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


Cloud-based inventory management data help clinicians determine which supplies, devices and instruments are most effective. A cloud-based system is agile, making it easy to update as new instruments and supplies are adopted for patient treatment, or as items are eliminated because they are deemed as not vital.

What’s more, cloud-based software can provide insight into actual cost-savings generated by replacing expensive, premium-brand devices and equipment with items from more generic companies offering lower prices. This data combined with outcome data can reveal cost cuts that could actually improve outcomes or have no negative impact. In either case, the hospital wins.

Reduced Requisition Costs

The second largest expense on a hospital's balance sheet (following labor) is supply chain costs. The quickest way to impact the bottom line is to unearth savings in the supply chain. For example, a hospital with a 3 percent net margin, which saves $100,000 in materials cost, would need to generate $3,333,333 in fees to bring that same $100,000 to the bottom line.

Numerous sources identify the top ways to curb medical and surgical supply spending:

  • Conduct as much purchasing electronically as possible.
  • Automate the procurement process—from the point of contracting to the point of payment—to streamline operations and boost efficiencies.
  • Centralize purchasing across the organization to provide visibility into and control over as much of one's supply spending as possible.  
  • Develop a master data management strategy, including the use of global industry data standards, to ensure that critical information is kept updated, and there is one source of truth to feed clinical and financial IT systems.
  • Understand the total cost of ownership of the supply chain: In addition to the price paid, consider the financial implications of procurement, logistics, inventory management, change, charge capture and reimbursement, among others.
  • Create visibility into both the total cost and efficacy of the products being used in patient care, so as to determine the role supplies play in both the cost and quality of the care the organization provides.
  • Focus on bringing more non-file and off-contract spend under contract, especially high-cost physician preference items.
  • Save an estimated 1 to 3 percent in avoided overpayments by validating contract pricing and ensuring the most updated contract information is used.

In an annual benchmark study, the Aberdeen Group reported that healthcare enterprises significantly improved their performance as a result of an e-procurement initiative.

The study found that best-in-class healthcare enterprises utilize e-procurement technology to:

  • Improve profit through the reduction of maverick spending and savings leakage.
  • Automate the routine tasks of the inventory management function.
  • Integrate with other IT systems to aid in decision-making and strategic planning.
  • Ensure accurate order processing, financial reporting and vendor contract compliance.
  • Reduce requisition-to-order cycle cost and time by automating workflows.

The research findings all support the progression of savings offered by software applications is continuing to accelerate. Yet there are a few snags that have stunted the widespread use of supply chain technology. For instance, why have so many hospitals let their ERP systems fall behind in keeping releases up to date? This is due, in part, to IT and training costs, as well as the potential interruption in business that can come with upgrading software on local servers. 

This is when an inventory management and procurement cloud application shines. The application vendor is responsible for all system maintenance and upgrades. The system stays up to date with current industry standards without the expense associated with in- house systems. What’s more, cloud systems are typically sold on a monthly or annual subscription basis, making them easy to fit into a budget.

The Aberdeen study also uncovered another fly in the ointment: maverick spending that indicates inconsistent use of procurement systems. This finding highlights the need for making inventory management systems convenient and easy to use.

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