The Case for Blockchain in the Healthcare Supply Chain

John Kupice, CEO of H-Source, discusses blockchain's entrance into healthcare and how it can address many of the industry's supply chain challenges.

John Kupice Headshot

The healthcare industry is no stranger to the headlines, with ever-increasing costs on the minds of many Americans. To battle rising costs, many executives are turning to supply chain management to improve processes and better control expenses.

Supply & Demand Chain Executive recently connected with John Kupice, CEO of H-Source, an online marketplace for hospital groups to buy and sell medical supplies, to learn how blockchain is making its way into healthcare to address many of its supply chain challenges—from updating inefficient processes to improving transparency and streamlining experiences. He also discuss some of the potential hesitations. 

SDCE: What are the biggest challenges that hospitals face in streamlining their supply chains?

Kupice: Hospitals across the country are facing declining margins for a whole host of reasons. Reimbursements are declining due to welfare reform and new reimbursement formulas, while at the same time labor and supply chain costs are increasing. In fact, supply costs are on pace to exceed labor costs by 2020. The following are challenges to streamlining their supply chain:

  • The supply chain function must transform from a transactional model to a strategic function.
  • C-level executives need to sponsor and support supply chain as a strategic initiative.
  • Data from existing repositories must be gathered and analyzed to make informed decisions on product usage and quantity optimization to enable the best outcomes.
  • Lean supply chain methodologies will need to be adapted and adopted for healthcare.
  • Group Purchasing Organizations (GPOs) may have to “get out the way” and modify contracts and partner in new ways to facilitate these new initiatives.
  • Systems may not be in place or available to facilitate some of the initiatives.
  • Facilities and health systems may lack resources to execute this strategy, which will lead to more outsourcing solutions and partnering.
  • Lack of consistent data standards for barcoding or item identification.

SDCE: The benefits to better SCM are obvious and the healthcare industry’s challenges are numerous, so why have executives been reluctant to update processes?

Kupice: There are many factors, including some of the barriers in the prior section. Additional challenges include:

  • Transactional focus: buy cheaper and buy less versus strategic view of supply chain.
  • Lack of executive sponsorship.
  • Disparate systems and data silos, which make it difficult to gather the right data to make informed supply chain efficiency decisions.
  • Shortage of resources and experience in lean supply chain methodologies.
  • Lean labor, thin supply chain resources and little bandwidth to take on new initiatives.
  • Undefined measurements and rewards for improvements. 

SDCE: Blockchain is one technology being explored across all industries that could make an impact on the healthcare industry. What specific challenges could blockchain solve for the healthcare supply chain?

Kupice: Blockchain is excellent at tracking the chain of custody of an item from manufacturer to the hospital and then eventually to its end use—the patient. It gives visibility into item usage and movement. Blockchain has the potential to streamline the supply chain and facilitate FDA recall and drug track-and-trace requirements, as well as increase efficiency, reduce waste and reduce risk profiles.

To utilize a blockchain-based platform, however, hospitals will need to implement single warehouse or self-distribution solutions to move idle or stale inventory assets within hospitals or networks. If the inventory does not move internally, it will be sold on a larger marketplace of medical facilities to enhance cost recovery. This basic functionality is a building block for more advanced initiatives enabled by a blockchain software platform. Hospitals, networks, IDNs and groups will continue to develop new methods to purchase directly from manufacturers, removing cost layers from the healthcare supply chain.

SDCE: Many are still hesitant to jump on the blockchain bandwagon, and the healthcare industry is no different. What gaps to adoption remain? 

Kupice: There are a lot of blockchain initiatives in healthcare right now. A lot of them focus on solving large problems, which is logical because the developers will get the quickest return on their investment. A lot of the initiatives are focused around pharmacy and large capital equipment. Solutions are being developed as this article is published. As a buyer of services or software you do not want to be on the “bleeding edge of technology.” Solutions are being developed that will allow not only large facilities and IDNs, but also medium-sized hospitals and rural hospital associations to leverage the benefits of this new technology, a technology that enables new supply chain models of purchasing and distribution and reduces the layers and costs in today’s supply chain. I am confident that two years from now the supply chain will look very different than it does today.