It’s great that value-based procurement is being introduced into the healthcare procurement world, as I truly believe this is the way to tackle the challenges we face in healthcare today. Though, I do wonder whether we really understand the meaning of this approach and how we can use it in a way it contributes to maximum added value in the healthcare system.
Regularly, I see buyers and suppliers struggling with translating the concept of value-based procurement into their real-time procurement strategy. Although, incorporating quality indicators when developing tenders is a good start, much more can and need to be done to truly operate value-based.
Value-based procurement is about having a different view on the business relation between suppliers and buyers, having an ever-present ambition to add value to the services and inputs for patients, and being only satisfied with a win-win-win (buyer-supplier-patient) strategy.
But how can we change our traditional procurement practice into a truly value-based driven approach? For me, it’s about adding new business models to the value-based procurement toolbox. For example, recently I got acquainted with the Vested business model: a model in which parties are equally committed (vested) to each other’s success through a ‘win-win’ deal structure. This is realized through the combination of an outcome-based economic model and a relational contracting model.
Developed by Kate Vitasek (University of Tennessee), I truly believe this model can be used to make value-based procurement happen, as it uses 5 rules that match the value-based procurement approach.
These 5 rules are:
1. Focus on outcomes, not transactions
The Vested model moves to an outcome-based business model where the service provider is paid for achieving results, not just for performing tasks or activities. Defined outcomes create a culture where the buyer and the service provider will maximize their profits by working together in an efficient way, no matter who is doing which activity. This includes creating a shared vision, which will guide both parties for the duration of the contract.
2. Focus on the ’what’, not the ‘how’
It’s not really logical for organizations that decide to outsource goods or services to specify the services or good with many technical details (how). Instead, parties should work together to define and quantify high level desired outcomes and associated objectives (what).
3. Define clear and measurable desired outcomes
Many procurement organizations find it easier to steer on money instead of results and outcomes. The Vested model is all about measuring outcomes. Applying Vested both parties agree on clearly defined and easily understood metrics that will become the yardstick for measuring success against the desired outcomes.
4. Use a pricing model with incentives to optimize business
A Vested pricing model incorporates incentives to help the company achieve the best value. The strategic objective of Vested is that the service provider’s profitability is directly tied to meeting the mutually agreed upon desired outcomes.
5. Use an insight instead of an oversight Governance Structure
In the traditional governance structures, buyers are managing the suppliers. The Vested model aims to make parties work together effectively and efficiently. Therefore, this model applies a sound governance structure to manage performance and achieving transformational results, through cohesive policies, processes, and decision rights.
To me, these five rules of the Vested business model are fully aligned with the value-based procurement approach, and therefore enriches the toolbox of procurement organizations. As it is already used in many other lines of businesses, I believe healthcare could also benefit from this model. And if you don’t agree, I’m curious about your tools for implementing value-based procurement.
The 1st European Value-Based Procurement Conference A new paradigm in Health Care will be held on 12 December 2019 in Brussels. Organised by the Value-Based Procurement Community of Practice (VBP CoP) and supported by EHPPA, EUREGHA and MedTech Europe, this conference will highlight the latest developments to incorporate “value” in decision making and the role of value-based procurement to integrate the value from the perspectives of the different healthcare stakeholders. Learn more here!