Over the past several years, the healthcare industry has seen substantial changes that are forcing providers to shift to a new business and clinical model to continue serving their communities.
Changes in revenue have occurred due to influences such as the Affordable Care Act and the increase in narrow networks chosen by self-insured employers. Programs like the Bundled Payments for Care Improvement initiative, piloted by the Centers for Medicare & Medicaid Services, are also poised to potentially have detrimental impacts on healthcare revenue.
At the same time, we've seen rises in the costs of oncology treatments, specialty drugs, intravenous solutions, new surgical technologies, and more. As a result, margins for providers — particularly nonprofit ones — are being wiped out, leading to many systems merging, getting acquired, or stopping operations completely. Many hospital leaders are looking for a way to loosen the grip the industry seems to have on providers.
The hospital's supply chain can and should serve to breathe life back into the system's profit and loss statement and can be viewed as the foundation for driving positive change in healthcare.
Using Supply Chain as the Catalyst for Positive Change
Growing revenue and reducing expenses are, naturally, the ways to improve healthcare's margins. But growing revenue is complicated, expensive, time-consuming, and never guaranteed. Reducing expenses is a more solid plan for driving improvement to the bottom line in the near term. Because supplies and supply-related costs make up nearly 40 percent of hospital expenses, they represent the most constructive place to start.
The supply chain touches every area of an organization. Therefore, it can provide accurate information on how much is being spent on which products and services. That information is key to understanding where savings can be found and reducing variations that might unnecessarily add to a provider's overhead. Furthermore, because supply chain is the pipeline for the products used throughout the system, changes made there can cascade quickly through the health system and drive rapid clinical and financial improvements.
How to Be a Change Agent Through Supply Chain Practices
Optimizing supply chain methods is a good way to protect providers from the difficult changes occurring on the business side of healthcare. To be change agents for this shift, it is vital to align supply chain strategies with broader clinical initiatives and to gather, analyze, and properly present the data that supports them.
Change is most effective when it empowers clinical leaders and aligns with their overall goals and interests. Understand these goals by developing provider councils to inform supply chain leadership on each clinical leader's initiatives, then build a plan on how the supply chain can enable these goals.
Gaining Advocates
Some of the quickest wins in terms of change advocacy include perioperative departments, whose initiatives are to provide the best patient care throughout all phases of surgery and where many of the most expensive products are utilized. Finding ways for department leaders to save money on supplies, such as through standardizing medical commodities, minimizing off-contract product usage, and bulk buying for physician preference items, will enhance their ability to meet and exceed those initiatives.
Pharmacies are another substantial source of costs to healthcare, and directors are typically open to discussing ways to address the high expenses of the pharmaceutical industry. Involving the supply chain in cost-saving strategies solves an issue faced by every healthcare provider and can help ensure the support of pharmacy directors throughout the system. The development and implementation of a clinician-driven formulary, identification of undesirable pharmaceutical usage within a system, and evaluation of biosimilars and other generic solutions for the rising costs of pharmaceuticals are all areas where supply chain can support a pharmacy director's mission of delivering better care at lower costs.
Satellite Clinics With Various Services
An efficient supply chain strategy addresses shifts in the location of where patients are served, taking into account the different types of services offered at each location (particularly private physician clinics). For example, the strategy should account for more lab couriering from chronic care, longer-term care, and other non-acute sites.
Proactive ways to address these shifts include defining a clear strategy for how best to serve the clinics, such as using third-party logistics and self-distribution while ensuring that outside parties are not imposing high markups. Non-acute distribution markups are significantly higher than acute distribution and vary wildly across the industry. Also, ensuring all clinics are buying on contract and through the preferred avenues and using standardized lab specimen solutions (if appropriate) can reduce variations in care across the system.
Gather and Analyze the Data
Supply chain can effectively deliver savings potential and drive alignment across the system by understanding spend patterns, variations in buying preferences, and differences in prices. If one or more clinics use different, higher-priced products or services than others, it is important to define why and understand whether the supply chain should be leveraged to reduce costs.
The use of expensive treatments and prescriptions in some clinics but not others highlights the need to understand various spending patterns. In some situations, the more expensive treatment might be best for particular patient types. That learning should be disseminated throughout the system.
Off-contract spending should be analyzed as well. Determine the split and whether there is a chance to move business one way or the other through partnership between administration and clinical leadership. In many cases, an agreement to implement on-contract buying, or to make a change in contracted suppliers, can have cost-saving benefits for all providers in the system.
Present the Data
With a thorough understanding of current supply chain practices and the costs that can be avoided, supply chain can proactively identify savings opportunities for the health system. Comparing savings potential to the difficulty of implementation within the organization will build a dynamic pipeline of viable savings opportunities.
Further garner support for supply chain change by highlighting past successes, particularly where supply chain enabled the clinical leadership. Annual value reports can show the savings delivered and the key initiatives organizations have completed. Enabling supply chain to serve as a change agent within health systems means making sure the supply chain is clearly positioned as a significant supporter of clinical leaders' victories.
Scott Alexander is vice president of sourcing, innovation, and marketing for ROi in St. Louis. Scott is responsible for overseeing ROi's strategic contracting and sourcing division — which helps healthcare providers manage the evaluation, selection, contracting, standardization, and utilization of all products and services necessary for patient care — and ROi's innovation efforts that identify, develop, and commercialize new solutions to supply chain-related issues to reduce the total cost of care for healthcare providers.
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