Healthcare / Procurement
COVID-19: lessons from Italy on public-private healthcare procurement
21 May 2020 | 0
The COVID-19 crisis has highlighted the case for improving the governance of procurement of critical supplies such as ventilators and personal protective equipment (PPE), write Veronica Vecchi and Niccolò Cusumano.
Over the course of this emergency, in which global supply chains have been disrupted – initially by the Chinese lockdown and subsequently by a surge in demand from all affected countries – authorities at all institutional levels and private healthcare providers have competed with each other to maintain their supplies of healthcare services.
In many nations, even long before the pandemic, public healthcare budgets were under stress – and this has pushed public and private healthcare providers to find ways to balance growing demand against existing resources. The procurement of medical devices, technology and pharmaceutical products, the prices of which have been increasing above the level of general inflation for years, has been a principle focus of such policies, together with the general shift from hospital acute care towards outpatient services that are better able to address non-transmittable and chronic diseases.
COVID-19’s challenges to Italian public health procurement
On the basis of discussions with the main public health buyers involved in the procurement of critical devices, we have identified three main issues that have placed stress on public healthcare procurement in Italy.
1. Lack of preparation. Despite the existence of pandemic plans at the national and regional levels, the system was not prepared to face the surge in demand.
Commoditised products such as PPE, which are widely available in normal times, proved to be bottlenecks. Common procurement management practice would recommend stockpiling in this case, which was almost non-existent in Italy. However, as the US example shows, even strategic reserves are not an answer because of the problems of allocating materials between competing demands and the sheer cost of maintaining such a system over time. Contractual remedies also proved to be illusory, as many multinational firms found it impossible to fulfil their obligations in the presence of an international supply shock. In Italy, it took almost two months to begin domestic manufacturing of PPE.
2. Lack of co-ordination. Like almost all national healthcare systems, the Italian National Health Service has multi-level governance. During the COVID-19 emergency, regional authorities have had to co-ordinate the procurement of supplies together with Italy's civil protection agency. The lack of co-ordination between national and regional levels has placed stress on procurement, production and delivery systems. Government authorities, private companies, donors and local hospitals were all trying to place orders at the same time. In this context, the actual level of need for medical supplies was not clear.
3. Procurement centralisation was structured as a top-down cost-cutting initiative, thus hampering public-private collaboration. In the context of a high perceived risk of fraud and bribery in public procurement, legality and transparency have frequently been prioritised over value for money, innovation or effectiveness. Procurement rules and the fragmented control system have encouraged a climate of bureaucratic conformity and mistrust within the public sector, and between authorities and suppliers. Italian governments have, therefore, lost the chance to establish appropriate institutional and organisational approaches to encourage business-government co-operation and facilitate strategic public procurement.
In this emergency context, as an example, integrated solutions, and not just single pieces of equipment, could have been bought to ensure the continuity of treatment in hospitals. However, the lack of experience and the urgency of filling warehouses have not allowed health-procuring authorities to move towards solutions. Further, the absence of public-private innovative solutions in place, such as telemedicine systems, would have proven to be more effective for domiciled care, which is still weak in some of the most affected areas of the country.
Hastily generated public-private collaborations
In the search for the lowest price, procuring authorities are more dependent on suppliers based in specific geographical areas such as China and India. After the Chinese manufacturing shutdown, some procurement authorities returned to Europe-based manufacturers, which had previously been deemed too costly.
Many stakeholders in the private and public sectors have argued that the search for price minimisation, especially for commoditised items such as masks and sanitisers, has harmed the national market. The lack of a domestic biomedical industry in these sectors has also slowed down the re-conversion of some production lines, for example for PPE, which require proper validation and verification from authorised laboratories that are missing both in Italy and across Europe.
During the emergency, “hastily generated” partnerships have bloomed. They are not only fundamental to ensure resilience in outbreaks; they can also pave the way for the creation of collaboration and trust to move public procurement towards a more strategic approach and to develop partnerships on a larger scale.
Recommendations for policy makers
The narrative around public procurement should shift from compliance and preventing “waste” to trusting and empowering public managers. Public buyers have demonstrated their ability to find and experiment with new solutions to overcome severe market conditions, by showing willingness to take risks and responsibilities.
Despite the global impact of COVID-19, we are witnessing a surge in local emergencies; in this context, government authorities should be able (and willing) to encourage companies to increase their disaster-management capabilities and to select those providers who can better guarantee continuity. The aftermath of this pandemic could be an opportunity to design resilience-oriented procurement strategies based on the selection of reliable providers; the creation of a portfolio of providers to be activated in case of emergency; and the use of contracts to allow flexibility and outcome-assurance.
The importance and relevance of public-private collaborations have certainly been exposed by COVID-19. Indeed, procurement as a partnership approach has been challenged by the operating framework and culture of the public sector, which have hindered the development of inter-organisational relationships and trust.
Policy makers should reflect on which areas of procurement would be less affected during the outbreak if previous partnerships existed with market suppliers, by comparing flexibility, rapidity and business continuity offered by contractual agreements based on different levels of collaboration. To co-design and deploy collaborations will require not only new management competence to move procurement from a compliance-based perspective into a risk-management perspective but also a new strategic approach to procurement – one in which the public sector behaves as a sophisticated buyer and where procurement is used to achieve policy goals such as business resilience, innovation and the creation of national production.
This article was originally published on the website of the World Economic Forum.
Veronica Vecchi and Niccolò Cusumano are both Associate Professors of Practice at SDA Bocconi School of Management, in Milan, Italy.