Inventory Management Fit for the Affordable Healthcare Act

Precise inventory management, reduced inventory requisition costs and immediate supply chain visibility are a must for the Affordable Healthcare Act


The Affordable Healthcare Act (AHA) is a game-changer for hospitals, with Medicare reimbursements tied to outcomes. It’s all about better treatment that produces better patient outcomes and shorter patient stays. The new reimbursement environment may drive the need for dramatic changes in how hospitals view their supply chain.

Supply Chain Considerations

First, hospitals can’t afford to make purchasing decisions that are solely based on cost. Purchasing needs to collaborate with physicians and other patient-care staff to determine the right products for supporting the best outcomes. Efficient, precise inventory management is more important than ever before.

The new outcome-oriented environment makes it imperative for supply chain managers at hospitals to understand the personal preferences of physicians. While new medical devices come out every year, doctors and nurses prefer certain instruments that allow them to be as productive as possible in successfully treating patients. Supply chain managers can create a team of cross-specialty physicians who can speak for everyone at the facility, providing insight into what they need to properly care for patients, and other items that sit in storage for months on end. Getting real-time feedback from doctors can ensure that supply chain managers get the necessary devices to maintain appropriate inventory levels.

Secondly, it is widely accepted that hospitals should prepare to reduce costs anywhere from 14 to 19 percent to address the impact of AHA’s reimbursement structure on revenues. With medical and surgical supplies representing the second largest hospital cost center behind patient-care staff, it’s logical to focus on reducing supply chain expense, including requisition. Since outcome is the new imperative, hospitals can’t afford to cut patient-facing professionals.

Thirdly, AHA’s outcome-based reimbursement schema may threaten the survival of small hospitals due to their paltry 2 to 3 percent net margin. Many may need to be acquired in order to reap the economies of scale and shared infrastructure under the sheltering wings of an integrated delivery network (IDN). Conversely, IDNs are looking to add to their hospital network to further spread out costs.

Bringing those acquisitions into the IDN’s fold is a challenge. With hospitals running on a variety of enterprise resource planning (ERP) systems, systems integration is typically a two-year process. Yet it is critical for an IDN to gain immediate visibility into its acquisition’s supply chain without disrupting the hospital’s operations.

Where can an IDN find an inventory management system that provides such an interim solution? Where does a hospital find a cost-effective system that supports efficient and precise inventory management? And finally, where can a hospital turn to reduce inventory requisition costs?

Answers in the Cloud

The answer to all three questions may be the cloud. Cloud computing was born out of the advent of the Internet. Simply put, software applications run on servers located on the Internet rather than computers running in an office.

Before we look at how a cloud application can address each of the AHA-driven trends specifically, it’s important to understand the inherent advantages of cloud computing. If I were to describe it in a catch phrase, it would be “less is more”—less software and hardware to purchase and maintain, less time to implement, less information technology (IT) involvement and less complicated to use. It all adds up to more cost advantages, more compliant use and a faster, greater return on investment (ROI).

The Right Quality, Quantity, Price, Place and Time

Reimbursement tied to outcomes measured by the number of days of admittance means that hospitals need to track not only the use and cost of supplies, medications, and treatment protocols on patients, but also the outcomes generated by these criteria. This helps purchasing and clinician teams assess the value of specific products in meeting outcome objectives.

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