Across Europe, health authorities are tasked with securing a reliable supply of medicines on increasingly stressed budgets. The cost-containment policies currently used in medicine procurement may achieve lower prices in the short-term but threaten the continued availability of some medicines.

Many current procurement practices, such as using price as the only criterion for awarding a tender, limit healthy competition and can lead to market consolidation and monopolies. When there are limited suppliers of a given medicine, prices can be higher and there is greater risk of supply disruptions.

For more optimal utilization of health budgets and to better protect ongoing access to medicines, health authorities should take a holistic view when designing procurement processes. The best practices outlined below represent established measures to optimize procurement systems.

Non-Price Criteria: Adopt the “MEAT” Procurement Model

Most public procurement systems in Europe use price as the only factor when selecting a manufacturer to supply a medicine. A price-only focus can create a “race to the bottom,” in which manufacturers are incentivized to reduce costs as much as possible to remain competitive in tenders. This model leaves little ability for manufacturers to increase investments in supply chain resilience, environmental measures, or helpful product features. It also leads to consolidation – fewer manufacturers in the market – which reduces competition and exacerbates vulnerabilities in the supply chain.
Price-only procurement models are not in line with broader EU objectives on healthcare access and equity, are not likely to reduce public expenditure in the long run, and increase the chances of medicine shortages.

The Most Economically Advantageous Tender (MEAT) model supported by the European Commission is based on the understanding that lowest price is not necessarily the most cost-effective approach. Using the MEAT model, procurement bodies select tender winners based on a rubric of several important factors, not just price. Taking a more holistic approach to procurement decision criteria incentivizes good practices and can help healthcare systems save money in the long run, while advancing EU objectives of healthcare equity and access.

Maximizing Value in Procurement

In addition to adopting the MEAT procurement model and ending price-only tenders, the following recommendations can further optimize medicine procurement.

Multi-winner Tenders

When multiple manufacturers supply a given medicine, there is greater protection against a shortage. In the event of a supply disruption in a single-winner contract, other manufacturers may not be able to ramp up production quickly enough to counteract a shortage. In some cases, other manufacturers may have discontinued production or let regulatory approvals lapse in certain markets, creating substantial delays in meeting supply needs. A case-by-case analysis of the product and market could be done to determine how many manufacturers should supply a given medicine for the best balance of value and supply security.

Extended Lead Times

The time between the award of a procurement contract and when the manufacturer must begin to supply a product is often shorter than the time it takes for a manufacturer to ramp up production. To meet the contract requirements, manufacturers often hold stock in anticipation of such scenarios. If a manufacturer holding stock is not awarded the contract, the product can be wasted. This process creates unnecessary additional costs. Procurement bodies could significantly reduce waste and improve efficiency by extending lead times and creating an environment of greater predictability for manufacturers.

Proportionate Penalties

Most procurement contracts include penalties for failure to supply the awarded medicine. When these penalties are disproportionately high, manufacturers may choose not to compete in a tender because of the excessive financial liability. Penalties should be proportionate to the contract value to ensure robust competition.

Procurement Timing

Procurement processes are generally concentrated in the first few months of the year, creating a challenging situation for manufacturers to predict the products and volumes they will need to supply. If procurement processes were spread throughout the year, manufacturers could more effectively plan supply, reducing the risk of shortages. The length of procurement awards also differs, which can further compound lack of predictability.

Predictability of Supply

Manufacturing medicine is a complex process that requires an ample supply of raw material and excipients, time for manufacturing and packaging, and availability of human resources. Therefore, it's important for procurement-awarding bodies to provide manufacturers with accurate estimates of the volumes to be supplied, including minimum and maximum volume caps. This allows manufacturers to plan their operations and ensure they can produce enough medicine to meet demand.