Hospital Budget Increases On The Horizon

Hospital executives are planning for budget increases over the next five years and are prioritizing strategic initiatives that had previously been on hold due to economic constraints, reveals a new study by L.E.K. Consulting. Of 200 senior hospital decision-makers surveyed for the study, nearly 60% say they anticipate opening their wallets wider in 2011, up from 38% in last year's study. A total of 70% predict larger budgets over the next five years and cited plans for increased purchasing in multiple areas, including information technology (58%), facilities (38%), large medical devices (37%), small medical devices (21%), and disposables (28%). Moreover, the study indicates, healthcare insurance reform is inducing hospital management to re-evaluate the manner in which they select and purchase medical devices and other services. "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. Consulting's global medical technology practice. "Medical supply providers that can deliver broader services, such as good clinical data, will help sway hospitals in their purchasing decisions." Hospitals intend 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 reducing medical errors, the study indicates. A majority of executives polled claim they are willing to pay a premium of 10% to 15% for disposables that demonstrate an ability to reduce medical errors and infection rates. Jackson points out that negotiations with suppliers will be a key strategy for controlling costs, thereby inducing hospitals to turn to group purchasing organizations (GPOs) to help negotiate the best rates possible. More than half of decision-makers surveyed report that they expect to use GPOs more by 2015, representing a nearly 20% 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.