Want to reduce healthcare spending? It’s all about looking in the right places

  • Posted on 25.07.2011

Want to reduce healthcare spending? It’s all about looking in the right places


John Wilkinson

Former Chief Executive of Eucomed


Just last week I was sitting in a presentation by a large Group Purchasing Organisation (GPO) which cited an Ernst & Young report in which hospitals had ranked their goals for cost savings. What struck me is how a majority of the surveyed hospitals want to reduce costs by cutting in the spending on medical devices. Why is this so striking? Because spending on medical devices, and more in particular medical device consumables, accounts for only 3% of total health expenditure, whereas spending on hospital organisation (internal processes, staff, …) accounts for 70%. So if hospitals want to reduce costs as efficiently as possible, can greater savings not be made in areas other than those that make up a minority of the total expenditure? And do we really want to slay the goose with the golden egg, the medtech industry, whose tremendous innovative capacity will be a conditio sine qua non for sustainable high quality healthcare for the citizens of Europe into the future?

A recently published report by Frost and Sullivan points to what is required: “Innovative Products, Thoughtful Strategies and Involvement of all Stakeholders Crucial to Implementing Successful Reform”.

We currently occupy a ground where the different players and stakeholders appear to spend most of their time defending their own turf, finger pointing at others and claiming that the problem lies with them. The stark reality is that with 70% of the costs in healthcare involving people, the whole focus needs to be on how to deploy those people more efficiently and productively. Healthcare is a service industry and the processes that are used are often designed for the convenience or economic advantage of those delivering the service rather than those in receipt of the service or those paying for it. This is radical but necessary if the pace of healthcare inflation is to be contained.

Targeting suppliers of enabling technology to reform the system as key elements of the cost reduction programmes of governments is extremely short-sighted. We need all the innovation that we can get our hands on, albeit innovation that is perhaps better aligned with the challenges of the 21st century rather than the 20th century where incremental improvement in clinical outcomes was the sole focus of suppliers. This approach has been successful and delivered all sorts of interventions and treatment improvements which we all now take for granted but the world is changing and like all the other participants in the healthcare ecosystem we have to change with it.

The focus really should be on changing internal processes and organisational optimisation as that is the key:  hospital organisation accounts for 70% of the healthcare expenditure but only 4% of the hospitals seem to want to focus on this area to implement cost reduction programmes. This is no easy matter as there are big economic and political stakes in this battle and many will defend their practices to the death. Those need to be ostracised and brought to book because we cannot afford to be delayed and hectored by the 21st century equivalent of the Luddites (an English group that smashed early farm equipment) driven by fear of change and short-term financial loss.

John Wilkinson, Chief Executive, Eucomed

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