New joint hospital procurement programme in Croatia

Eurohealth SYSTEMS AND POLICIES Eurohealth incorporating Euro Observer — Vol.20 | No.2 | 2014 29 NEW JOINT HOSPITAL PROCUREMENT PROGRAMME IN CROATIA By: Luka Voncˇina and Anna Sagan Summary: In 2012, faced with budget cuts and pressures to rationalise health care costs, the Croatian Ministry of Health initiated its joint hospital procurement programme. State-owned hospitals, which previously procured all goods and consumables individually, were directed to form joint purchasing bodies for items that made up the highest expenditure, e.g. medicines, medical devices, energy, etc. They adopted a decentralised approach where each hospital was delegated to procure several categories for all participating hospitals. Despite substantial opposition from manufacturers and retailers, the reform was successful as it standardised the quality of procured goods and reduced prices by an average of 27%. Keywords: Procurement, Hospitals, Medicines, Medical Devices, Croatia Luka Voncina is Assistant Minister of Health, Zagreb, Croatia. Anna Sagan is Research Fellow, the European Observatory on Health Systems and Policies, London hub, UK. Email: lvoncina@gmail.com Introduction Croatia spends around 7% of its GDP on health care, which, although slightly higher than the European Union (EU)- 12 average is much lower than the EU15 average of 10.4%. Over 80% of total health spending comes from the public sector. Established in 1993, the Croatian Health Insurance Fund (CHIF) is the single insurer in the mandatory health insurance system and the main purchaser of health services, accounting for over 90% of public health expenditure. 1 A number of changes were made in the financing and delivery of health care in the 1990s, after Croatia gained independence from the Federal Republic of Yugoslavia. Despite the improvements, the health system continued to face a variety of financial and structural problems, such as the imbalance between revenues and expenditures, excess infrastructure and low efficiency, and a number of measures were introduced in the first decade of the 2000s in response to these problems. 1 These reform efforts culminated in the so-called ‘2008 reform’. The reform encompassed a broad range of measures aimed at: (a) increasing revenues (e.g. by reducing exemptions from co-payments or earmarking certain tax revenues for health); (b) reducing expenditure (e.g. by introducing centralised procurement of medical equipment such as CT and MRI scanners and linear accelerators); and achieving operational improvements (e.g. through modification of hospital and primary care payment models). 2 3 Although the reform was launched to address the longstanding problems of deficits in the Eurohealth SYSTEMS AND POLICIES Eurohealth incorporating Euro Observer — Vol.20 | No.2 | 2014 30 health care system and was planned before the start of the economic crisis, since its launch coincided with the deterioration of the economic situation, the reform was promoted as part of an antirecessionary package. 3 ‘‘ joint procurement for all state-owned hospitalsThe effects of the financial crisis started to unfold in Croatia from mid-2008, when the costs of foreign borrowing increased. 4 Gross Domestic Product (GDP) growth turned negative in 2009 and both the government deficit and gross debt started to increase rapidly. 5 Initially, only limited measures were taken in response to the growing fiscal problems. They included reductions of public infrastructure investments, an increase in the general VAT rate and the imposition of stringent fiscal expenditure targets (Law on Fiscal Responsibility, effective from 1 January 2011). The health care sector was largely unaffected by the austerity measures, as the health system’s contribution to the fiscal deficit was relatively small compared to other sectors (such as pensions). 6 At the same time, the effects of the 2008 reform were expansionary: overall health care funding increased in 2009 – 10, in spite of the increase in unemployment (and thus a decrease in the total number of active workers contributing to compulsory health insurance and a reduction in CHIF revenues). 3 The new centre-left government that took office in January 2012 initiated stronger fiscal adjustment strategies (mainly to avoid a downgrade in the country’s credit rating) and austerity efforts focused on the rationalisation of the public sector, reduction of public sector benefits, cuts to non-discretionary welfare spending, and faster privatisation of state property. In addition to tackling long-overdue structural reforms of the pension system and the labour market 7 radical measures were also implemented in the health sector. The 2012 health budget decreased by over 2% compared to 2011 8 and the hospital sector was singled out to achieve significant savings, particularly after rationalisation of staffing and the implementation of centralised procurement. 9 Joint hospital procurement Until 2012, all hospitals procured medical products and most other goods individually through public tenders (centralised procurement of medical equipment was introduced by the 2008 reform; see above). This practice resulted in substantially different prices achieved for similar or even identical goods produced by the same manufacturer (see Table 1). In addition, as purchasing was not standardised, patients could not have been guaranteed the same quality Table 1: Examples of prices achieved for identical devices marketed by the same manufacturers through individual hospital tenders in 2010 and 2011 Item Hospital/price in HRK Femoral head for the total endoprosthesis of the hip Clinical hospital centre Rijeka General hospital Sibenik 250 750 Femoral head for the partial endoprosthesis of the hip General hospital Varazdin General hospital Dubrovnik 545 690 Press fit acetabular cup Clinical hospital centre Sisters of mercy General hospital Bjelovar 2400 4050 Uncemented ace-tabular cup General hospital Cakovec General hospital Varazdin 3900 6500 Proximal femoral nail for the total endoprothesis of the hip Clinical hospital Lovran General hospital Cakovec 3090 4600 Standard acetabular plate for hip replacement revision General hospital Varazdin Clinical hospital Lovran 1479 3420 Screws for acetabular plates Clinical hospital centre Rijeka Clinical hospital centre Zagreb 200 800 Intraocular lens type X Clinical hospital centre Rijeka General hospital Pula 320 376 Intraocular lens type Y Clinical hospital centre Zagreb General hospital Cakovec 350 621 Stent type A Clinical hospital centre Rijeka General hospital Zadar 4500 11500 Source: 10 Eurohealth SYSTEMS AND POLICIES Eurohealth incorporating Euro Observer — Vol.20 | No.2 | 2014 31 of medical products and consumables regardless of where they received treatment, although they were all insured by the same public health insurance fund that financed all hospitals. ‘‘ Estimated savings amounted to HRK 449 million (€59 million) Due to the substantial differences in prices (as much as fourfold for identical products) that suggested ample scope for savings through economies of scale, the Ministry of Health issued a decree introducing mandatory implementation of joint procurement for all state-owned hospitals. 10 In addition, county (local administration) owned hospitals were invited to participate if they so chose. The large majority decided to do so. Decentralised approach A decentralised approach to organising joint procurement was adopted in order to increase the speed of the reform and to efficiently utilise staff already employed in hospital procurement units. Centralising procurement in a single purchasing body would have entailed substantial and lengthy administrative procedures that would have delayed implementation. Nine state-owned hospitals and the Croatian Health Insurance Fund were delegated as central authorities for public procurement and were each assigned a scope of products that they would procure for all participating hospitals (see Table 2). The distribution of joint procurement categories was decided by analysing historical results i.e. hospitals that previously achieved best value for money for a certain procurement category were assigned as central purchasers. Distribution of the administrative burden (considering the complexity of tendering procedures) was also taken into account as the government requested speedy implementation. Procurement categories were determined based on financial consumption. Each delegated central authority was given the task to collect and analyse required quantities of all products from the procurement categories it was assigned, as well as quantities and prices at which these were purchased annually from 2009 to 2011. The reform process did not require lengthy legislative changes as the Croatian Public Procurement Act (aligned to EU requirements during the accession process) already entailed the necessary legal basis for joint procurement for public institutions that choose to do so. Transparency In October 2012, a total of 45 public tenders worth HRK 2.3 billion (€306 million) were prepared and presented for public discussion to all interested parties on the Ministry of Health website in order to increase the transparency of the procurement process. 11 A committee consisting of representatives from the Ministries of Health, Finance, Internal Affairs, Regional Development and EU Funds, as well as representatives of the National Agency for Market Competition and the State Office for Public Procurement discussed the received comments with the hospitals that prepared the tendering documents. Subsequently, after modifications, all tenders were released consecutively from January to April 2013. Unsurprisingly, manufacturers invested substantial efforts in challenging joint procurement tenders through a variety of legal means. Their efforts were only partially successful as by February 2014 a total of 33 tenders were successfully concluded resulting in 112 two-year framework agreements for procurement Table 2: Delegated central authorities for public procurement and procurement categories Delegated central authority for public procurement Procurement categories Clinical hospital centre Zagreb All medicines that have generic parallels, products for ophthalmology and neurosurgery, pacemakers Clinical hospital centre Osijek Postal services, laboratory diagnostics and microbiology products Clinical hospital centre Rijeka Reagents, tests and supplies for pathology and cytology, cleaning and maintenance supplies (including antiseptics and disinfectants), textiles Clinical hospital centre Split Groceries Clinical hospital Dubrava Products for cardiac surgery, vascular surgery, plastic surgery, gastroenterology, anaesthesiology, sterilisation, transfusion and haemodialysis Clinical hospital Merkur Medical gases Clinical hospital centre Sisters of Mercy Devices for interventional radiology and interventional cardiology, nuclear medicine, other medical supplies (bandages, needles, syringes, plaster, infusion systems, gloves, catheters) Hospital for Infectious Diseases Fuel Clinical hospital Lovran Products for orthopaedics and trauma surgery Croatian Health Insurance Fund Electricity and telephony (fixed and mobile), Internet, office supplies (including toner and ink) Source: Authors Eurohealth SYSTEMS AND POLICIES Eurohealth incorporating Euro Observer — Vol.20 | No.2 | 2014 32 items with various manufacturers worth HRK 1.2 billion (€156 million). The only exception to the length of the framework agreements was for medicines that have generic equivalents. This agreement was concluded for a one-year period due to the large number of new generic equivalents that enter the Croatian market annually and stimulate further market competition through price decreases. The remaining twelve tenders that were legally challenged are expected to be finalised later in 2014. Savings Estimated savings from the concluded tenders amounted to HRK 449 million (€59 million) or 27.2% compared to expenditure on the same items in the year preceding joint procurement. The largest savings have been achieved for medicines that have generic equivalents (44.7%), products for transfusion (45.8%), office supplies (39.4%), products for ophthalmology (37%), and electricity (35.4%). 10 Expansion of joint procurement programme Encouraged by the successful results, in July 2013 the Ministry of Health decided to expand joint procurement to further procurement categories. The nine state hospitals that implemented the tendering procedures in 2012 and 2013 were again designated as central authorities for public procurement due to the experience they accumulated in the first round of joint tendering. New procurement categories include products and consumables used in electro surgery, endoscopy, dentistry, in-vitro fertilisation, laparascopic instruments, surgical instruments and knot kits. These additional procurement categories were chosen in consultations with hospital directors and the tenders should be finalised by Autumn 2014. References 1 Džakula A, Sagan A, Pavic´ N, et al. Croatia: Health system review. Health Systems in Transition, 2014 (In press). 2 Voncˇina L, Strizrep T, Bagat M, Pezelj-Duliba D, Pavicˇ N, Polašek O. Croatian 2008 – 2010 health insurance reform: hard choices toward financial sustainability and efficiency. Croatian Medical Journal 2012; 53(1): 66–76. Available at: http://www.ncbi. nlm.nih.gov/pmc/articles/PMC3284176/ 3 Švalijek S. The recent health reform in Croatia: True reforms or just a fundraising exercise? Health Policy 2014;115(1):36 – 43. doi: 10.1016/j. healthpol.2013.09.010. 4 Bokan N, Grguric´ L, Krznar I, Lang M. The Impact of the Financial Crisis and Policy Responses in Croatia, Croatian National Bank, Working Papers, W-22, December 2009. Available at: http://www.hnb.hr/ publikac/istrazivanja/w-022.pdf 5 Eurostat. Available at: http://epp.eurostat. ec.europa.eu/portal/page/portal/statistics/themes 6 Šonje V. No More Buying Time: Fiscal Austerity in Croatia, Friedrich Ebert Stiftung International Policy Analysis, September 2012. Available at: http://library. fes.de/pdf-files/id-moe/09338.pdf 7 Briegel F. Country Report Croatia, Economic Research Department, Rabobank, May 3, 2013. Available at: https://economics.rabobank.com/ publications/2013/may/country-report-croatia/ 8 Ministry of Finance data. Available at: www.mfin.hr 9 Franicˇevic´ V, Matkovic´ T. Croatia. Public sector adaptation and its impact on working conditions. In D Vaughan-Whitehead (Ed.) Public sector shock. The impact of policy retrenchment in Europe. Chltenham: Edward Elgar, 2013. Available at: http://web.efzg.hr/dok/ETE/FRANICEVIC/04%20 JP_Croatia%20EE.pdf 10 Voncˇina L. Joint hospital procurement in Croatia. Presentation at the Hospital Days Conference, Opatija, Croatia, 23 October 2013. [In Croatian] Available at: http://www.hospital.in2.hr/prezentacije/ Luka%20Voncina_Objedinjena%20nabava%20 -HD2013.pdf 11 Ministry of Health web site. Public Consultations on Joint Hospital Procurement [in Croatian], 2012. Available at: http://www.zdravlje.hr/natjecaji_i_ javna_nabava/zajednicka_nabava/dokumentacija_ za_nadmetanje