal management of the healthcarespecific and common goods, from ward requests up to the purchasing channels, the ASL of Viterbo designed a fully IT-supported process, with procurement flows designed along two distinct routes, according to the type of goods to supply: − for non-specific Medical Devices (MD), normally used in hospital wards for the routine healthcare activity, and office products (e.g.: ink, paper) the steps are: − on-line tenders, for products not in the hospital (never purchased or fully consumed), by transferring most phases of traditional tender onto the web – with minimal technological adjustments – while guaranteeing conformance to awarding criteria; − e-logistics, to automate the whole replenishment route of the product supplies awarded by tender, between pharmacy or supply office inventories and wards; − for the Specific Medical Devices (SMD), used in surgical operations, the route activated is the operating room e-procurement, for materials which require an ad-hoc procedure, by designing a new on-line procurement process which optimizes the replenishment time and reduces the ward and inventory stock levels. The wards activate the procurement process, which proceeds through the routes defined by the P&L Dept., according to the nature, availability and peculiarities of the requested devices. In this way, many management problems – related to the mutual understanding and coordination between specialized beneficiaries (ward personnel) and administration (Purchasing Department) – are overcome and do not slow down the performance of the healthcare delivery machine any longer. The indicated distinction into two routes must be considered just a first experimental step. In the future, while continuing to pay attention on the differences among goods characteristics, the distinction could be overcome by extending the scope of the operating room e-procurement route that simplifies the process, as it integrates together supply and outsourcing of logistics. 6 To correctly evaluate this innovation, consider that 99% of Italian hospital wards do not reach the level of IT support needed for this kind of activities.