Strategic Procurement of High-Cost Medical Devices

Abstract

This manuscript addresses the problem of strategic procurement of high-cost medical devices at one of the largest nonprofit health-care organizations in the USA. A mixed-integer linear programming (MILP) model is used to reveal the effects of physicians’ allowing alternative devices to be used for their medical procedures, the impact of alternative incentive-pricing mechanisms negotiated with suppliers, and the potential impact of rigidly imposing supplier-scorecard standards on several dimensions – especially when such scorecards are commonly recognized as being subject to “common-variance” rater bias. Solutions are found to be more sensitive to general bias toward high or low ratings in producing scores for vendor performance than to correlations in scores due to common methods bias. Small changes in pricing parameters and scorecards can have outsized effects on “optimal” shares of business allocated to alternative suppliers. This may call for constraints to avoid disruptive shifts in business relationships when revising procurement strategies through time.