DELIVERING THE CIRCULAR ECONOMY A TOOLKIT FOR POLICYMAKERS

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142 • DELIVERING THE CIRCULAR ECONOMY – A TOOLKIT FOR POLICYMAKERS The partnership between Stockholm County Council and Philips Healthcare for the Nya Karolinska hospital has received a great deal of attention. 277 The 20-year comprehensive, function-based delivery and service agreement covers the delivery, installation, maintenance, updating and replacement of medical imaging equipment such as MRI and ultrasound equipment, where the cost risk is carried by Philips and the upside potential (e.g. future lowered prices) is shared. This coincides with Philips opening a new, dedicated refurbishment and remanufacturing facility in Best, the Netherlands in 2014, announced as ‘the next step in our circular economy journey’. 278 Allowing suppliers to retain control over their equipment and making full use of parts and components throughout their entire life cycle could generate substantial savings for the hospitals. Jens Ole Pedersen at Philips Healthcare Nordics notes that hospitals could save approximately 25% on TCO of the provided equipment. Performance-based contractual models could cover more than technically advanced equipment or installations. Uniforms, bed and bathroom linens are commonly procured on a leasing contract. And even semi-durables, which are often used as one-way disposable equipment, are addressable for performance models. In Catalonia, which like Denmark focuses increasingly on the circular economy, Axioma Solucions provides sterilised surgical clothing as a service, while Matachana Group provides sterilisation solutions for equipment at hospitals’ facilities. Axioma Solucions notes that according to an independent study, their ‘Steripak’ can be cycled 75 times and consequently has a resource footprint one eighth that of corresponding one-way clothing, while being up to 15% more cost efficient. 279 Danish hospitals have not yet adopted performance models to a large extent. The only category where there is a large penetration is in textiles; laundry services and leasing are already widely adopted. 280 There is therefore a large opportunity to initiate such a shift, and the timing to do so appears very good. There are currently 16 large hospital projects in Denmark, seven greenfield projects and nine that are major renovations or expansions. 281 Similar to the Nya Karolinska example, they could take a holistic, performance-based approach to procurement of equipment. These new hospitals will open within the next five to ten years, sufficient time to build a new procurement organisation and culture, with less concern for legacy equipment or old habits. Given the current starting point, Denmark could gradually shift purchasing of goods towards performance models for the addressable share of the purchasing budget (Figure 33): • By 2020, hospitals could seek to adopt performance contracts for up to 10% of selected product categories (diagnostic imaging and radiation equipment, IT equipment, and laboratory, observation and test equipment). • By 2035, overall adoption of performance models could have increased to as much as 40%. In addition to product categories already addressed in the short term, similar procurement models could also have begun to penetrate other durable and semi-durable goods, such as selected surgical tools and apparel, where the safety/hygiene issues with looping materials can be properly addressed. With total estimated savings of 15–30% 282 compared to traditional procurement, applied to an addressable cost base of 38% of total hospital procurement (see Figure 33), modelling suggests Danish hospitals and equipment suppliers could by 2035 (2020) 277 Katharine Earley in The Guardian, Hospital innovation partnership set to deliver high quality, sustainable patient care (13 November 2014). 278 philips.exposure.co/behind-the-factory-doors 279 The resource efficiency study was conducted by the Autonomous University of Barcelona. 280 Interview with De Forenede Dampvaskerier. Global players like Berendsen plc are also active in this field; www.berendsen.dk/hospital 281 Information provided by Danish Regions. 282 Savings rate depends on product category. Based on expert interviews with healthcare equipment providers and case studies from performance contracts in other industries (e.g. white goods, automotive, printers).
DELIVERING THE CIRCULAR ECONOMY – A TOOLKIT FOR POLICYMAKERS • 143 save EUR 70–90 (10–15) million annually. 283 These findings give a directional view of the magnitude of this opportunity for Denmark. They rely by necessity on a number of assumptions, the most important of which are detailed in Appendix B. The estimate has not included more ‘generic’ products, such as lighting, flooring or printers. BARRIERS AND POTENTIAL POLICY OPTIONS The following paragraphs provide an initial perspective on the barriers limiting the ‘performance models in hospital procurement’ opportunity (see Section 2.2.4 for the barriers framework). Sector experts from both suppliers and hospitals have noted that the critical barrier to hospitals increasing their use of performance models is that hospital procurement staff are not trained and have limited experience of other forms of tenders such as performance contracts or assessing offerings based on total cost of ownership (TCO) – as well as limited time to change practices. Another social factor mentioned in interviews is the customary perception that leasing is often more expensive than buying and the uneasiness that performance contracts could allow increased private sector influence in public healthcare. Furthermore, hospital management and procurement departments in many cases lack information compared to equipment providers on the economic case for access over ownership. These barriers combine to provide a powerful force of inertia in procurement departments. To address these barriers, the following policy options could be further investigated. These options are the result of an initial assessment of how cost-effectively different policy options might overcome the identified barriers (see Section 2.3.3): • Guidelines and targets. o o o Creating guidelines for regions or hospitals for the procurement of solutions rather than products, and how to work with target setting on different levels. International examples may serve as ‘blueprints’, such as the Philips–Nya Karolinska contract in Sweden. Through an innovative contract structure, the hospital secures access to a pre-defined level of functionality rather than the availability of specific equipment. Target setting also occurs in regional procurement partnerships in Denmark, e.g. the partnership for green procurement. Stimulating shared/centralised procurement amongst hospitals where appropriate, to reap economies of scale and leverage purchasing power. This could take the shape of a centrally negotiated performancebased contract across all regional hospitals, e.g. for lighting. The resulting additional cost savings could further accelerate a large-scale move towards such access-based contractual models. Supporting measures to optimise equipment utilisation such as equipment loan programmes between hospitals could round out the benefits from reshaping procurement procedures and skillsets. • Capability building. o Developing skillsets for circular economy-oriented procurement, e.g. • Training staff in optimal procurement design for access over ownership (e.g. the hospital could provide specialist training courses based on a nationally developed curriculum). 283 Based on current procurement volumes. This sector-specific impact does not include indirect effects, e.g. on supply chains, that are captured in the economy-wide CGE modelling. In addition, the distribution of savings between hospitals and suppliers has not been modelled. It could be argued that it is skewed towards hospitals in the short term since suppliers want to create incentives for hospitals to set up performance contracts, but could equilibrate at a more even split in the long-term as the model gets established and consolidated.
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DELIVERING THE CIRCULAR ECONOMY A TOOLKIT FOR POLICYMAKERS

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