Reverse Auctions in Healthcare

Doctor It is arguable that, on a global basis, healthcare uses reverse auctions more comprehensively than any other industry. There are valid reasons why this has come about: Healthcare items are highly specified (tick number one), it is a global market of competitive suppliers with room to move on margins (tick number two) and contract values are high (tick number three - bingo!).

A few other factors play a role too. The enormous volumes of consumables that require continuous replacement, the unending introduction of new technologies and spending consistently growing at twice the rate of GDP.

Usage

In Australia, 3 State health departments, NSW, VIC and SA have successfully run reverse auctions and all intend to continue using them. In the UK, where reverse auctions are widely adopted, the National Health Service is a long term committed and active user of the technique.

Trade Interchange manages reverse auctions for 4 of the largest private healthcare providers in the UK. These include Nuffield Hospitals and General Healthcare (incorporates BMI Healthcare - 2400 beds).

Syringe The range of goods and services is surprisingly broad from the expected items such as syringes and gloves to the less obvious such as recuperation services and MRI scanners. As always, it simply comes down to the clarity of specifications and the level of competition.

Like any industry, Healthcare also has a significant indirect spend, Much of which is suitable for reverse auction including stationary, telecommunications services, recruitment services, IT etc.

The charts below are just a few examples of medical items that have been price negotiated through reverse auctions managed by Trade Interchange.

Surgical Gloves

In the actual reverse auction bid chart for surgical gloves shown above, substantial cost reductions were achieved. The brown line at the top represents the benchmark price ($524,000) against which the auction result is to be compared. The were five shortlisted suppliers invited to participate. A variety of tactics were used including a single pre-entered offer by red. Blue appears uncompetitive amongst this group of suppliers. Purple's best and final offer resulted in a 43% saving.

Laryngeal Masks

This bid chart for laryngeal masks shows a current price of £3.70 (approx AUD 7.95, NZD 9.15 as of early 2008). The 4 shortlisted suppliers had all submitted quotes as part of a standard tender process. Those submitted quotes became their pre-entered opening bids. Blue elected not to participate in the reverse auction but their tendered quotation remained valid and was entered on their behalf.

This auction saw a considerable amount of competitive bidding by the 3 active suppliers. Scheduled as an 18 minute auction, numerous extensions were triggered as the lead changed hands 11 times during the extension period. This extended the auction to 30 minutes in total and resulted in a best and final offer of £2.00 (approx AUD 4.30, NZD 4.95 as of early 2008) or 46% less than the current price.

Item Examples

The following are examples of medical items that have been price negotiated through Trade Interchange Reverse Auctions: