Since labor and supplies are usually the two biggest cost drivers for hospitals and health systems — and layoffs are undesirable — supply chain is usually the first place administrators look to cut costs.
As opposed to labor, "supply chain is the area where you can really get expense out," Herbert White, assistant vice president of finance with Temple University Health System in Philadelphia, said during a panel discussion at the Becker's Hospital Review 8th Annual Meeting April 20 in Chicago.
Mr. White and three other supply chain experts — Steve Thompson, strategic solutions and a lean six sigma master black belt with Cardinal Health; Allen Passerallo, senior director of strategic sourcing with Cleveland Clinic; and Kerry Schwartz, MD, senior medical director of supply chain at Adventist Health System in Altamonte Springs, Fla. — discussed market forces on healthcare supply chain and improvement opportunities during the panel.
Health system supply chain managers have been feeling extra pressure to keep costs down and quality high thanks to reimbursement uncertainty and the rise of value-based payments, the panelists agreed.
"We have to get a hold of our finances and provide high-quality product," Dr. Schwartz said, in large part because employers in the area are interested in bundled payment arrangements with providers who can promise a low-cost, high-quality service. If a hospital is paying too much for a joint implant, employers will turn elsewhere.
Mr. Thompson said Cardinal Health survey data shows many hospitals have a lot of room to improve cost control and supply chain efficiency. More than 400 healthcare providers responded to the survey last year, and their responses revealed:
- 24 percent of respondents had seen or heard of an expired product being used on a patient
- 57 percent had seen or heard of a physician not having necessary product for a procedure
- Nearly 20 percent of clinicians' time is spent on supply chain management tasks
- 78 percent said manual counting still occurred in some areas of the supply chain
"I'm shocked," he said, noting that many healthcare inventory management practices are "30 years behind industry."
Cleveland Clinic, Temple and Adventist have all taken steps to bring their supply chains into the 21st century. Those include:
Centralize supply chain management/distribution/storage. Cleveland Clinic partners with Cardinal Health to have the company manage the system's distribution center, according to Mr. Passerallo.
Likewise, Dr. Schwartz said Adventist is working with Deloitte consultants to centralize supply chain management into one corporate location, instead of letting individual hospitals or service lines control their own purchasing.
Standardize contracts. "If you standardize supply, there is less opportunity for waste," said Mr. White. At Temple, this involved engaging and educating the clinical teams about the cost of supplies and working with Medassets to determine target prices. Then, clinicians were invited to the table to help negotiate with suppliers to get the best price.
Dr. Schwartz also emphasized the importance of getting physicians on-board with the standardization goal from the get go — showing them what different supplies cost can be very effective, he said, but physicians also need to know how clinical outcomes would be affected as well.
"It's challenge to get physicians to give up what they want," Mr. Passerallo agreed, but educating them on cost pressures and focusing on quality improvement help.
Work closely with partners. All three panelists from health systems mentioned the value they found in their respective supply chain partners. Other than Cleveland Clinic's Cardinal Health partnership and Adventist's relationship with Deloitte, Mr. White said Temple has outsourced its supply chain to Medassets for the last 10 years, and has a contract with GE for radiology that has seen success so far.
Mr. Thompson said Cardinal Health strives to work closely with its partners to get rid of waste and help them provide efficient, high-quality care.
"Cost pressures trickle down to us," Mr. Thompson said. "We want to be aligned."