New system cuts medical costs

New system cuts medical costs

Barrie R Miller, Hospital Consultant, School of Public Health,
La Trobe University, Melbourne

Prior to the economic crisis, Indonesia was regarded as one of
the "tiger" economic leaders of Asia. The health care industry
boomed with a large number of hospitals in the private sector
taking a leading role in health care.

But with the collapse of the monetary system and political
instability, health care costs and in particular the costs of
medicines and medical equipment escalated, placing the
availability of many essential medicines out of the financial
reach of a large segment of the population. This was a very large
problem in rural Indonesia.

In July 1999, the Asian Wall Street Journal reported that 46.3
percent of the Indonesian population earned less that Rp 227,720
per family per annum. There were a number of unconfirmed reports
of avoidable deaths during the fiscal crises such as a number of
patients, suffering from kidney disease that required daily
dialysis treatment, dying in Bali as a result of being unable to
pay for their daily dialysis treatment.

A report in The Jakarta Post in July this year indicated that
approximately 40 percent of the population was not able to afford
the cost of prescriptions. In the article, Prof. Uton Muchtar
Rafei of the Bandung-based Padjadjaran University's School of
Public Health said: "Nowadays around 80 - 90 million Indonesians
cannot afford to buy medicine because the drug prices are too
high."

The Association of Indonesian Hospitals (PERSI) has recognized
the problems of the high costs of pharmaceuticals and medical
supplies to hospitals and the problems these costs pose for
patients seeking treatment in PERSI member hospitals.

The existing buying system in hospitals in Indonesia for
pharmaceuticals and medical equipment is plagued with significant
price variations -- manufacturers and distributors offer the same
products to hospitals at significantly different prices.

There has also been a reluctance for hospitals to share with
their colleagues in other hospitals the actual purchase price of
pharmaceuticals and supplies.

Recent surveys, both by private and government surveyors, were
able to demonstrate cost differences up to 400 percent for the
same product from the same manufacturer/distributor in high turn
over items in a significant number of hospitals. This variation
in prices was clearly demonstrated in five major Jakarta
hospitals.

Percentage differences of highest to lowest price of
disposable syringes was 316 percent, radiology film 306 percent
and sterile gloves 350 percent.

The surveys also identified that in most hospitals: money was
tied up in unneeded stock; in some cases up to 3-months stock was
in storage; the overheads for each transaction was very high; and
there were stock-wastage problems.

To overcome those problems and to help Indonesian hospitals to
improve performance, PERSI formed a joint venture operation with
PT Jasa Logistik Kesehatan Nusantara (PT JALOK) to set up a group
purchasing alliance offering a logistic-electronic scheme that
not only involves hospitals but also involves suppliers and
banks.

Group purchasing systems (GPA) are not new. In a number of
countries like Australia, England, New Zealand and the United
States, there have been many variations of group purchasing or
tendering operations in the health-care systems. Up until now
very few, if any, have utilized software programs for hospitals
supplies of pharmaceuticals, medical consumables and equipments.

The GPA-PERSI system is the first e-commerce system to be
established for Indonesian hospitals. Being the first, the GPA-
PERSI system offers more benefits compared to other systems that
have been offered to Indonesian hospitals. The software programs
have been developed especially for Indonesian hospitals and
distributors without any financial outlay to both parties.

The GPA-PERSI system represents Indonesian hospitals. After
joining the GPA, the hospitals become shareholders of a system
that will ultimately belong to Indonesian hospitals. As
shareholders in an expanding system, the hospitals will be able
to enjoy all the benefits of a system which include: no
cumbersome daily stock checking; better payment systems; no cost
for software and training; improving staff knowledge in E-
business; and automatic online pricing and product information.

It is based on an electronic data interchange (EDI) system,
which is a safe, user-friendly and virus free system under the
EDI format. There are some other products being offered to
Indonesian hospitals which are either in MS-DOS format, which is
at least 20 years old and very difficult to use, or standard
email systems which are vulnerable to virus and hacking attacks.

Over recent weeks, some distributors in Jakarta have become
very active in their opposition to the GPA-PERSI system. They
naturally see this EDI type of system is a potential threat to
the "high" price structure in the current supply chain. In an
effort to keep their market share and price structure in place,
they have offered inducements to hospitals by way of "reward"
benefits for each Rp 100,000 spent by the hospitals with the
supplier. Not only will the hospital be actually paying more for
the product but more importantly, the ultimate loser will be the
patient.

The cost of pharmaceuticals to the patient in Indonesia was
highlighted in an article in Tempo magazine, April 9, 2001, and
is rated as "the world's most expensive". Examples quoted in this
article showed that a widely used antibiotic cost, per 100
tables, US$14 in Canada, $10 in India, $8 in Pakistan and $40 in
Indonesia. Similarly, the cost per 100 tables for tablets used in
gastric treatment was $81 in Canada, $39 in Pakistan and $150 in
Indonesia.

At a recent international conference in Singapore, the use of
E-commerce in pharmacies was discussed. It was acknowledged that
the GPA-PERSI system of using an EDI network between hospitals,
distributors and banks was unique and had not been utilized in
any other country although the idea and use of group-purchasing
alliances had been practiced in many countries for many years.

By using its network, the GPA-PERSI operation will be able to
give a wide range of information about Indonesian hospitals'
requirements for pharmaceuticals, consumables and medical
equipment.

An integral part of the GPA-PERSI objectives is to provide
technical training programs for hospital technicians especially
in use and maintenance of medical equipment. All such programs
will be set up in cooperation with an accredited educational
facility in Indonesia. Training is the real key to the success of
any hospitals' ability to utilize the real benefits offered by
information technology.

The GPA-PERSI system also offers benefits to the public in
that the long-term "real" advantage of this project will be to
stabilize cost of pharmaceuticals for the patient.