Need for smarter medical procurement solutions to improve healthcare in Tier II & Tier III cities

The growth in healthcare provision in India is shifting beyond the metro cities, procurement frameworks in Tier II and Tier III cities run the risk of becoming the industry’s biggest weak spot. Tier II and III cities experienced an 83 per cent YoY rise in medical consultations during the 2022-2023 fiscal period, ahead of 73 per cent  for metro cities, with cities such as Ahmedabad, Kanpur, Bhubaneswar, Indore, and Coimbatore witnessing OPD numbers rise by more than 100 per cent. The growth rate in the Tier II and Tier III cities is approximately 16 per cent – 18 per cent per annum versus 12 per cent -14 per cent for the metro cities. The number of hospital beds per capita is currently 0.8–1.2 as against 2.7-3.0 in metros (NHP 2024).

The procurement gap

Hospitals and clinics in Tier II and Tier III markets are growing rapidly; however, many still lack efficient procurement systems. This fragmented procurement landscape leads to three key challenges: pricing opacity, supply chain disruptions, and restricted access to quality products. These issues ultimately affect healthcare costs, operational efficiency, and the quality of patient care.

Pricing opacity remains a significant challenge in medical procurement. Many medical devices, particularly in smaller towns and cities, are sold without a printed MRP, while multiple layers of distribution often inflate prices substantially. In some cases, people may end up paying more than 25 times the original procurement cost. For example, a three-way stopcock purchased for ₹5.60 can be sold at a retail price of ₹136.

Supply chain inefficiency exists. According to research in the International Journal of Medical Research, in one tertiary hospital located in the North-eastern part of India, there was an order of 1,507 drugs and 1,219 consumables using the Government e- Market place, and yet the delivery was 695 drugs (46.1 per cent). Partial delivery or late delivery causes disruption to clinical operations and cancellation of elective cases; furthermore, this is costly for areas where there are few beds.

In addition, smaller hospitals face challenges with access to products. The leading five hospital chains occupy less than 20 per cent of the market share in Tier II & III locations compared to more than 60 per cent in Tier1 location. Consequently, there are many independent hospitals that lack bargaining power due to size and product variety.

Digital procurement as the corrective

Procurement technologies present a practical way out since they help automate processes associated with sourcing, verifying suppliers, comparing prices, and managing inventories. There is a general macro trend that favors the use of technology solutions. India’s digital health care market will amount to USD 11.2 billion in 2024 while the country’s healthcare IT market stood at USD 19.36 billion in 2025 with an estimated market value of USD 112.09 billion by 2034. Digital data and AI will contribute to India’s economy with $25-$30 billion in 2025. For Tier II and Tier III healthcare providers, digital procurement delivers measurable advantages such as: 

• Price Transparency: With centralised catalogues and authentic data on suppliers, buyers can evaluate prices and identify margin discrepancies, making it easier for them to make cost-effective purchases.
• Wider Supplier Network: Technology helps hospitals overcome geographical barriers by enabling connections between small hospitals and national or regional suppliers, which is vital considering 65 percent of India’s population does not reside in metropolitan cities.
• Effective Inventory Management: Analysis and forecast enable hospitals to manage inventory effectively so as to ensure they have adequate supplies without tying up funds.
• Streamlined Processes: Automation saves time and effort for ordering, approvals, and billing processes.

Smart procurement not only means efficiency but forms the basis of financial viability and scalability. Tier II/III hospitals have to work on thin margins and yet offer new services; 70 per cent of the Ayushman Bharat hospitals are from these areas, making them vulnerable to the government system which needs cost-efficient working. Lack of transparent procurement processes makes them unable to compare prices or evaluate alternatives.

Smart procurement not only makes operations efficient but increases the throughput of patients at a hospital. Growth rates above 80 per cent were seen in cities such as Mangalore, Nagpur, Jaipur and Visakhapatnam, while Indore and Ahmedabad saw more than 100 per cent increase in OPD visits; this is certainly putting a lot of stress on the existing infrastructure. Delay in procurement of patient monitors, ICU instruments, diagnostic tests or surgical equipment can directly affect patient care times.

To facilitate the adoption of digital procurement in non-metro areas, it would be useful to incorporate these platforms with GeM and Ayushman Bharat network. Improvements can be made in seller verification and providing details about maximum retail price (MRP) to avoid exploitation. Providing financial support to small hospitals in the form of inventory credit, deferred payments, and pooling procurement would enable them to get better deals.

The Indian market for medical devices is expected to grow from around USD 15.2 billion in 2025 to USD 50 billion in 2030, while the healthcare sector in general may go past the mark of USD 1.5 trillion by 2030. As 40 per cent of this growth is set to happen in tier II/III cities, the growth will be regional, not metropolitan. In order to make sure that growth happens without any issues and ensures better access, the procurement process needs to become less fragmented and more technology based, ensuring efficiency.

Smart procurement will determine whether small hospitals end up as integral components of India’s healthcare system or continue to be hamstrung by poor supply chain processes. For all interested parties, helping non-metro hospitals adopt procurement technologies would be a high impact activity.