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.