As hospital purchasing executives and CFOs continue to try to squeeze costs out of the system while maintaining quality levels and clinical utility from their medical supply purchasing programs, many have turned to global sourcing to affect this.
When as much as 50% of the cost a hospital or IDN pays for a traditionally sourced product can be attributed to the middlemen taking profit, the attractiveness of global sourcing programs is easy to understand. The implementation is not so easy.
Top needs for global sourcing program development prior to launch
Prior to implementation of global sourcing programs for medical supplies, IDNs, hospitals and large group practices would be wise to ensure their programs include the following:
1. Selecting the right products: most often including high volume supplies with multiple source factories, prospective clinical improvement and lower cost potential,
2. Outstanding quality control capabilities of your global sourcing team and facilitators, and
3. Capacity for receiving or identification of a willing 3PL or existing distributor partner.
Once those determinations have been made, what are the metrics by which global sourcing programs for hospital medical supplies should be continuously evaluated?
Topic metrics for global sourcing program evaluation
1. Overall savings - start with the bottom line.
Given the investment in your purchasing team's time in partner evaluation, program design and implementation, you should expect savings levels from your global sourcing program at a minimum of 15% on medical commodities annually when compared to traditionally sourced, distributor branded products.
This underscores the importance of the quality control and quality assurance capabilities of the global sourcing team referenced above in the program development stage.
According to Jim Connor, Vice President of Supply Chain Operations at Westchester Medical Center Health Network, global sourcing facilitated by ASP Global saves an average of 27% on 33 SKUs currently in the program.
Westchester Medical Center Health Network is comprised of seven hospitals on five campuses and more than 1,500 beds in the Hudson Valley Region of New York. In just over a decade, Westchester Medical Center has grown from a single campus and the advanced-care lifeline for the residents of the region, to a $1.62 billion network with partners at every level of the healthcare continuum.
2. SKU reduction & consolidation
On a 100 product program, eliminating 20 SKUs is a solid goal. As part of this standardization you're saving on the items themselves, tracking only one item instead of three or more, all the while saving space.
In one example within Westchester Medical's global sourcing program, the team sourced a new digital thermometer that reduced the number of SKUs and cut costs simultaneously. Moreover, "ASP Global generated a better product at half the price," Connor said. "We save $70,000 per year on that product alone."
3. Annual program expansion
If your global sourcing program is working well, it should be worth expanding. One large east coast hospital system (more than 2,500 registered beds), initiated a global sourcing program in 2013 with 20 products generating an average savings of 32% across the program. The program doubled in size in 2014 to 50 products and $1 million in savings on a $3 million spend. The system reached programmatic growth to 80 products in 2015 with savings approaching $1.4 million on a $4 million global sourcing spend.
Westchester Medical indicated it intends to double the size of its global sourcing program in 2016.
IDNs, hospitals and large group practices in the early stages of a global sourcing program should anticipate expanding these programs by 50% per year for the first three years assuming overall savings rates of more than 20%.
4. Fill rates
If your hospital's receiving areas or warehouses and associated teams are not capable of supporting large containers, enlist other existing suppliers, distributors or 3PLs to provide some support. Done right, this has the capability of smoothing the transition for globally sourced items in a nearly seamless fashion for the end-users in the hospital. Your global sourcing partner and program should be providing fill rates at 99% or better year after year after year.
5. Improving the patient experience and HCAHPS scores
Westchester Medical's new master plan calls for 240 affiliates under its umbrella. Marketing and patient satisfaction are rising rapidly on the priority initiatives and metrics.
"Our patient amenity and branded items are going to determine, at least in part, how we are perceived and measured including our HCAHPS scores," Connor says. "We are using global sourcing to ensure the quality of those are high while keeping costs low."
Connor tells the story of a board member who recently "hit one of the hospital's beds." The first critique from the board member was the quality of the toothbrush provided. "We hadn't changed that toothbrush in six years," Connor says. "We are changing that now.
"When you are charging a per diem rate for patients, or guests, to stay with you, you should be able to provide high quality, comforting products without breaking the bank: pillow mints, shampoo, toothbrushes; all of those amenity products matter. At the price for a day in one of our beds, they SHOULD be the kind of items one would expect to find at a Four Seasons Hotel. We use our supply chain and procurement expertise along with our global sourcing partner's capabilities to provide a higher quality experience for our patients."
The most direct correlation between a global sourcing program and HCAHPS scores would be the "overall rating of the hospital and whether or not [the patient] would recommend it to family and friends." While a direct correlation between globally sourced custom hospital products and increased HCAHPS scores has yet to be established, we are seeing greater demand for products such as patient amenity kits due to the belief they have positive impacts on patient satisfaction. Is your global sourcing program attempting to draw a direct line to HCAHPS scores? We would love to hear about it.
When the high cost of change is worth it
"The cost of change in the healthcare supply chain and procurement realm for a system like Westchester is north of six figures," Connor says. "Healthcare is an immensely difficult place to manage change. But with a transparent sourcing partner proven to deliver what we need when we need it with measurable quality and savings improvements, we absolutely will."
About the author:
Lorne Tritt is Founder and CEO of ASP Global. With headquarters in Atlanta and operations in the Pacific Rim, ASP is a leader in global sourcing strategies and programs. ASP Global's programs enable IDNs, hospitals and large group practices to take advantage of lower costs and improved quality in hospital medical supplies available through direct sourcing, an efficient supply chain model and the global marketplace.
The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.