Innovation-­based Procurement Can Improve the Healthcare System

“Value-Based Health care” is gaining momentum worldwide as an alternative to a one-sided focus on cost and activity. The Capital Region of Denmark is currently testing if public-private innovation and innovation-based procurement can be a useful means of realising this model.

With a device looking a bit like a shrunken Nespresso machine, a new clinical study allows the kidney cancer patients of Herlev Hospital to measure their blood biomarkers in the comfort of their home. They simply fill a capsule with blood, feed it to the machine, and after waiting only a few minutes, they are provided with a result as accurate as one obtained from large laboratories.

We give them a ­sandbox where they can conduct their tests and where they can gain some ­experience to later use in the ­world in order to ­become successful
Lars Dahl Allerup, New Business ­Development Manager at Innovative Procurement & Strategic Partnerships in the Capital Region

The Danish company behind the device is called Qlife. The fact that such a young startup is invited to test its product in a high-level clinical study in collaboration with a Danish hospital is quite unusual. But if the Capital Region of Denmark is successful with its new procurement strategy, it may well become the norm.

“Historically, we mostly buy something new if the company that made it has enough technical and financial evidence behind the idea. For Qlife, it would probably have meant waiting 1-2 years longer. With our new strategy, we represent a different approach: we invite partners to try and solve a problem in collaboration with us. This method allows us to test new things more frequently and with more freedom,” says Lars Dahl Allerup, New Business ­Development Manager at Innovative Procurement & Strategic Partnerships in the Capital Region.

The new procurement strategy of the Capital Region is all about getting more innovative technologies into the hands of the public. This means, among other things, that startups that want to introduce a technology but are not yet established financially have a better chance of becoming suppliers.

“We work with large, international players, but we also want Danish startups to join in. We give them a sandbox where they can conduct their tests and where they can gain some experience to later use in the world in order to become successful,” Allerup explains.

Listed on the Stockholm stock exchange in early March, Qlife is well on its way to becoming a success story from a commercial perspective. However, the main reason they are invited into the collaboration is because of their new approach to target biomarkers in blood making the treatment more beneficial to the patients and the healthcare system.

Value beyond price

In the summer of 2017, the Capital Region set up a new department with Allerup as the manager in order to handle innovation procurement and strategic partnerships. The department is anchored in Corporate Procurement, which makes purchases at the price range of around 10 billion DKK annually across all the hospitals in the Capital Region of Denmark.

“We work with next generation public procurement, where procurement is not just about re-tendering with the same strategy as last time, but can be used as a strategic lever for innovation,” Allerup says.

Traditionally, public procurement has quite rigid tender specifications, which suppliers have to fulfil as cost-effectively as possible. With this innovative approach, the Region doesn’t settle on the requirements from the get-go, but rather begins with a challenge and collaborates with companies in order to solve it. This way, it’s not just the price that determines the winner: the immediately more expensive offer may win if it creates more value for patients, to the healthcare system and from a socio-economic perspective.

This approach has manifested itself into 20 separate occurrences since 2017, each with a strong focus on achieving innovation through collaboration between private and public parties. They develop new technology, new business models and better patient journeys.

The learnings from Allerup’s department are now being used to support new strategies across all procurement ­categories and the new approach to public procurement is currently getting international attention from institutions like the European Union, the G20 countries and World Economic Forum.

Innovation must be measurable

The Capital Region is not the only area that would appreciate more innovation in public procurement. At the national level, 40 billion DKK is spent on purchases for hospitals every year, and, generally, price is more important than ­modernisation.

For that reason, the Ministry of Industry, Business and Financial Affairs set up three working groups under the “Partnership on Innovation in Healthcare Procurement” – which Lars Dahl Allerup is also a member of – with an aim to find out how to make innovation a factor in procurement. The first challenge to solve was figuring out how one quantifies innovation.

“Nobody is opposing innovation, but how do you measure it? To get the innovative aspect included in a tender, we need specific models to measure the value of innovation – models that can unequivocally ensure that the value that is claimed to be created by the manufacturers can actually be delivered. If you can measure that value – preferably in advance – you’ll be justified to buy a more expensive solution because specific data will back that decision, and you’ll know that your investment will be returned across the patient pathway,” says Henrik Krogen, chairman of one the working groups, and managing director of GE Healthcare Denmark.

Instead of focusing on the cost, the working group looks for models that emphasise value creation. That way, it is not just the price and technology of the individual piece of equipment that is evaluated, but also the value it adds to the entire system from the viewpoint of patient outcome.

“There is generally great interest in innovation, but money can only be spent once. If you pick the more expensive choice, you also have to be sure that it actually provides the promised innovation,” Krogen claims.

Value-based health care

Both the Capital Region and the working groups are hoping that innovation-based procurement will become the driving force to scale value-based health care.

“We need to have a much more holistic approach to the entire patient value chain and find out how hospitals, municipalities, home-care givers and general practitioners affect each other. We need to account for every participant in ­health care in order to find out what truly creates value for the patient,” Allerup states.

By altering demands so that purchasing is not just about fulfilling requirements at a cheap price, it will become possible to quantify what value a given technology or medicine brings to the system, the patient and society as a whole.

New incentive structure

For years, the healthcare system has been rewarded per activity – e.g. per operation – which provides incentive for efficiency. In a value-based system, remuneration would, instead, be based on the number of successful treatments. Krogen believes that cooperation between the public and private sectors plays an important role here. Jointly, they can bring initiatives that have a good chance of enhancing clinical outcomes and improving care delivery.

“Value-based health care seeks continuous improvement so that you get more patient satisfaction for the same amount of money. That’s why the financial scheme for hospitals is starting to change from payment per performed effort, to payment based on successful outcomes,” he claims.

His reason for introducing the new approach is that though healthcare professionals spend a huge amount of energy caring for patients every day, the remuneration model does not fully measure whether or not the effort turned into the best possible treatment for the patient.

If, on the other hand, a hospital’s economy depended on ensuring that a patient leaves the hospital healthy and satisfied without having to be re-admitted, it would automatically create a greater focus on innovative new solutions and models.

“When judging tenders, we are motivated to choose applicants that offer valuable innovation, because we believe that their solutions have better results for the whole system. They may be more expensive to implement, but we get healthier patients and happier staff, and can actually save money in the long run,” Krogen concludes.