‘Purchasing’ a more affordable healthcare system

The government has been urged to regulate the cost of private healthcare as part of its efforts to lessen the cost of living in Malaysia. The ministry will target healthcare spending of 6% to 7% of the GDP, an increase from the current 4.4%. As recently featured in the news, medical supplies in Malaysia is a multi billion business contributing to a big part of the country’s annual healthcare spending. What needs to be done to create a more affordable healthcare system in Malaysia? I would like to argue that the professionalisation of the purchasing function of healthcare organisations is a good starting point.

Managing a world-class healthcare organisation does not only require medical expertise but also business expertise. Within the healthcare organisation the purchasing function is increasingly important. In fact a significant part of healthcare costs can be directly linked to the effectiveness of the purchasing function.

There is a difference between buying and purchasing. Purchasing is the professional buying by an organisation. Purchasing is structured, based on facts, and shaped by corporate or public policy. Buying in the private domain has space for irrational considerations, whereas in the corporate or public domain this space is not present. I learnt that purchasing involves everything you receive an external invoice for. Therefore the finance department, not the purchasing department, is the starting point in the optimisation of purchasing. Modern purchasing is data oriented, involved in obtaining intelligence on the purchasing market as well as recurring analysis of own spending. Purchasing is hereby more a science than an art.

Professionalization of the purchasing function is essential for a more efficient organisation of hospitals, specialist centres, elderly homes, disability care, general practitioners, dentists, etc. However, what I often discover with healthcare organisation in Malaysia is that there is a lot of untapped potential in saving purchasing costs and improving the purchasing organisation. Purchasing in healthcare organisation are generally not well structured, category management and inventory management practices are ineffective, synergy advantages not exploited, and supplier management inefficient. Let’s explore this in more detail.

Although many healthcare staff are in one way or the other involved in purchasing, purchasing in healthcare organisations is often not well structured in terms of purchasing policy, purchasing process, purchasing methods and procedures, purchasing organisation, information systems and performance measurement. The above components are often not well defined or show serious shortcomings.

Category management should be a critical focus area for healthcare organisation, which looks at standardisation of the goods purchased. A rationalisation of a category in direct consultation with the respective healthcare specialists reduces the number of suppliers, inventory levels, and purchasing costs. Today, healthcare organisations throw away many millions of ringgit in value of medicines and other consumables every year as they passed their expiry date. This wastage can be significantly reduced, with less different articles kept in storage against lower inventory levels.

There is a lack of horizontal and vertical collaboration in purchasing with other healthcare organisation. Horizontal collaboration, collaboration with similar organisations, can be achieved through a joint purchasing organisation, collaboration on project basis (e.g. in case of a national epidemic or disaster), or selective collaborative purchasing in certain disciplines (e.g. certain expensive equipment and medicines). Synergies are achieved in terms of reduction of purchasing costs, but also better purchasing conditions, or consolidating pressure to suppliers comply with important needs, such as halal. In case collaboration with competitors is too sensitive, a separate national healthcare-purchasing organisation could play this role. Vertical collaboration, collaboration within your own healthcare chain, like collaboration between hospitals and nursing homes, allows for faster patient flow between hospital and nursing homes with less bed stay in hospitals. Hospital stays are less cost effective than nursing home stays. These so-called ‘wrong bed’ patients can easily add up to 10% of the beds in hospitals. Collaboration can therefore reduce healthcare costs in a big way.

Better supplier management benefits with a reduction of invoices from suppliers and the introduction of purchasing automation to support especially the administrative purchasing process.

In summary, purchasing in healthcare organisation need further professionalization! Massive cost reductions are possible in healthcare without affecting the quality of healthcare in government and private healthcare organisations. Annual reporting and benchmarking on purchasing performance of Government hospitals as well as private hospitals could be an effective instrument to enhance awareness on the importance of the purchasing performance of healthcare organisations.

With an aging population by 2035 and increase of non-communicable diseases, such as heart disease and diabetes, purchasing excellence in healthcare is not just a luxury for Malaysia but a pure necessity.


Prof. Dr. Marco Tieman


This article has been published in the New Straits Times on Monday 2 July 2018