A Recipe for Cost Reduction

The Moscow Government has purchased 42 angiography systems worth 2.9 billion RUR, 101 MRI scanners worth 11 billion RUR, and 116 CT scanners worth 5.5 billion RUR. It also established life-cycle contracts (LCCs) with medical equipment suppliers and, through tendering procedures, has reduced start-up costs for government procurements by 42% on average.
In 2019, tendering procedures for purchasing four supply lots of angio­graphy systems resulted in a price decrease of 46%, resulting in sa­vings of 2.6 billion RUR. "We saved 41% on MRI scanners (7.5 billion RUR), and the same goes for CT scanners (41%; 3.9 billion RUR)," said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations. He revealed this at a business breakfast mee­ting titled "Life-Cycle Contracts Regarding the Purchase of Medical Equipment. Experience. Opportunities. Prospects."

The world's leading medical institutions are switching from single short-term contracts for the purchase of equipment and services, to life-cycle contracts.
The current total value
of Moscow life-cycle contracts is
billion RUR
The LCC financial model is designed so that equipment purchases are carried out in instalments over a 36-month period, allowing saved public funds to be used for other purposes. At the same time, the supplier guarantees that the equipment remains ope­rable throughout its life cycle. In the event that equipment is rendered inoperable for one day – and isn't immediately repaired, the following monthly payment is to be withheld; After 5 days, the supplier is fined a penalty for each day that the equipment is down.

APROPOS

  • 2019 saw savings of 46% (2.6 billion RUR) for angiography systems.
  • Savings on MRI scanners was amounted to 41% (7.5 billion RUR).
  • Savings on CT scanners was amounted to 41% (3.9 billion RUR).
When determining winners during LCC bidding, both cost and non-cost-related criteria are taken into consideration. The latter includes availabi­lity of production facilities, past LCC experience and performance, and the bidder's proposed coefficients and interest rate for the instalment plan.

"The life-cycle contracts we enter into, in accordance with Federal Law No. 223, allow us to basically halve equipment procurement costs. The contract execution period is 10 to 13 years, depending on the equipment deli­very schedule. The purchaser pays in instalments for 3 years under a plan with an interest rate equal to the key rate set by the Central Bank of the Russian Federation, with consideration to the reduction factor, which is one of the tende­ring criteria. The contractor is obligated to ensure the equipment remains operable with minimal downtimes throughout the entirety of the LCC. In addition to delivering the equipment and ensuring its operability, the contractor is responsible for training the customer's physicians and engineers, as well as for updating all equipment software," explained Alexander Prokhorov, Head of the Department of Investment and Industrial Policy of Moscow.
Ведущие медицинские учреждения по всему миру переходят от отдельных краткосрочных контрактов
на поставку и сервис оборудования к заключению контрактов жизненного цикла
These criteria allow one to identify competent, qualified contractors that offer the best terms – financial and otherwise – for execution of a given contract, as demonstra­ted by contracts in 2019. Each one was awarded to leading global ma­nufacturers: Siemens, Philips, GE, and Canon.

The federal subjects of the Russian Federation can also establish life-cycle contracts for medical equipment, including through joint tenders with Moscow, as was done in Perm. "During tendering procedures, the initial price was decreased by 50 %. Perm basically halved the equipment price," said Alexander Prokhorov.

LCCs are very economically attractive to manufacturers – they ensure long-term usage of their full production capabilities and gua­ranteed cash flow when achieving quality performance.

"We hope that other regions will join Moscow in 2020 to hold joint tenders for the right to enter into LCCs for medical equipment," summarized Deputy Mayor Vladimir Efimov.
E-mail: pressprom@mos.ru
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