It will be years before hospitals and health systems fully process the lessons from the Coronavirus disease (COVID-19). But, one of those lessons is already clear -- the pandemic highlighted the lack of system and data integration as well as a broken “just-in-time” supply chain model, which led to sometimes-disastrous results.
While the worst appears to be behind us, the lingering memory of many hospitals’ inability to obtain critical supplies during the health crisis has hospital health systems and leaders assessing how to transform their businesses to be more operationally efficient and cost-effective while improving patient care. Supply chain processes are going to be at the center of these transformations, and for good reason -- U.S. hospital supply chain costs account for approximately 30% of all hospital spending ($25.4 billion annually), second only to hospital labor costs.
The pandemic pushed longstanding supply chain challenges front and center. The need for greater efficiency and resiliency across the healthcare industry has never been more apparent. But, industry leaders struggling with what to do next should take heart -- there are appropriately scalable approaches available to increase efficiency, improve visibility and reduce overall cost of care.
Healthcare supply chain challenges
Almost overnight, hospitals faced severely diminished to completely wiped-out supplies of personal protective equipment and durable medical equipment and struggled procuring more. The reason? The majority of hospitals were operating under a “just-in-time” model with limited inventory visibility, siloed processes and fragmented procurement and distribution models. But, that was only where the problem started.
A 2018 survey found that 83% of hospitals reported that product inventory was manually counted in their facilities. And, even if a system is in place, it’s often outdated -- it’s not uncommon for hospitals and health systems to manage supply inventory in one system while tracking purchases in another and documenting clinical consumption in another. These issues limit visibility critical to informed decision-making, forecasting, demand planning and cost containment, putting care quality at risk and further burdening providers and clinicians.
There’s also a problem about who controls the purse strings given that each hospital, department and physician across a health system may have independent purchasing power. This can lead to varying product quality, increased risks to patient safety, higher product and shipping costs, inefficient logistics and limited control over product availability. Additionally, the inefficiencies can negatively impact value-based reimbursement models and contribute to overall waste.
As organizations look to standardize purchasing, patient outcomes should be evaluated against the specific supplies utilized, particularly when there are multiple options available. When the quality of patient care and outcomes is included in the data analysis, the cheapest option may not truly be the most cost-effective.
Getting a better handle on supply chains
Addressing these problems requires focused, tailored solutions that transform the supply chain both technically and operationally. This allows hospitals and health systems to gain the visibility and control that will allow for data-driven decision-making, enhanced collaboration and effective engagement with stakeholders, resulting in better financial and care outcomes.
An integrated supply chain solution streamlines data across a hospital’s IT systems and third-party suppliers and distributors. Identifying and connecting upstream and downstream systems through existing or new technology will allow for compliant and reliable data capture, resulting in the ability to make data-driven purchasing decisions, perform accurate forecasting, reduce waste and diminish variability and lower costs.
But, technology isn’t a silver bullet. Organizations must look for operational process improvements, starting at the front end of the supply chain and managing all aspects of their vendor-related spend in one central digital place. This method is called intelligent procurement and can take a variety of forms, depending on the strategic goals of the hospital or health system. For instance, an organization may consider the sophisticated use of machine learning and data, the diversification of their supplier network using a structured proposal and review process or the implementation of a consolidated service center to self-manage sourcing and procurement rather than relying on third-party service providers.
Process improvement opportunities also exist across the hospital supply chain, from streamlining physician preferences, standardizing the purchasing approval process and inventory management. Additionally, automation-driven supply chain management with standardized processes allows healthcare organizations to optimize the skill sets of their supply chain staff, shifting their core duties from reactive to proactive.
4 steps for hospitals and health systems leaders
The situation is complex and multifaceted, but the approach to addressing it should be simple, value-oriented, and customizable. It should be built around the goals of any size and sort of supply chain transformation: targeting key value drivers across the supply chain, improving risk management and cost containment, gaining control, eliminating waste and fragmentation and overall platform optimization. Getting started begins with four steps:
1. Align. It’s critical to first align your organization and stakeholders by establishing a vision of success aimed at long-term value. This shift will require significant changes to processes and roles. Ensuring that everyone is aligned to the overall strategy, road map, and end goal is critical to successful transformation.
2. Assess. A comprehensive assessment means thoroughly examining people, processes, and technology with a specific eye toward optimization and transformation that align with that end goal. This deep understanding of supply chain staffing as well as the current operating structure allow for more accurate strategies, quicker improvements and faster implementation.
3. Analyze. The steps above will help create a comprehensive business case that models a sustainable, scalable future state. Then, analyze existing data to map supply chain processes to identify improvement opportunities in each of people, process and technology aspects. This allows you to create a data-driven business case for the future to act as the guide for actionable changes and improvements.
4. Plan. Bring the business case to life by developing a comprehensive approach that aligns key organizational priorities with both short- and long-term business initiatives. Pinpoint short-term investments and develop a road map for long-term transformation using the assessment and analysis of processes and data.
Supply chain transformation is no longer a nice-to-have
The healthcare industry is, after a year-plus, pausing to take stock and transform its supply chain. The integration of mature technology and standardized processes are no longer nice-to-haves if hospitals and health systems want to transform their businesses, reduce costs and gain operational efficiency (and independence) while improving patient care and creating better environments for clinicians.
It’s time for hospitals and health systems to take control of their supply chain. The benefits are clear -- greater visibility into valuable data streamlined across IT systems, reduced risks and vastly improved confidence in everything from strategic sourcing, supply contracting, distribution and inventory management to patient service.
