Optimising Healthcare Costs in an Era of Rising Demand: A Strategic Approach

Within the European Union, healthcare spending exceeded €1.2bn in 2022, accounting for 7.7% of total Gross Domestic Product (GDP) in the Bloc, while the UK’s spending of £292bn represented an even greater 10.9% of GDP. At these levels, inflation and persistent upward cost pressures are concerning for both governments and healthcare providers. Healthcare inflation in 2023 surpassed 5% in the Eurozone and 4% in the UK, creating significant challenges for procurement teams striving to mitigate supplier cost increases and achieve cost reductions. 

Looking ahead, the situation appears even more troubling. PwC’s ‘Health Research Institute’ forecasts healthcare inflation will reach near-record levels of 8% in 2025. This will compel procurement teams to adopt increasingly sophisticated strategies to manage the cost base, going far beyond conventional tendering and negotiation activities.

By adopting innovative procurement strategies focused not only on price but also on specification and demand, leading healthcare providers have demonstrated their ability to overcome these systemic challenges, unlocking significant opportunities for cost savings. Deploying these more advanced approaches is now imperative to ensure organisations remain competitive in delivering healthcare efficiently. 


 

Identifying Cost Drivers and Reducing Variability

Healthcare costs vary widely due to differences in product selection and clinical practices. H&Z identifies these cost drivers through comprehensive data analysis, enabling healthcare providers to standardise where feasible and reduce unnecessary variability, resulting in lower costs without sacrificing the quality of care. 

 

Example: Gloves used per patient
 

️The Three-Pillar Approach to Demand Management 

H&Z’s framework for healthcare demand management is built around three core pillars: Input, Analysis, and Validation. Each pillar plays a distinct role in the journey from data collection to actionable savings initiatives, allowing organisations to uncover hidden savings potential and enhance procurement effectiveness.
 

The first pillar, Input, focuses on gathering comprehensive data from various sources to create a solid foundation for analysis. Key data points include:

• KPI Metrics: Hospital and site-specific performance indicators.
• Purchase Order (PO) Data: Information on quantities, suppliers, and spending across sites.
• Supplier Spend Data: Detailed expenditure data by supplier and category.
• Clinical Usage/Procedure Data: Insights into medical product usage for specific procedures.
• Supplier Contracts and Stakeholder Contacts: Essential for validating initiatives and ensuring compliance.

Data is the backbone of any demand management initiative. By consolidating these datasets, H&Z provides clients with a holistic view of their procurement and usage patterns, enabling them to identify key cost drivers and areas of potential optimisation. 

In the Analysis phase, H&Z applies advanced analytics to map KPI data to spending and usage patterns. This phase identifies variances and cost-saving opportunities across both direct and indirect procurement categories: 

• Direct Procurement: Mapping KPI data to spend and usage data to highlight product usage variances and identify potential savings through standardisation. 
• Indirect Procurement: Comparing costs per KPI across sites to spot differences in spending, with initiatives to bring high-cost sites in line with benchmarks. 

By highlighting variances in usage and product types, the analysis provides a clear path to potential savings and standardisation opportunities. This targeted list is essential for aligning strategies with the needs of healthcare providers and the realities of patient care.

Once the data analysis is complete and potential savings initiatives have been identified, the next step is Validation. This phase involves engaging with stakeholders across the organisation to validate and refine the proposed initiatives. Key activities in this phase include: 

• Stakeholder Workshops: Collaborative sessions with category managers and other internal stakeholders to review the initiative list, assess feasibility, and agree on priorities. 
• Cross-functional Validation: Identifying and coordinating with clinical, facilities management, and other stakeholders to ensure that changes align with patient care standards. 
• Final Approval: Validation sessions with key contacts to confirm that each initiative is ready for implementation. 

The Validation phase is crucial for ensuring that all initiatives align with organisational goals, stakeholder expectations, and the high standards of patient care.

Real-world Impact: How H&Z Drives Success 

The Three-Pillar Approach is not just a theoretical framework—it delivers tangible, high-impact results for healthcare organisations. For instance, H&Z helped a pan-European healthcare provider achieve double-digit cost savings through a demand management project that optimised spending across various categories. By identifying variances in product usage and aligning procurement practices with clinical needs, H&Z was able to create savings without compromising on patient care standards. 

Another example involves a standardisation initiative within a UK hospital group, where the switch to a single type of surgical glove across clinics reduced costs significantly. By working closely with clinical stakeholders, H&Z ensured that the change would support rather than disrupt patient care, achieving substantial savings through careful planning and validation.