Procurement as a strategic priority for hospitals in the GCC
Procurement costs (operational expenditure on all goods and services that care providers procure) are an important part of total healthcare costs. They have nearly doubled in five years, yet the increased value for patients is often unclear. In this study, GS Health demonstrates the importance of (medical) procurement and states why it should be a top priority for every hospital. GS Health also gives practical tips for improving procurement results.
DEVELOPMENT OF STRATEGIC SOURCING SHOULD BE A TOP PRIORITY
The importance of medical supplies for patient care is immeasurable. The procurement costs of hospitals in the GCC have nearly doubled in five years, reaching an estimated ~USD 20 B, which represents about 40-45% of the total costs of hospitals. This growth is driven by a growth in healthcare spending (due to an increasing demand) but the cost of procurement as a percentage of total cost are also growing mostly due to technological advancements. But what value have patients gained from this in terms of healthy life years (QALYs)? Spending on non-medical items such as food and electricity has increased less in the past ten years. Looking at healthcare trends such as shifting care out of hospitals and increasing outsourcing, it is expected that procurement costs will grow to reach 50% of the total costs. This requires hospitals to take on a new role: moving from price-focused sourcing to director and integrator of (medical) technology. Hospitals are still poorly equipped for this new role. That is why procurement deserves a prime place in the boardroom.
IN PRACTICE, DELIVERING PROCUREMENT-BASED RESULTS IS TOUGH, BUT ACHIEVABLE
In practice, it is tricky to achieve attractive procurement results. GS Health identifies two reasons for this. First, suppliers have many advantages over hospitals: they have strong relationships with doctors and a deep understanding of their market. Kees Isendoorn says: “If a doctor tells the procurement team or even the supplier directly that he wants suture X from brand Y, the game is already over. The supplier can then charge more than the regular value of the product since there is effectively no competition. Second, procurement specialists, users and consumers are often blinded by the ‘medical’ sticker.” Mischa van Prooijen adds: “While lots of people do their groceries while holding the purse strings, the price of medical supplies is somehow irrelevant. We easily pay USD 300 for a pair of glasses that could only cost USD 30. Hospitals in India as well as companies like Tesla show that a critical, entrepreneurial view can help lower costs.”
This tough reality does not take away from the fact that it is feasible to achieve good procurement results. For example, one hospital structurally reduced procurement costs by 18% within twelve months, without sacrificing on the quality of medical care for their patients. Comparing the procurement results of various European hospitals also shows that there are significant differences and therefore opportunities for improvements. Moreover, the GCC has a few great examples of joint procurement initiatives that show that improvements are possible. In this study, GS Health also shares a series of practical recommendations for improving short-term sourcing results.
ONCE THE FOUNDATION IS IN ORDER, HOSPITALS MUST SHIFT TO VALUE-BASED PROCUREMENT
Value-based procurement means that hospitals, together with suppliers, work to increase value (quality versus costs) for patients. The emphasis is no longer purely on the transaction and prices, but on partnerships and healthcare outcomes. This next step requires a investing in knowledge for procurement departments and it requires cooperation between hospitals. Collaboration is necessary to reach the scale required to build up the relevant expertise. From there, hospitals and suppliers can develop new forms of healthcare and redesign the entire patient journey (such as hospital care at home). Kees Isendoorn: “IT can make significant contributions to healthcare, for example by supporting telemonitoring or providing treatment advice. Integrating these values into healthcare processes at a time when more and more services are being outsourced requires hospitals to take on a different role. Procurement can be the driving force behind this.”Download the full report 'Procurement as a strategic priority for hospitals in the GCC' here »