“Purchasing medical devices: the role of buyers' competence and discretion”

In this paper published in the Journal of Health Economics, Paola Valbonesi and Riccardo Camboni from the Department of Economics and Management and Alessandro Bucciol from the University of Verona investigate the price variability of standardized medical devices purchased by Italian Public Buyers.   

Medical devices are products or services that prevent, diagnose, monitor, treat and care for human beings by physical means. The European medical technology market is estimated at roughly €120 billion in 2018 and it is the second largest in the world (behind the US); with a rate of 4.2% on average per annum over the past 10 years, it is a fast growing and innovative market (MedTech Europe 2020).

The Italian supply market represents about 10.1% of the European one. As for the demand side, given the Italian health service provides largely free of charge universal coverage, public buyers (hospitals and local units, henceforth PBs) account for the majority of purchases of medical devices and their procurement represents a novel and interesting setting to study “value for money”.

By exploiting a novel dataset of Italian public procurement auctions for standard medical devices in the period January-December 2013, they investigate the items’ price variability. Preliminary evidence shows that prices vary according to the identity of the PB and they do not depend on economies of scale belonging to the purchased quantity. They then turn our analysis on the net contribution of PB’s competence to price variability. They define the PB’s competence in running the procurement as the difference between the purchasing price and the estimated marginal cost of each device. They found that the PB’s size has a positive and significant effect on the PB’s competence in managing procurement efficiently: specifically, the ratio of non-health personnel over total personnel costs drives to lower purchasing prices. Referring to the Italian health service’s organization, their results highlight that local public healthcare units tend to pay a higher price than local hospitals.

Finally, they use the termination of the mandatory reference price regime to assess how the PB’s competence and (lack of) discretion affect medical device procurement. Such a policy - imposing to the PB’s purchases a cap on the unit price of each standard medical device - was scrapped on May 2th, 2013, after a ruling of the Administrative Court of Rome. They find that this policy reduces price dispersion, but it records a non-linear effect on the PB’s competence in purchasing efficiently: it increases the average prices paid by high-skilled PBs and reduces those paid by low-skilled ones.

Their results support – on the one hand - the centralisation of purchasing for medical devices, i.e. the use of central regional procuring agencies with non-healthcare personnel addressing (possibly skilled) efforts in the procurement activities. On the other hand, in terms of health service national policy, these results suggest a move towards a discriminatory approach – implementing mandatory requirements only for PBs performing below a given benchmark.