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Executive Summary July 2011

Innovation Procurement in Health Care A Compelling Opportunity for Canada


HealtH, HealtH Care and Wellness

Innovation Procurement in Health Care: A Compelling Opportunity for Canada by Gabriela Prada

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Preface
The sustainability of Canadas public health-care system will depend in large part on innovations that can enhance the efficiency, safety, quality, and productivity of health and health-care services. Every year governments in Canada spend billions of public dollars on products and services. This purchasing power represents the lions share of demand in the health sector in Canada. If used appropriately, this purchasing power could boost innovations in the health-care sector and drive better system performance. Although innovation procurement has been embraced by leading OECD countries, Canada has yet to recognize it as a tool to inject innovation into the healthcare system. This report attempts to contribute to a better understanding of the arguments for supporting procurement of innovations by 1) examining current thinking and trends linking procurement with innovation policy; 2) reviewing recent transformations in the United Kingdoms National Health Service aiming to leverage procurement processes; 3) assessing the perceptions of senior Canadian health-care administrators toward innovation and procurement; and 4) suggesting actions that will help Canada to effectively use this innovation tool to improve health-care system performance and boost Canadas competitiveness.

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exeCutive summary

Innovation Procurement in Health Care A Compelling Opportunity for Canada


at a Glance
 The sustainability of Canadas public healthcare system will depend in large part on its ability to develop and deploy innovations to enhance the efficiency, safety, quality, and productivity of health and health-care services.  The U.K.s experience suggests that Canada has a compelling opportunity to accelerate the development and adoption of innovation in public health care by transforming its procurement processes.  The U.K.s successes suggest the potential for action on four fronts: federal leadership, targeted funding, regional implementation, and culture and attitudes. Canadian governments spend billions of dollars every year on products and services, and in the health sector, public purchasing power represents the lions share of demand. This report examines the strategic use of procurement in driving innovation within the public health-care system in the United Kingdom, and compares that countrys experience over the past decade with current Canadian practices and attitudes. The contrast suggests that Canada has a compelling opportunity to accelerate the development and adoption of innovation in public health care by transforming its procurement processes. Innovation procurement involves the development of innovations and/or the purchasing of existing innovative products or services to improve the performance and functionality of public services and to solve important socio-economic challenges.1 The U.K. has enthusiastically embraced innovation procurement policies and practices within a health-care environment. Moreover, implementation of the innovation procurement strategy has led to profound transformations in the British health system that range from new accountability frameworks and governance structures to the creation of new government divisions and organizations mandated to support the development and uptake of innovative health technologies. The analysis of the successes to date, particularly the digital hearing aid program, revealed that spurring

he sustainability of Canadas public health-care system will depend in large part on its ability to develop and deploy innovations to enhance the efficiency, safety, quality, and productivity of health and health-care services. Procurementwhat governments and public institutions buy and how they buy itcan be a powerful tool for driving the development and adoption of innovative products and processes.

Bodewes and others, Exploring Public Procurement.

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ii | Innovation Procurement in Health Care: Executive SummaryJuly 2011

innovation is cost-effective and practical and can have a meaningful impact in a relatively short period of time, not only on peoples lives and health care but also on businesses and economic competitiveness. This strongly supports the argument that health care can add to our countrys growth rather than simply eating into our available tax revenue. Key success factors responsible for driving the structural and institutional adjustments in the U.K. over the past 10 years, and thus the successes observed to date, include a steady commitment to innovation from the central government, a regional mandate to advance the innovation agenda, targeted funding for health innovation, and the strategic development of talent at all levels. The end result has been a cultural transformation within the National Health Service (NHS). There is a shifting mindset about innovation, based on a growing understanding of systems of innovation, where a multiplicity of actors and organizations interact to benefit from procurement. Although it is too early to measure the broad health-care and economic implications of the U.K. achievements (this will be the subject of future research), innovation procurement has enabled the U.K. to strengthen its innovation ecosystem and to position itself to make strides in its health and innovation goals. The achievements observed in the U.K. are a stark contrast with those observed in Canada, where the concepts of innovation and procurement are still poorly connected. Recent policy papers have highlighted the need for greater innovation at the federal and provincial levels, but the use of the purchasing power of governments has not been emphasized in documents aiming to guide and coordinate health innovation policy or practices. Canadian health administrators, like their counterparts in many leading countries, recognize that innovation is fundamental to the improvement and sustainability of the health-care system, but Canada has been relatively slow to integrate innovation policies and strategies. The survey results illustrate this disconnect. Respondents were almost unanimous in agreeing that innovation is essential for improving organizational performance in the health sector and for the sustainability of Canadas health-care system. They were much less likely to say

that innovation is a recognized priority within their organizations or to see procurement as a lever for innovation. Strikingly, although 60 per cent of respondents agreed that innovative products and services were very important or important in achieving their organizations goals, over half said that procurement approaches in their organization do not support the development and uptake of innovative products and services.

Our survey findings suggest that the driving force behind procurement practices in health care in Canada continues to be cost control rather than value generation.

Survey responses show both a reluctance to take advantage of the supply of innovative products available in the marketplace and a poor ability to express the demand for innovative solutions to the market. If public procurement practices require a high degree of evidence of long-term efficacy, public agencies are effectively precluded from being early adopters of innovative products. And the lowest rate of agreement in the survey was to the statements that health-care organizations communicate their innovation plans to the market and have mechanisms in place to determine user readiness for innovations, two fundamental elements in the life cycle of innovation procurement. Innovation requires risk taking, but survey responses suggest that public procurement practices in Canadian health care remain highly risk averse. Our survey findings suggest that the driving force behind procurement practices in health care in Canada continues to be cost control rather than value generation. This research indicates that the prevalent mindset in Canadas health-care system has not yet shifted to embrace the concepts of innovation systems and innovation procurement, even though there is recognition that innovation occurs most readily in systems that involve active participation and strong collaboration across a network of stakeholders.2 This suggests that culture and attitudes toward innovation within Canadas health-care system may be an even greater barrier to innovation than our complex jurisdictional structure.
2 The Conference Board of Canada, The Health Enterprise.

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Sharp increases in health-care costs and the growing demand for health services have made Canadian governments and health-care administrators cautious about health innovations. The main concern is that decisions that lead to the inclusion of innovative technologies and increase the use of these technologies will contribute to a sharper rise in expenditures. This mindset has affected major health-care policies and strategies over the last decades. However, this view might be counterproductive in the long term, as procurement processes that primarily focus on price competition provide incentives to vendors to decrease production costs, which typically affect research and development expenditures and, therefore, innovation. The Canadian survey findings offer a striking contrast with the experience of the United Kingdom. The Canadian division of responsibilities between the federal and provincial/ territorial governments makes implementation of the U.K.s top-down approach to driving change more difficult. However, Canadian efforts over the past decade to revamp primary care demonstrate that it is possible for jurisdictions to work together, and the key lessons from the U.K.s experience with innovation procurement could be adapted to the Canadian context. The U.K.s successes suggest the potential for action in Canada on four fronts: 1. Federal leadership: The expiry of the current federalprovincial/territorial health transfer agreement in 2014 provides an opportunity for the federal government to ensure that the next agreement is structured to encourage innovation. In addition, as seen in the U.K., a central department overseeing progress and being accountable for results would also be fundamental to advancing health innovation in Canada. A National Health Innovation Office could be created for this purpose. 2. targeted funding: As always, what gets rewarded will get done. New approaches to procurement aimed at driving innovation in health care will require new funding up front to encourage greater risk taking, to shift the focus of procurement to value generation, and to invest in the development of the skills needed to manage a more innovative process. Governments also should consider the use of competitive funding

mechanisms that would reward those who lead the way in achieving key health outcomes. In addition, a Health Innovation Fund, which has successfully stimulated competition to address important healthcare challenges in the U.K. (e.g., Design Bugs Out to address hospital-acquired infections) and other countries, could be contemplated. 3. regional implementation: While there is a need for a coordinated federal and provincial/territorial policy framework for innovation procurement, the U.K. experience suggests the need for a strong regional focus. Governments should give health regions an explicit mandate as health-care innovators and should support the development of regional innovation hubs. By tying regional health funding to the achievement of innovation goals, governments could quickly drive the kind of progress that has been seen in the U.K. over the past decade. 4. Culture and attitudes: Funding arrangements can provide important incentives, but the survey responses in this study suggest the need for a more fundamental shift in the culture of Canadian health care. A more innovative and entrepreneurial culture would drive a higher-quality and more cost-effective health-care system and could make the health-care sector a key factor in building a more competitive Canadian economy. Changing the culture of individual organizations and the health-care system as a whole will not be easy and will require sustained effort at all levels, but the U.K. experience suggests that significant progress can be made quickly and that the payoff for all Canadians could be substantial. Innovation through procurement offers a compelling opportunity for Canada to generate better value for public health-care spending. To capture this opportunity, Canadian governments must make stronger efforts to identify health innovation goals; help health-care administrators and professionals understand their crucial role in driving innovation through procurement; shift the emphasis in procurement practices from cost reduction to value creation; and ensure that administrators and professional staff have the tools and knowledge necessary to support this shift.

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