The hospital procurement process is fundamentally the steps healthcare organisations take to get the medical equipment, product, or service that it needs. Encompassing the entire process from investment request to final purchase. The procurement attempts to improve processes, define needs, enable quality assurance, cut costs, and build relationships with suppliers and partners.
What is Hospital Procurement?
The definition of procurement is “the process by which an organization buys the products or services it needs from other organizations”. One may initially believe it is the transaction of a product or service. While that is a part of the procurement process, there are many other steps involved.
The hospital procurement process is fundamentally the steps healthcare organisation (hospital, clinic, or other) take to get the medical equipment, product, or service that it needs. This entails the entire process from the initial investment request from clinical staff to final decision to purchase or not to purchase.
Medical equipment procurement is a huge expenditure for hospitals that involves high costs. The procurement process is implemented to identify as well as gain access to affordable and high-quality medical equipment, assets, devices, goods, and services.
In order to achieve many of the benefits, the hospital procurement must have clear policies and processes.
Why is the Right Procurement Process in Healthcare Important?
A proper procurement process in healthcare is essential as it will directly impact the organisations ability to deliver quality patient care. When not managed properly, a procurement process can lead to costly inefficiencies, over expenditure, increased wastefulness, and impact the quality of patient care.
Healthcare organisations require the right balance of talent, equipment, and supplies to meet patient care needs. However, for many healthcare organisations, finding the optimal balance is often difficult. Achieving the right balance is often complicated by availability of talent, inventory, supply, and shifts in the demand for patient care.
The right procurement process can improve processes, quality assurance, ensure effective capital utilization, clearly define needs of different departments and personnel, and get a better decision-making basis.
Centralising the procurement process of medical devices through the right tool will clarify the need for clear policies and standards.
Components of the Hospital Procurement
Every procurement process consists of the following components:
- People. These are your bread and butter of the entire healthcare organization. Depending on the responsibilities of the person these will be the ones either that initiate the requests, take charge of the processes, or authorize the necessary steps at every stage of the process.
- Processes. These will ensure there is a systematic approach through a set guidelines, standards, rules, and procedures. The systematic approach will assure that needless spending is reduced.
- Information. This relates to all the documents, digital data, and paperwork that is needed to progress through every stage of the procurement process.
5 Key Challenges of Hospital Procurement
These are the key challenges of hospital procurement processes that are common in healthcare organisations.
1. Decentralised Procurement
Providing individuals and departments the ability to express and request their needs is fully encouraged. However, issues can arise when the individual and department has the ability to make their own purchases, as it can quickly lead to cost overruns and potentially lower-quality selections.
Procurement must go hand in hand with the specifications across multiple individuals and departments. Without this, the range of products and services can quickly get out of control, which will impact finances and operational efficiency.
There is a need for centralised governance to ensure resources are purchased appropriately with regards the budget and forecasted needs within the fiscal year. The centralised governance is meant to see the needs across multiple departments and staff to ensure the top patient care with regard to the various limitations the organisation has.
Centralising hospital procurement and investment management in healthcare could easily be managed through a solution that gathers investment requests, enables easy follow-ups across departments, and improves decision-making basis.
2. Medical Equipment Distribution Ineffectively
Distribution inefficiency could lead to unnecessary investments when one department has a large inventory of unused medical assets, while another department is asking for new purchases of similar devices.
Distribution inefficiency can also lead to inventory imbalances, especially larger hospitals, falling into inefficiency for getting equipment, devices, and other medical assets to the departments that are in need. The issues will only grow larger if the medical assets are across multiple facilities and need to be transported large distances.
While transportation costs are measurable through quantitative means, there are costs that may be hidden in other forms either through how budgeting is labelled or hours needed from staff. Either way will affect the bottom-line and create inefficiencies in the distribution.
Both these cases are similar, but they stem from different needs. In the first case there was a discrepancy between resource allocation of the medical assets, while in other case there could have been a supply issue and more devices were needed. To solve this, the hospital procurement process needs to have access to a good overview of the different needs and the reasoning behind them.
3. Inventory Imbalance of Medical Equipment in Hospitals
Similarly to the distribution inefficiency, inventory imbalance occurs when one facility or department has excess medical equipment, while another facility or department is in urgent need of the same type of medical equipment.
This can arise when the departments have individual control of the purchasing of medical assets. It could also be a limitation to how the budget is spent across different departments. Some departments may require additional resources to provide patient care, while other departments need less.
The solution of an inventory imbalance requires the healthcare organisations to take control of the needs, enable easy follow-ups, and increase coordination across different facilities and departments.
Through the right procurement process made for the healthcare organisation, long-term and short-term needs will be documented, and the organisation will then have access to a strong decision-making basis. Therefore, enabling decision-makers to make investment planning and management according to the actual needs from each department or hospital facility.
4. Increasing Labour Costs
An inefficient procurement process can stand in the way of allowing healthcare workers to get the equipment they need when they need it.
Rather than providing direct patient care, the healthcare workers will be searching for medical equipment. In the worst case, the equipment will not be available at all, which will directly affect the patient care quality.
As healthcare workers spend time on non-essential tasks both patient care will be affected and labour costs can quickly rise. To solve this, the procurement process must ensure that essential medical equipment is fully accessible within reasonable means to healthcare workers.
5. Patient Care Surge & Supply Chain Issues
Finding the right balance of talent, equipment, and supplies to meet patient care needs can already be difficult when demand is steady and predictable. However, in the case of a pandemic, patient care can suddenly surge to levels beyond expectations. Simultaneously demand peaks, causing production or supply chain issues at numerous suppliers.
The solution could be to improve the procurement process in the healthcare organisation; however, the underlying issue might be with the supplier and not the procurement process. The issues might not be able to be solved at an organisational level but needs to be reviewed on national or international levels.
However healthcare organisations can attempt to have mitigate strategy in place. The healthcare organisation may want to review if the supplier seems to be able to keep up with existing demand before surges occur. If the supplier does not keep up with regular demand, it may be time to look for other potential suppliers. Each healthcare organisation will need to evaluate the risk and adjust the strategy accordingly.
6 Key Benefits of the Right Procurement Healthcare Solution
These are the key benefits of hospital procurement processes that we have seen in healthcare organisations after improved their procurement and investment strategy.
1. Decreasing Unplanned Spending
Healthcare organisations often spend more than the initial investment price estimates. This type of unplanned or excess spending can be managed properly, which will reduce unnecessary increases in investment costs.
A procurement solution will enable clear communication between healthcare works and decision-makers, and provide a comprehensive view of the requirements across multiple departments.
2. Improved Order Accuracy
At times the procurement decision-makers are not familiar with the medical affairs. At the same time, there could be a mismatch between the requested solution and the actual solution.
A proper procurement strategy can help procurement decision-makers to understand where medical equipment is relocated and when medical equipment must be purchased. As a result, healthcare organisations can expect to reduce unnecessary costs, and instead invest in other important activity areas.
Obtaining a digital procurement solution with standardised forms of entry for all orders and in combination with department coordination will increase the order accuracy.
3. Identify Hidden Costs
A proper procurement strategy will increase the opportunity to coordinate investments and enable easy follow-ups during the entire procurement and investment process. Each individual and departments will easily be able to input their expected costs related to the investment in question.
Each department has the ability to input their costs into the investments. The procurement decision-makers can then get a calculation of the labour, supplies, equipment, and other related costs across multiple departments in the planning activity areas.
4. Finding Value Through Analytics
A procurement and investment management solution can provide healthcare organisations the ability to calculate analytics, allowing decision-making based upon various types of data.
Here are a few examples of key measurements healthcare organisations can benefit from:
- Year-over-year investments and usage.
- Utilisation misalignments.
- Products and services that provide the most value.
- Anticipate future purchasing needs.
- Establish a more realistic budget according to needs.
5. Generate Effective Investment Results
Centralised procurement solutions will help reduce overall costs, as they can effectively decrease the total cost of ownership and other expenditures. Possible due to the increased coordination and the ability to clarify the initial investment costs. This enables healthcare organisations to become successful in providing healthcare workers the correct product or service when it is needed.
6. Streamlining the Entire Investment Process
Procurement decision-makers will get an overview of all investment requests including traceable and detailed information about desired and implemented investments.
The procurement solutions will serve as a point of truth for the healthcare organisation, where all relevant procurement information is clear and consolidated in a standardised way. This will create a reference for applicable analysis that is desired by the healthcare organisation and its investment policies.
Healthcare Investments and Procurement Process
Each healthcare organisation will need a procurement and investment process that fits their methods, budget, and needs. Here, we will mention the overarching activity areas which are part of the procurement, while also expanding the picture to the entire healthcare investment process.
These five common activity areas these organisations should take in their procurement and investment process approach:
- Investment Planning: Drafting and sending investment requests. Also, prioritising and including departments for their area of knowledge that is needed in the procurement. This could be clinical engineering, IT, Real Estate, and others.
- Budget Process & Approvement: Going through the budget approval process set by the healthcare organisation. Asking the question if this investment request is possible to approve in terms of cost within the fiscal year.
- Investment Realisation: Call off cases can be created, moving the investment request to be reviewed by a purchase or investment group. A purchasing project starts once the request is financially approved by the group. The purchasing project begins.
- Forecast Management: Gathering information and budget forecasting related to medical devices, products, and services. Providing an estimation on needs in the facility and individual departments. Reviewing investment within the fiscal year and forecasting towards the next fiscal year.
- Follow-up & Evaluation: Making a retroactive review of the quarterly and yearly purchases, while also following-up the result of the investment decision. Checking if the investment had the expected result, if further investments are needed, if the price estimation matched the end costs, and similar questions.
The detail and depth of this procurement and investment process can be adapted to fit the healthcare organisation. If a planning and investment management solution that supports your hospital procurement strategies is compelling, you can continue reading about the PeRMit solution.
Summary
Through the understanding of the procurement needs in the dual context of internal requirements between departments and external factors can the procurement and investment process achieve a proper approach and the suitable techniques.
Adopting the right procurement and investment strategy can guide healthcare organisations throughout the entire process and activity areas. And with a systematic approach, healthcare organisations can set standards, clarify needs, identify as well as reduce hidden costs, and consolidate information across multiple facilities along with departments.
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