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2.1 STRATEGIC PURCHASING:

A HEALTH SYSTEM APPROACH

2.1.1 DEFINITION OF PURCHASING AND STRATEGIC
PURCHASING

As early as 1993, the World Health Organization (WHO) has called for countries and health
systems to “mobilise and encourage the support of all partners in health development”,
including those from non-governmental organisations (NGOs) and the private sector, in order
to implement and strengthen progress towards health for all (World Health Assembly, 1993).
Oftentimes, this form of partnership will take place through “purchasing” arrangements, in
which the public sector purchases resources and services from the public and private
sectors. More specifically, “purchasing” refers to the budgeting and use of pooled funds for
healthcare services from healthcare providers on behalf of a target population (WHO, 2019b).
This definition is distinct from the procurement of medicine or medical supplies in bulk on
behalf of a health system or healthcare provider organisation; the former is a comprehensive
mechanism for meeting healthcare needs through rigorous assessment of service needs
while the latter is a one-time transaction for buying medicine and supplies.

One form of purchasing that is increasingly advocated by the WHO is strategic purchasing.
As a health financing mechanism, strategic purchasing is a form of performance-based
financing wherein services are delivered based on need and purchased based on provider
performance. Growing consensus recognises the need for strategic purchasing in order to
progress towards universal health coverage (UHC), with numerous countries, such as
Argentina, Thailand, and the Philippines, making progress towards UHC within the past two
decades (WHO, 2019b). As countries and health systems engage with their own health
financing transition, UHC may be closer to reality through more efficient use of financing
mechanisms, such as strategic purchasing, that allows systems to reduce duplication in the
use of resources and better provide service coverage. With the introduction of purchasing as
a methodology for achieving UHC, especially in high income countries and health systems,
the WHO and other international organisations, such as the World Bank, have created a
distinction between passive purchasing and active purchasing, also termed
“strategic purchasing”. Passive purchasing refers to purchasing mechanisms wherein
providers are able to receive pooled funds for services, without restrictions based on
performance and for a benefits package that is poorly defined (WHO, 2019b). Passive
purchasing typically occurs through one of three main avenues: 1) passive budget allocation
from one sector of government to another for service delivery; 2) prospective contracting or
commissioning by one branch of government with payment based on an agreement of
volume and quality of services; 3) retrospective payment for services (The World Bank, 2005).

On the contrary, active purchasing is defined as the process in which funding and legal
entitlements to health services are guided by the quality of services and the performance
of providers, based on the health needs of the population at large. Strategic purchasing aims
to maximise health system objectives through an evidence-informed process. Equally
important, the WHO characterises strategic purchasing as a continuous process
that requires consistent reanalysis to understand population health needs and optimal
means of closing health gaps (WHO, 2000). Strategic purchasing strives to use information
and available evidence to identify changing health needs to inform the type and mix of
health services that should be bought from whom, with what funding mechanisms, and at
what rate.

A strategic purchasing plan is crafted based on three overarching and overlapping concepts:
“what to buy”, “from whom to buy”, and “how to buy”. The question of what services will
be needed for a health system specifically pertains to the service-mix, interventions, and
medicines that will be purchased and who is entitled to access these services, which may be

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