The effect of consignment on the price of pharmaceuticals and liquidity in a private hospital in Mombasa, Kenya.

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.