Application of MILP to strategic sourcing of high-cost medical devices and supplies

Abstract

We discuss the application of a mixed integer linear programming (MILP) model to assist in the development of procurement strategies for high-cost medical devices and supplies in one of the largest nonprofit health-care organization in the USA. The MILP model seeks to reduce the costs of providing necessary supplies by qualifying the organization for price discounts through volume purchasing commitments, while maintaining diversity in the supply base, adhering to physicians’ preferences for specific products, and considering ratings given to suppliers on several dimensions on vendor scorecards. With results from multiple optimization scenarios, tradeoffs among procurement costs, requirements for diversity in the supply base, and flexibility of physicians in allowing substitute devices are explored in depth. Also revealed are potential consequences of stipulating formal vendor scorecard requirements when negotiating future contracts.