Supply chain managers play an imperative role in ensuring a flow of materials and services. Leaders need to understand this complex process.
An optimized hospital supply chain can improve patient care and physician satisfaction. How do we get there?
In healthcare, supply chain management involves obtaining resources, managing supplies, and delivering goods and services to providers and patients.
When supply chain goals within an organization are not aligned, it can ultimately make the management of the supply chain inefficient and complex. With this in mind, organizations are realizing the need to ensure supply chain representation has a seat at the strategic planning table to more closely manage accelerating expenses.
According to numerous studies, U.S. hospitals are wasting upwards of $25.4 billion on unnecessary supply chain spending every year. To eliminate this burden of cost, supply chain management should reduce pricing variation by standardizing the use of physician preference items and medications. While this may seem like a simple fix to hospitals, many parties must be involved to make this change universal.
Capital expenses continue to climb with ongoing stress to the supply chain costs in all industries. A commonly overlooked area is clinical and non-clinical services. Services comprise 30-35% of non-labor spending of most hospital systems and have seen marked increases over the past three years.
Supply chain managers in the healthcare industry play an imperative role in ensuring a linear flow of materials and services. To better understand this complex process, here are the four things supply chain managers wish healthcare executives knew.
All parties must work together
Based on industry data, across the healthcare industry, hospital non-labor costs are identified as: consumables at 20%, capital equipment at 20% and purchased services at 30%. Thus, obtaining the best products, equipment and services is imperative for effective spend management.
The clinical perspective needs to be included in supply chain decision-making. Clinicians have a stance on the most precise tools and supplies for patient care. It is essential for clinicians to be a part of this decision-making process to ensure the best patient outcomes. Additionally, unbiased clinical insights need to be obtained from reliable data sources and services that provide industry insights to clinical trials and outcomes.
Service line leaders are also key to the decision-making process. Their insights into purchases from an operational perspective are critical to ensure workflows aren’t disrupted. IT professionals should also be essential players in the decision-making process, as many products, tools, and services have increased their reliance on technology with smart-tool enhancements and increased video integrations, resulting in additional security concerns and integration aspects.
Supply chain leaders need effective benchmarking support as well as strong contracting guidance to not only obtain the best price, but also to obtain the best supplier support and ongoing service relationship. Given the overall cost of equipment or services, obtaining strong decision support tools can save millions of dollars in direct and indirect costs.
Focusing on clinical criteria
To optimize patient outcomes and realize significant cost savings throughout the supply chain, organizations and suppliers need to focus on clinical criteria and value beyond price. The traditional value analysis teams need to transition to evidence-based value analysis (EBVA) processes that incorporate unbiased evidence of efficacy and safety, operational impact, and return on investment, both clinical and financial.
EBVA enables clinicians to deliver high-quality medical care and leads to greater clinician/physician buy-in. From a physician perspective, clinical evidence is compelling and creates ongoing purchase confidence.
Role of mergers and acquisitions
Successful mergers and acquisitions can provide an opportunity to optimize the utilization of equipment, services, and strategic opportunities of healthcare organizations. The healthcare industry continues to see very active M&A activity. According to a Kaufman Hall report, there were 53 hospital mergers and acquisitions in 2022—a slight uptick from 49 deals in 2021. However, studies suggest that between 70-90% of mergers and acquisitions fail.
Supply chain managers play a crucial role in the M&A process. They leverage the combined talent, technology and leading practices of each supply chain. While doing this, they must standardize the process and performance metrics by making investments to the chain to manage the resulting increased infrastructure and operations.
The burden of optimizing and consolidating contracts for products, equipment and services is an immense task. To maximize the benefit of the M&A process, reviewing, consolidating and optimizing contracts is essential.
Supply chain leaders are also key in M&A considerations to understand the ultimate value and complexities of the overall merger. Assessing the supplier relationships, supplies, and equipment utilizations as well as the services relationships helps identify opportunities as well as challenges for the organizations involved, providing insights to the M&A planning and implementation.
Giving supply chain managers a seat at the strategic planning table
To ensure informed decision-making, the supply chain should be involved very early in the consideration process. Invest in supply chain technologies and tools to provide the supply chain team with the best intelligence to obtain insights, benchmarks and contract structures.
Lastly, they must ensure the supply chain has adequate time to obtain the best pricing and many times even more importantly the best contractual agreements.
Supply chain managers are at the forefront of hospitals, ensuring that the most effective materials and equipment are in the hands of physicians. To maximize their impact not only on the care being provided but the financial stability of their healthcare organizations, supply chain managers must be equipped with technology and resources to ensure the organization has contracted the best services and obtains the best supplier relationships. To do so, it’s imperative for healthcare executives to have a better understanding of the forces at play affecting supply chain and provide top-down support for optimization initiatives.
As expenses continue to climb across products, equipment, and services, it is essential for healthcare executives to understand the challenges their supply chain teams face and empower them with a seat at the strategic planning table.
Dee Donatelli is senior director of spend management at symplr. Dawn Plimmer is director of purchased services at symplr.