With reimbursement rates dropping and costs still climbing, hospitals everywhere are caught in a bind. Labor remains the top target for spending, but supplies are not far behind. Traditionally, hospitals have paid far less attention to their supply chains than organizations in other industries. While there are longtime challenges to overcome, experts say 2016 will be the year when U.S. hospitals finally turn the corner to make supply chain management an effective tool for cutting costs.
Longstanding Supply-Chain Challenges, Each an Opportunity to Cut Costs
Efficient, proactive supply chain management has been a staple in other industries for decades. Hospitals have traditionally taken a fairly hands-off approach for a number of reasons.
“For a long time, hospitals made money in spite of themselves,” noted Chip Geiger, a hospital-group purchasing manager in Rockford, Illinois. That is no longer the case, with reimbursement pressure from Medicare and insurers cutting into revenues even as outlays continue to rise.
While labor costs the average hospital more, inefficient supply spending can make for an even fatter target. With decades of neglect bloating the supply chain in many cases, opportunities for improvement are easy to find. Physicians are used to getting the devices and drugs they prefer, whether because of medically informed inclinations or the influence of manufacturers’ marketing teams.
Hospital supply chain decision-making is often decentralized to a degree that impedes efficiency, leaving too much money on the table as each department makes its independent, uncoordinated choices. The life-or-death nature of hospital supplies can make it seem as though inflexibility with regard to delivery schedules must be the rule, lest patients suffer. Small and rural hospitals feel deprived of economies of scale and the leverage that comes with it, as suppliers refuse to accommodate their pricing and delivery needs.
While these are real challenges and common ones, all represent opportunities. Taken together, victories could result in the complete transformation of the average hospital’s supply chain, with costs dropping greatly as a result. As hospitals confront a future where reimbursements will drop by up to 30 percent and labor costs are obstinate, working longstanding slack out of the supply chain must become a top priority.
Trends for 2016: Better Use of Existing Tools and the Increasing Deployment of New Ones
To get there, hospitals are making use of a mix of tactics, more effectively exploiting existing answers to these problems and finally deploying some that have already been proven in other industries. Determined to cut costs while providing patients with even better care, many hospitals around the United States are now delving into truly strategic, data-driven supply chain management for the first time.
“We see 2016 as the year that healthcare supply chain technology advances to a level that will bring it closer to, or even surpass, the supply chain technologies of other industries,” reported Bruce Johnson, CEO of supply chain specialist GHX.
Taking advantage of these advanced technologies will mean centralizing hospital supply chain management to a greater degree than in the past. In addition to basic restructuring of processes and roles, this will require educating individuals as to how to best leverage the new arrangements.
That will hold true for physicians as much as others lower down. Traditionally granted a generous degree of autonomy, physicians are being taught how to work in concert with supply chain decision makers to arrive at less-costly solutions that remain just as effective.
Whether that means procuring reprocessed medical devices or other ways of keeping supply-side spending down, clinical-side stakeholders can be “concerned it’s not the same quality,” as Deborah Visconi of the Morristown Medical Center noted, so cost-cutters need to learn to make strong arguments, as well.
Even while pushing forward and working toward transformation, hospitals are also making better use of the tools they already have. Already a mainstay of hospital activity, with nearly three-quarters of all purchasing passing through them, group purchasing organizations, or GPOs, are being tasked with upping their own levels of performance in order to better support those that rely on them.
Given that at least 96 percent of all hospitals in the country already work with these organizations, according to the Healthcare Supply Chain Association, it might be thought that they would already be there. Even if they save their members over $30 billion in spending per year, many GPOs can do an even better job of negotiating lower prices and securing more favorable terms. That is particularly true with regard to the many smaller and rural hospitals that often find themselves stuck with a less-effective GPO or receiving too little attention.
Driven by more data, put under closer, more centralized oversight by dedicated managers, and freed up by greater flexibility organization-wide, the U.S. hospital supply chain is a place where great strides are being made. Costs are coming down as a result of hard work and out of absolute necessity, and 2016 is looking to be the most important year yet.