Evolution of Pharmaceutical Procurement – Embracing modern tendering practices.
Since the 1980s, tendering has been used in healthcare procurement. By the end of the 20th century, organizations like the WHO and World Bank had endorsed tendering as the preferred procurement process for pharmaceutical products. In 2014, the European Union adopted three public procurement directives to modernize public procurement rules and enable governments to manage the operational requirements of efficient procurement.
More recently, in 2022, the European Commission (EC) published a study on the Best Practices in the Public Procurement of Medicines (PPM). This study mapped and analyzed current PPM practices across 32 European countries and included a set of best practices for optimising PPM in Europe [1].
The EC analysis confirmed that the importance and characteristics of tendering differ significantly between geographies. Tendering processes can range from very strict, where no contact is allowed between customers and suppliers from the tender publication to the final award, to very flexible, with negotiation opportunities at multiple points.
Between these extremes, there are numerous variations. For instance, some processes allow limited communication for clarifications but no negotiations on terms or prices until the final award. Others might start strictly but permit negotiations once a shortlist of suppliers is made. In some cases, the process includes multiple rounds of negotiations at predefined stages, allowing for adjustments based on feedback. Additionally, flexibility might be granted based on the type of product or service being tendered, such as high-value or complex items having more negotiation points. In some countries, authorities require tendering for all hospital products, while in others, it is only necessary for specific items.
In the EU, healthcare expenditure accounted for approximately 11% of total annual GDP in 2012.
For public authorities and purchasers in the healthcare sector, the increasing availability of generic and biosimilar alternatives has made tendering an effective way to lower prices and increase patient access to treatments, while keeping healthcare expenditure under control. For companies, tendering can break monopolies by fostering open competition and equal opportunities, while also increasing transparency through public announcements and clear selection criteria. However, traditional tendering practices with “winner takes all” and “price-only” scenarios often result in negative outcomes [3]:
- In France, for example, a “winner takes all” approach led to product withdrawals from the market. Over time, some medicine classes had only one alternative available, causing shortages when supply quotas couldn’t be met.
- When “price-only” criteria are used, pharmaceutical companies tend to resort to aggressive price-cutting behaviours driven by market share and sales priorities, further perpetuating price erosion in the pharmaceutical tendering market. The significant profit loss associated with the resulting price erosion can make commercialization unattractive, reducing supplier numbers and potentially increasing prices and shortages in the long term, effectively re-establishing a monopolization of the market.
In recent years, efforts to transform tendering into a more sustainable practice have led to various actions. These include reducing administrative burdens through pre-qualifications and electronic bidding systems, splitting contracts to minimize shortages, and awarding contracts based on criteria beyond price, such as supply and logistics, and environmental sustainability.
The European Commission conducted an online survey involving various stakeholders, such as national authorities for medicine pricing and reimbursement, public procurers, payers, pharmacists, patient representatives, and representatives from the pharmaceutical industry and wholesalers. The survey explored how specific PPM practices and procedures affect different policy goals. Among the 58 participants, MEAT (Most Economically Advantageous Tender) practices were ranked as the most important for achieving affordability, competition, and supply security. Stakeholders also highlighted that, similar to ensuring supply security, procurers might need to balance different policy objectives. Specifically, incorporating environmental criteria in procurement could lead to higher prices and/or reduced competition.[1]
Ideally, depending on local policies and ambitions, different award criteria and tender practices should be given priority, reflecting a more balanced and holistic approach to procurement.
Data-Driven Insights on European Tendering Trends
Cube RM’s analysis of 16,845 awarded batches of top biosimilars across all European countries since 2021, conducted using proprietary and tender-specific, AI-based search algorithms that crawl multiple online tender sources worldwide, provides further evidence of these trends. The data visualized within the Cube RM platform shows that price continues to be the most important criteria when awarding tenders. However, some evolution towards tender sustainability can be observed. For instance, when examining the use of price-only versus MEAT criteria by country cluster, some interesting patterns emerge.
Cluster 1 In Germany, France, the UK, Italy, and Spain, MEAT criteria are becoming increasingly important in tendering processes.
Cluster 2 In Denmark, Finland, Iceland, Norway, and Sweden, MEAT represents now the main tendering practice.
Cluster 3 In Czechia, Belgium, Ireland, Poland, and Portugal, some tenders are starting to follow MEAT criteria, however price-only tenders continue to be the norm.
Cluster 4 In Bulgaria, Croatia, Cyprus, Estonia, Hungary, Latvia, Lithuania, Luxembourg, Malta, Romania, Slovenia, and Slovakia, price-only tenders also continue to represent the majority of cases.
Germany for many years, was a typical ‘price-only’ country, driven by big national insurance tenders. However, due to recent supply challenges and shortages, we can observe an inclusion of supply-criteria in tenders in 2024 (4).
Criteria of Awarded Lots
When analyzing the main criteria in MEAT tenders, a combination of factors beyond price are used to evaluate tenders.
When analysing the data for the average weighting of the criteria used in awarded lots (Fig. 9), terms and conditions have now become the most recurrent criteria used, right after price. Due to the supply and logistics issues caused by the Covid-19 pandemic plus some major stock-outs, also for Biosimilars, the importance of logistics, delivery, and supply in healthcare tendering has significantly increased5. Avoiding shortages of essential medicines and maintaining availability of supply to ensure treatment of critical populations continues to be paramount to patients’ health and to keep hospitals working smoothly. Some other criteria, however, have seen a decline in importance. Packaging, quality, product technical features, and safety have all had a slight decrease in relevance as awarding criteria. Not surprisingly, social and environmental sustainability has shown a relative growth in importance since 2021.
Environmental Sustainability in the healthcare sector
The importance of environmental sustainability in the pharmaceutical industry cannot be overstated. As the industry continues to grow, its environmental footprint also expands, contributing to pollution and resource depletion. From the raw material extraction, to manufacturing processes, global distribution, and eventual disposal6, the pharmaceutical industry is responsible for generating approximately 52 megatons of CO27 annually – an amount exceeding the emissions of the automotive sector in nations like the UK. As concerns about climate change, ecosystem protection, and human health continue to rise, numerous frameworks have highlighted the numerous frameworks have highlighted the need to address the environmental impact of the healthcare sector, including the Paris Agreement8, the UN’s Sustainable Development Goals (SDG)9, and the Greenhouse Gas Protocol10. In the EU, the European Commission has been actively developing plans and roadmaps to establish environmental sustainability criteria in healthcare tenders. Some key initiatives and frameworks include:
- The European Green Deal, introduced in 2019, aims to transform the EU into a sustainable, climate-neutral economy by 2050. The Green Deal emphasizes the importance of creating sustainable healthcare systems that not only protect human health but also the environment. This include promoting the use of safer chemicals, reducing pharmaceutical pollution, and ensuring sustainable procurement practices.11, 12
- The Corporate Sustainability Due Diligence Directive (CSDDD) mandates that companies identify, mitigate, and transparently report on environmental impacts throughout their operations and value chains. To comply with the CSDDDB, companies will need to invest in sustainability initiatives such as adopting green technologies, improving energy efficiency, and ensuring sustainable procurement practices. This directive encourages collaboration between companies, governments, and other stakeholders to develop innovative and responsible solutions to address their environmental impact.13
- The Circular Economy Action plan, which aims to promote sustainable resource use and reduce waste, encourages pharma companies to adopt eco-design principles such as creating products that are easier to recycle, designing products for longer use, and using secondary raw materials. 14,15
Across Europe, several countries have also started developing their own sustainability initiatives, focusing on the impact of procurement/tendering and health technology assessments, and how to contribute to the United Nation’s Sustainable Development Goals.
Driving Sustainable Procurement: The Growing Role of ESG Criteria in Healthcare Tendering
Although many European countries, such as Finland and Poland, still lack environmental sustainability criteria in their tendering processes, and others like Estonia, Lithuania, Portugal, Slovakia, and Slovenia continue to rely solely on price as the main criteria for awarding tenders, numerous governments are beginning to prioritize environmental requirements in their healthcare tendering processes. [1]
The analysis performed by Cube RM also reveals this trend.
One clear example of the influence of environmental sustainability in tendering is the Net Zero Supplier Roadmap from NHS England, that started in 2022 with the requirement that all NHS procurements needed to include a minimum 10% net zero and social value weighting. The plan, extending beyond 2030, establishes that suppliers will only be able to qualify for NHS contracts if they can demonstrate their progress through published progress reports and continued carbon emissions reporting. 17
Such other examples are replicated throughout Europe:
- In Germany, the government has implemented guidelines emphasizing the use of eco-friendly products and services 18
- In Belgium, environmental criteria such as waste reduction and water recycling have been applied when awarding bids 1
- In Denmark, Croatia, Norway, and Spain, centralised PPM at national level includes environmental criteria 1, 19
- In the Netherlands, the Dutch government’s criteria for sustainable healthcare procurement focuses on reducing the carbon emissions and promoting circular economy practices 20
- And in Ireland, suppliers are benefited when they provide medicines in recyclable packaging 1
As a result, one of the main challenges pharmaceutical companies face is balancing the increasingly important environmental sustainability practices with the need to remain competitive, especially when price is still the primary criterion for awarding contracts. Incorporating environmental sustainability into companies’ processes can be a significant undertaking. It requires a comprehensive approach, including changes in manufacturing, supply chain management, and product design. Many of these changes are heavily regulated and resource-intensive, often taking a considerable amount of time to be approved and implemented. However, in the long term, there are numerous benefits that can encourage pharmaceutical companies to go green:
- While implementing sustainable practices may involve initial costs, it can lead to long-term savings. Companies that invest in green technologies, energy efficiency, and waste reduction can reduce operational costs, making their bids more competitive.
- Demonstrating a commitment to environmental sustainability enhances a company’s reputation and builds trust with stakeholders, including healthcare providers, patients, and regulators. This positive perception can influence tender decisions in favour of companies perceived as responsible and forward-thinking.
Actionable Recommendations for Sustainable Tendering Success
As the pharmaceutical industry faces increasing pressure to integrate sustainability into their operations, the importance of alignment with international and national environmental guidelines becomes pivotal to gain a competitive edge in healthcare tenders. 1 Having visibility on tender award criteria per product and country is critical to be able to differentiate versus competitors and pro-actively discuss how to optimize tender settings and frameworks to improve attractiveness and sustainability of the market. Furthermore, developing sustainable practice plans that support compliance and company goals, whilst ensuring they meet tender awarding criteria will enhance market position and differentiate products amongst competitors.
Content developed through collaboration with Valid Insight, a specialist global market access consultancy, offering expert support across multiple disciplines
19/12/2024 
