Hospitals Revive Budgets and Shift Purchasing Priorities


Hospital executives are planning for budget increases during  the next five years and are prioritizing strategic initiatives that had previously been on hold due to economic constraints. Healthcare insurance reform is also causing hospital management to reevaluate how they select and purchase medical devices (MedTech) and other services, according to the L.E.K. Consulting Strategic Hospital Priorities Study. L.E.K.s second annual study of nearly 200 senior hospital decision makers tracks changes in hospital strategies and purchasing trends. 

Nearly 60 percent of hospital executives surveyed expect budget increases in 2011, up from only 38 percent in last years study. During the next five years, 70 percent of respondents predict larger budgets and are planning to increase purchasing in multiple areas including information technology (58 percent), facilities (38 percent), large medical devices (37 percent), small medical devices (21 percent) and disposables (28 percent).

Many hospital budgets are returning to pre-recession levels, and purchasing decisions will face increased scrutiny on price and how well they can support new reimbursement models that focus on outcomes, says Stuart Jackson, vice president and co-head of L.E.K. Consultings global MedTech practice. Medical supply providers that can deliver broader services, such as good clinical data, will help sway hospitals in their purchasing decisions.

Increasing Admissions while Reducing Reimbursements

New federal healthcare regulations are expected to increase the number of insured Americans, which will cause an increase in admissions of Medicare and Medicaid patients. This change is projected to raise hospital spending due to an additional number of procedures. New legislation will also reduce reimbursements in some areas, which will require hospitals to focus on increasing efficiency and reducing expenses.

Supplier negotiations will be central to controlling costs, which has hospitals increasingly turning to group purchasing organizations (GPOs) to help negotiate the best rates possible. According to the L.E.K. survey, more than half of respondents expect to use GPOs more by 2015 a nearly 20 percent increase from a year ago. Some hospitals have also started to approach GPOs to procure high-priced capital equipment in addition to low-price, high-volume items.

But MedTech purchasing criteria goes well beyond price. Hospitals plan to address the new federal pricing reimbursement models by enhancing their ability to demonstrate the efficacy and support the monitoring required to track improvements in quality and patient safety, while also reducing medical errors. Most of the executives surveyed are willing to pay a 10 percent to 15 percent  premium on average for disposables that demonstrate an ability to reduce medical errors and infection rates.

Raising Benchmarks for MedTech Providers

When it comes to making purchasing decisions, survey respondents were asked to assess how well global MedTech providers scored on selection criteria across 11 categories. As expected, providers received high marks for product quality and innovation, as well as providing clinical data. However, MedTech companies fell short in several areas that hospital executives believe will be critical during the next five years, including reimbursement, full solution partnerships and the ability to share risk.

Hospitals are looking for more than just good products from vendors, says Bob Lavoie, vice president and co-head of L.E.K. Consultings global MedTech practice. Executives see little differentiation among MedTech companies in most of the key evaluation areas. However, there is a significant opportunity for a MedTech company to leapfrog the competition by owning multiple categories or positioning itself as a top-tier provider across a spectrum of important product selection factors.

Additional L.E.K. Strategic Hospital Priorities Study findings are available in the L.E.K. Executive Insights report.  For more information, go to

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