The effect of consignment on the price of pharmaceuticals and liquidity in a private hospital in Mombasa, Kenya.
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Date
2022
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Abstract
Background
A well-structured procurement system will enable the acquisition of quality products
in the correct quantity, at the right time, and the right cost. There are several procurement
methods available for organizations’ to choose from, and each method will alter the
organizations financial position in its unique way. Bomu Hospital transitioned from a tenderbased
procurement system to a consignment model in 2020.
Aim and Objectives
This study aims to assess the impact of consignment on the financial health of Bomu
Hospital. Specific objectives include: i) to determine the effect of consignment on the cost
price of pharmaceuticals, ii) to assess the effect of consignment on the liquidity ratio, iii) to
evaluate the effect of combining a tender and consignment system on the cost price of
pharmaceuticals, and iv) to compare the mean adjusted cost price of pharmaceuticals with
the Management Sciences for Health International Medical Products Price Guide 2015.
Methodology
The study used a retrospective pre-post observational design. Medicine purchase
price data was collected from the 2019 tender document, 2020 consignment supplier
invoices, and the 2022 tenders-for-consignment document. Liquidity was assessed by
comparing the institution's cash flow statements from 2019 and 2020. Descriptive and
inferential statistics were used to determine the effect of the two procurement systems on
the purchase price of pharmaceuticals and its effect on the liquidity.
Results
The dataset included 65 products listed by proprietary name. Quantitative analysis of
the purchase price obtained through tenders in 2019 and consignment in 2020 shows that
the price increased by a median of 4.78% [IQR = -5.66% - 12.71%] (p=0.48). However,
when tenders-for-consignment were introduced, the price reduced by a median of 7.71%
[IQR = -11.72% - 1.935%] (p=0.65). Consignment resulted in a direct cash savings of KES
4,427,266.10 in one year. The median price ratio was 4.4319 [IQR = 0.8496-12.6193].
Conclusion
Consignment offers substantial savings through reduced capital expenditure.
However, eliminating competition results in higher purchase prices that can harm the
affordability of medicines. Comparatively, tenders provide the best prices because of
competition between suppliers. Combining both results in substantial savings for the
institution without negatively impacting the cost of medicines.
Description
Masters Degree. University of KwaZulu-Natal, Durban.