EFFICIENCY OF PUBLIC PROCUREMENT IN THE CZECH AND SLOVAK HEALTH CARE SECTORS.

• Author: Nemec, Juraj

1. Introduction

   Increasing the efficiency of public procurement, through which both Slovakia and the Czech Republic spend about 15% of their GDP, is one of the key factors in the functioning of the public finance system. According to the experts and the general public, public procurement has many weaknesses in both countries, with the result that public procurement (PP) also does not function efficiently in the health care sector. The core problems in the Czech and Slovak public procurement systems are well described by existing studies. For example, Grega (2018) identified and analyzed the main factors determining the efficiency of public procurement (PP) in Slovakia through extensive primary and secondary research. His questionnaire survey among contracting authorities and suppliers in PP in Slovakia shows that excessive bureaucracy in PP in Slovakia is perceived as the most important factor determining its efficiency. According to the contracting authorities, the second most important factor was the 'frequent change of legislation' whilst 'insufficient ethics and morality on the part of contracting authorities and/or procuring authorities' was ranked third by the respondents. Corruption is the fourth most important factor from the point of view of contracting authorities whilst the lack of competitiveness (few suppliers involved in PP) was the fifth most important factor determining the efficiency of PP in Slovakia from the point of view of contracting authorities. From the suppliers' point of view, the most important factor is 'lack of ethics and morality on the part of contracting authorities and/or procuring authorities' and the suppliers placed the 'excessive bureaucracy' factor in the second place. Close behind the first two factors, the third most important factor determining the effectiveness of PP in Slovakia, from the suppliers' point of view, is corruption. In the remaining places, the factors were placed in this order: 'lack of control', 'non-compliance on the part of the contracting authorities', and 'few suppliers involved in PP'.

   The aim of our study is to analyze technical efficiency (efficiency/economy dimension) and allocation efficiency (effectiveness) of public procurement in health care facilities in the Czech Republic and Slovakia. Over the past few years, the health systems in both countries have perpetually struggled with financial problems, and have a total spending of around 6 to 7% of GDP. In such a situation, any leak of resources via inefficient procurement endangers the principle of universal access to high quality health services, which is the official 'motto' of both systems.

   Previous existing studies (and well-known scandals, such as the procurement of CT tomography equipment in Slovakia) confirm important problems with public procurement in Czech and Slovak health care establishments. For example, an earlier benchmarking study by Vlach, Sicakova-Beblava and Nemec (2004) demonstrated fundamental inefficiencies in the process of purchasing goods by Slovak hospitals. At that time, the director of a hospital with one of the least quality purchasing records replied in an interview on Slovak Television that the role of hospitals is not to procure efficiently but to treat patients. The obvious question arises: is the situation improving, or wasting of resources is still a pertaining problem of the investigated health systems?

2. Efficiency of public procurement

   Efficiency was defined by Samuelson and Nordhaus (1992) as a condition where there is no wastage. When evaluating the efficiency of public procurement (hereinafter referred to as PP) it is possible to focus on a number of dimensions and available evaluation methods (Ochrana, 2004). In view of this state, we consider it necessary to distinguish between allocation and technical efficiency. Allocation efficiency is defined by e.g. Stiglitz (2000) as an optimal allocation of scarce resources in the economy. Allocation efficiency mainly deals with whether the utilization of resources will achieve the desired state. Technical efficiency is defined by Kerstens (1999) as production within the constraints of production possibilities, so scarce resources are utilized to the maximum extent possible. Monitoring allocation and technical efficiency in practice is often done by monitoring the so-called '3E', i.e. economy, efficiency, effectiveness (see Table 1).

   A suitable specific tool for assessing the economy and, to some extent, the effectiveness of PP is benchmarking, which can be used for internal comparisons (compare prices of the same goods, services and construction works within the organization) or external ones (compare with market prices or with other contracting authorities), and it ultimately increases the efficiency of PP (Chamberland, 2005).

   From the legal point of view, the current PP legislation in the Czech Republic (Act no. 134/2016) and in Slovakia (Act no. 343/2015) focuses only on technical efficiency and not allocation efficiency. For example, Para. 10(2) of the Slovak Public Procurement Act no. 343/2015 states that 'the public procuring authority and the procuring authority must respect the principles of equal treatment, non-discrimination of economic entities, transparency, proportionality and economy and efficiency'. The concept of 3E ('value for money') is only indirectly connected to PP, but it has started to receive more and more attention in both countries--for example, Slovakia created a specialized Value for Money Unit at the Ministry of Finance of the Slovak Republic.

3. Research about factors determining allocative and technical efficiency of health care procurement

   There exists a large number of papers dealing with acquisition of goods, services and works, many of them with a focus on health care sector procurement. The comprehensive paper of Decarolis and Giorgiantonio (2015), mapping health procurement procedures in Europe, uses data covering the universe of EU public tenders for the period 2009-2014. The authors describe the key empirical features of the market with regard to awarding procedures and contractual forms and discuss the implications for quality, competitiveness, corruption and product innovation. Kumar, Ozdamar and Ng (2005) review the existing literature in procurement performance measurement and, on this basis, they identify the key areas of purchasing performance. The authors also develop a model and a balanced scorecard by establishing a set of generic measures. Arney et al. (2014) researched the use of strategic contracting practices in public procurement. According to their opinion, it may present an opportunity for substantial improvements in procurement efficiency and commodity availability.

   The first core element of this paper, related to economy/efficiency, is competitiveness. According to the findings reported in scientific literature, a low rate of competitiveness has direct impact on the final price, which is most often assessed by comparing the estimated value of the contract with the tender price. Gupta (2002) found that 6-8 offers are needed to achieve the highest savings. The findings of Brannman, Klein and Weiss (1987) are very similar--the highest savings were achieved with 7 to 8 bidders for most control groups. Gineitiene and Serpytis (2011) analyzed procurement of technically identical and standardized goods. The results were similar to those of the previous authors where significant savings were achieved (for some goods even higher than 10% or 20%) with an incrementation from one tenderer to two.

   The research on the impacts of competitiveness on the procurement results is relatively frequent in the conditions of the Czech and Slovak Republics. Soudek and Skuhrovec (2013) analyzed the procurement of electricity and natural gas (homogeneous products) in the Czech Republic. The authors pointed out several important findings in their work. According to them, contracting authorities regularly overestimate the forecasted value of the contract, ergo, their price forecast does not correspond to the current market price, and the greatest impact on the final price is due to the chosen procurement method (the utilization of the open tender decremented the achieved price, on average, by 7%) and, on average, each supplemental tenderer decremented the final price by 1%. Pavel (2010) analyzed the impact of competitiveness on the price of road constructions and railway transport infrastructure in the Czech Republic. In his work, he found that, on average, each additional tenderer reduced the resulting price by 3.27%. In Slovakia, a frequently cited work is by Sipos and Klatik (2013). The authors focused not only on competitiveness, but also on the impact of utilizing e-auctions and of the procedures used, and found that as the number of tenderers incremented, the resulting price of tenders declined and the highest savings were achieved with five or more tenderers. Sicakova-Beblava, Klatik and Beblavy (2013) found that the first bid reduces the price by an average of 4%, and each subsequent bid reduces it by 84% of the precedent reduction. According to the authors, three bidders should be enough to achieve 10% savings and, according to the authors, savings of up to 20% can be achieved. Grega (2018) delivered a really comprehensive study analyzing the level of competitiveness in the Czech (2008-2013) and Slovak (2010-2014) procurement of goods, services and works. His calculations on the Slovak sample of 27,234 procurements between January 1, 2009 and August 12, 2014 shows that the calculated price decrease for a second tenderer was 7.7%, for a third tenderer 8.9%, for a fourth tenderer 11.75%, and the peak, 16.9%, was achieved in PP with five tenderers.

   The second core element of this paper related to effectiveness is procurement planning, with a focus on the health technology assessment (HTA), which represents a critical success factor determining allocative...