In most developed markets, health care suffers from two large and growing problems. The first is the significant variation in patient outcomes, even for routine procedures. For example, one in seven people in Europe will likely need either hip or knee replacement surgery at some point in their lives. Germany has some of the world’s best orthopedic clinics, yet patients who undergo hip surgery in that country experience a vast range of outcomes. Those who are treated at the country’s worst-performing hospitals require follow-up surgery within two years at rates that are 18 times higher than for patients at the best-performing hospitals.
That same disparity is seen for other medical conditions and in other markets. (See Exhibit 1.) In the Netherlands, whose health care consistently ranks among the best in Europe, there is a ninefold variation in the rate of post-surgical complications from radical prostate surgery, a procedure that can have a major impact on a patient’s quality of life. In Sweden, the complication rate for some patients who undergo cataract surgery can be 36 times that of other patients. These variations are mainly the results of differences in medical practices—rather than demographics or other complicating medical conditions in patients—and can, therefore, be addressed.
The second major health-care problem is spiraling costs. In the Netherlands, for example, health care spending rose seven times faster than GDP from 2004 through 2014. Most developed countries are experiencing similar increases in spending—rates that are simply unsustainable. (See Exhibit 2.) Given these two challenges—variations in outcomes and spiraling costs—there is an urgent need to find new ways to create value in health care.
Value-based health care, which focuses on patient outcomes and the costs of delivering these outcomes, can address both challenges. Moreover, the medical technology, or medtech, industry is in a unique position to boost value-based health care. Thanks to its design innovations, therapeutic and business experience, and deep relationships with health care providers, medtech—probably more than any other sector of health care, including pharmaceuticals—can help providers deliver better care at more reasonable costs.
However, public procurement can represent a major barrier. Most hospitals and health systems purchase medical products—including devices, supplies, and equipment—primarily on the basis of up-front purchase costs. This shortsighted approach—often driven by a crude focus on short-term cost savings—does not address the needs of patients and clouds the true cost of care.
If the health care industry is to shift to value-based care, hospitals and health systems must revamp their approach to public procurement, allowing medtech to become part of the solution. Last year, the European Parliament passed a new public- procurement directive that encourages contracting authorities—including hospitals and health systems—to move away from price-only-based procurement. Instead, the directive established a more holistic perspective for procurement that factors in quality, total costs across the product life cycle, and broader socioeconomic considerations in the purchasing of medtech products.
This move represents a major turning point in the progress to value-based health care. To seize the opportunity, The Boston Consulting Group and Eucomed (part of MedTech Europe, an alliance of European medical-technology trade associations) partnered to design a framework that can help contracting authorities make smarter procurement decisions. We collaborated closely with specialists from leading health-care institutions who have already implemented innovative procurement practices. Our ambition was to create a simple logic and nomenclature that will help purchasing officials create tendering processes for medical products that can promote better patient outcomes in the most economically advantageous way.
Some medtech companies are already partnering with hospitals and health systems to develop value creation programs. Increasingly, these companies are selling solutions rather than products. If the medtech industry is to build on this progress, however, the prevailing approach to procurement in health care will have to change.