Supply chain modernization is key to maintaining a hospital's bottom line in today's evolving healthcare landscape.
Current healthcare trends — mergers and acquisitions, consumerism and the shift toward value-based care — directly influence supply chain, according to Lisa Zierten, director of marketing for hospital services at Dublin, Ohio-based Cardinal Health. She believes hospitals must move away from complicated, manual supply chain processes to more technology-driven systems to be effective in the new healthcare environment.
Ms. Zierten spoke with Becker's Hospital Review about how hospital supply chain leaders should respond and adapt to current healthcare trends to ensure optimal efficiency and cost savings at their institution.
Note: Responses have been lightly edited for length and clarity.
Question: What current trends in the healthcare industry are making the case for hospitals to modernize their supply chain?
Lisa Zierten: There are three major trends: consolidation, consumerism and fee-for-value. First, consolidation provides scale and opportunity to create efficiencies like never before through volume aggregation and standardization of products and workflows. Second, hospital reimbursement from government payers is now tied in part to consumer experience. This puts more pressure on frontline staff to focus on the patient and reduce nonclinical multi-tasking. And lastly, declining reimbursements and movement to fee-for-value is putting even greater need to understand the true, all-in cost of care.
Q: Given the focus on value, why are some hospitals increasingly concerned about the cost to acquire products?
LZ: The fact is reimbursement is declining. Total Medicare and Medicaid spending in 2015 was just over $1 trillion. A recent Healthcare Financial Management Association report estimated an $80 billion reduction in reimbursement by 2023, or about an 8 percent reduction over 10 years. Hospitals are facing challenges from both lower inpatient volumes and lower reimbursement. Meanwhile, the cost to provide care is increasing. Since 1992, the price of medical care has increased an average of 118 percent, and the price of physician services rose by 92 percent.
In response to these trends, hospital leaders must take a holistic approach to supply chain management and go beyond the cost of acquisition. They must focus on other ways to reduce costs, such as improving utilization, reducing waste and examining clinician workflows. This involves taking away mundane, distracting nonclinical activity from nurses' daily duties so they can get back to patient care. Additionally, hospitals must look at how a patient moves through the continuum of care — from pre- and post-procedure — to ensure connectivity and promote positive outcomes.
Q: What are some examples of hidden costs that hospitals often overlook?
LZ: When it comes to saving money, much of the low-hanging fruit has already been picked over. This makes it even more critical to search for different opportunities. Adopting supply chain data standards is a good start. Hospital leaders would be able to extract greater value from data to help them make informed decisions as a result. Standards should be adopted to serve as a platform for visibility. This would open the door for stronger data analysis, tying together various trends and generating better decisions.
Shrinkage in products and product expiration is another source of waste in the healthcare supply chain. Every day, as much as 10 percent of products expire on hospital shelves. On top of this, there can be revenue leakage due to an inefficient charge capture process. Both of these processes are exacerbated by human error. Whether employees are miscounting, not counting completely or losing track of products, these errors can snowball to create significant roadblocks in the long run.
Q: What solutions are available for hospitals to overcome the challenges they face with inventory management?
LZ: A lot of hospitals are still using complex, manual processes in the supply chain. In fact, research has shown 78 percent of hospitals are still manually counting inventory in their supply chains. The biggest roadblock for hospitals using antiquated inventory management systems is managing the manual labor required from staff. A recent survey sponsored by Cardinal Health found 18 percent of the average frontline caregiver's workweek is spent on inventory management tasks, such as searching for misplaced products or traveling to multiple storerooms to prepare for procedures. Not only is this a large burden on people's time, but it can also be difficult to track and quantify. The same survey indicated 65 percent of frontline staff would trade the time they spend on supply chain tasks to be with patients. When nurses aren't with patients, risks — like falls — can increase, and when accidents occur, reimbursement decreases. It all cascades.
Between hidden costs and inefficient processes, now is the time to modernize the healthcare supply chain. Implementing automated solutions is a step in the right direction. Automated inventory management technology can provide real-time stock visibility for products with unique identification, like radio-frequency identification tags versus generic barcodes. Clinicians and staff can simply wave a product over a unique identification reader and cloud-based software captures the product information. At the end of the day, these solutions can help supply chain leaders avoid losing money from inventory errors and minimize wasted time and energy.