EU Directives and Public Procurement Regulations push: value for money, tenders, and sustainability – PART I

Within the continuous dichotomy of the healthcare sector discourse – where care receivers and public healthcare systems wish to pay as little as possible for maximum healthcare access, and care suppliers and medtech industry wish the highest returns on investment and sales to allow continuous growth and research – it is far from easy to find the optimal economic solutions and procurement processes that stimulate and satisfy both consumer as well as producer markets.

Last year the European Parliament issued a new directive (2014/24 EU) to set guidelines and direction for the procurement processes of public EU member state tenders. The Public Contracts Regulations dating 2015 officiate this Directive, and introduced the “light regime”, which replaces B list services (explained further down in this article).

Both these regulatory documents have a significant impact on the way that procurement processes are developing, and bring to the table the continued –but ever more urgent – issues of sustainability, competition, innovation, and product life-cycle evaluation.

It is expected that a new EU Public Procurement Law, to be passed in April later this year (2016), will result from the aforementioned Directive.

What does the Directive set forth?

In February 2014 the EU passed the Directive 2014/24 EU, which reiterates and addresses:

  • The focus on value for money in procurement processes and associated regulatory policies
  • The importance of stimulating competition
  • Embracing and nurturing innovation
  • Engaging SMEs in tendering and procurement
  • Making tendering across the EU as opportune and efficient as possible
  • Engaging with non-financial tender criteria

What is the objective of the Directive?
The Directive wishes to encourage the purchasing of innovative products, and to foster an environment of competitive and sustainable solution-seeking in a world where resources grow more sparse daily.

The European Parliament that drafted the Directive aims to involve more SME businesses in procurement processes and the market as a whole, to avoid monopolies and to spur competition.

Very much at the forefront of the Directive, is the emphasis on sustainability, improving support for shared societal goals, and the necessity of calculating and handling the entirety of a product life cycle from manufacturing to disposal.

Economic and life cycle appraisals – in the medical sector specifically- reaches much further than immediate price comparisons, and the calculation of the application value and final disposal cost of a given product or service.

Health and illness are very dynamic and delicate human experiences/occurrences; these conditions have deep pools of risk and clinical variations attached, which could render one product economically/vitally valuable to one consumer, and useless to another.

How will the Directive achieve these goals?

  • The Directive implemented a turnover capitation to enable SME participation in tenders. Previously, the contracting party could request that the bidding party have a turnover at least twice the value of the contract, which would have potentially precluded many smaller enterprises.
  • Contracts awarded will be based on a combination of qualitative and cost criteria; cost only procurement criteria may be prohibited by EU members when they wish to do so
  • Comparisons and holistic tender evaluations, with transparent and non-discriminatory determination, will facilitate creating the most economical advantageous tenders.
  • Life-cycle appraisals will be integrated into procurement processes, in order to understand a particular bid or tender in light of the entirety of its cost- and use-life.
    • Technical specifications and technical solutions should be drawn up based on performance criteria in relation to sustainability of production and life cycle
  • The “Innovation Partnership” will be applied. These are specific tenders that seek partnerships with creative and innovative thinkers to create a needed product that is not yet on the market or existent. 
  • Sustainability and reliability: “Contracting authorities should further be given the possibility to exclude economic operators which have proven unreliable, for instance because of violations of environmental or social obligations, including rules on accessibility for disabled persons or other forms of grave professional misconduct, such as violations of competition rules or of intellectual property rights..etc.” 
  • Light-touch regimes to replace A and B list service tenders

What is a Light-Touch Regime and Part A and B lists?

Part A and B lists were drawn up by the European Council to categorize purchasable services for tenders into two distinctly treated groups. List A service tenders were mandated to advertise across the EU in the Official Journal and strictly regulated.

List B –including the categories of Education and vocational health services and Health and social services- was not subject to the all the rules of the Public Contract Regulations 2006, and did not have to be advertised across the EU.

Certain categories of services continue by their very nature to have a limited cross-border dimension, namely such services that are known as services to the person, such as certain social, health and educational services. Those services are provided within a particular context that varies widely amongst Member States, due to different cultural traditions. A specific regime should therefore be established for public contracts for those services, with a higher threshold than that which applies to other services.

– DIRECTIVE 2014/24/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

It was argued that B-list service tenders were not necessarily of interest to all the other EU member states and therefore only had to advertise themselves nationally. The new system, however, removes the previous A and B lists, and makes all services closely regulated except for those that qualify under the light-touch regime (LTR).

The LTR services -including Health related, Healthcare, and Community services – must advertise in the Official Journal when worth €750,000 or more.

What does the future bring for public healthcare procurement?

The EU regulations are working hard to avoid price monopolies and market stagnation, by pushing innovation initiatives and re-directing regulation to be more favorable to the smaller enterprises, which often lack economies of scale and output capacity to play with the big market players in these large scale EU public tenders.

The Boston Consulting Group (BCG) wrote a very interesting paper frameworking value-based procurement, which is bound to flourish due to the Directive and other market pressures. In next week’s blog we will look at this in more depth, and explore other value-based pricing methods.

For further quantitative and qualitative information on particular healthcare systems, their regulation, and their macroeconomic climate in Europe and worldwide, please look into our Business intelligence platform or order the TforG Deep Dive report for the country that interest you, containing volumes of 984 unique surgical procedures in 13 specialisms.

About Laura Weynants

Performs primary and secondary market research to create Country Deep Dive Reports at TforG. Interviews KOLs and medical sector professionals to build on TforG’s healthcare market expertise and competence networks. Complementing five years of sustainability policy and CSR communication, she now focuses on grasping key medical market trends, structures and opportunities in medical sectors worldwide. Coming from an international background of living in Germany, Spain, USA, UK and Belgium, she has gained a keen insight in international organizations and language skills to perform first hand investigations. She graduated from Sussex University Brighton, UK with a BA English Literature and Sociology and achieved a Master Degree in Sustainability and Corporate Social Responsibility in EOI Business School in Madrid, Spain.