May 2021 | Point of View

Transforming the healthcare supply chain: Better processes, better outcomes

Overhauls to the healthcare supply chain post-pandemic may be challenging, but opportunities to scale exist. Here’s where to begin.

Transforming the healthcare supply chain: Better processes, better outcomes

Hospitals and health systems have spent the last decade implementing core systems such as the Electronic Medical Record (EMR) and Enterprise Resource Planning (ERP) to gain efficiency and visibility into the overall provision and cost of care. As healthcare reimbursement models shift to payment (or non-payment) based on outcomes, hospitals and health systems need access to data across the continuum of care to assess cost, quality, outcomes, and overall finances.

To achieve this level of transparency allowing for data-driven decision-making, clinical integration into the supply chain is critical.

COVID-19 highlighted the lack of system and data integration at hospitals and health systems and the broken “just-in-time” supply chain model, resulting in the inability to obtain critical supplies during a health crisis.

As hospitals and health systems slowly return to a post-pandemic reality, leaders are assessing opportunities to transform their businesses to be more operationally efficient and cost-effective while improving patient care. Supply chain processes are going to be at the center of these transformations—and they make for easy targets: U.S. hospital supply chain costs account for approximately 30% of all hospital spending ($25.4 billion annually), second only to hospital labor costs. After the incredible challenges of a pandemic-stricken year, when many hospitals and health systems posted significant revenue losses, it’s little surprise that supply chain processes are top of mind for many hospital and health system leadership teams.

Key challenges surrounding healthcare supply chain management exist, but there are appropriately scalable approaches available to increase efficiency, improve visibility, and reduce the overall cost of care.

Healthcare supply chain challenges, pre- and post-COVID

Almost overnight, the COVID-19 pandemic pushed longstanding supply chain challenges front and center, underscoring the need for greater efficiency and resiliency across the healthcare industry. Hospitals found themselves facing severely diminished to completely wiped out supplies of Personal Protective Equipment (PPE) and Durable Medical Equipment (DME) and struggled mightily procuring more. Why did this happen? The vast majority of hospitals operate under a “just-in-time” model with limited inventory visibility, siloed processes, and fragmented procurement and distribution models. The following factors worsen these challenges, resulting in extra costs and problematic inconsistencies.

Systems

A 2018 survey found that 83% of its respondents reported that product inventory was manually counted in their facilities. In our experience, if a hospital has implemented a supply chain management system, it’s likely to be outdated. Additionally, it’s not uncommon for hospitals and health systems to manage supply inventory in one system (or manually) while tracking purchases in another and documenting clinical consumption in yet another. This fragmentation poses clear problems, particularly as it limits visibility critical to informed decision-making, forecasting, demand planning, and cost containment, putting care quality at risk and further burdening providers and clinicians.

Decision-making

Each hospital, department, and physician across a health system may have independent purchasing power. The lack of standardized processes for assessing and procuring supplies can result in variation in product quality, increased risks to patient safety, higher product and shipping costs, inefficient logistics, and limited control over product availability. These inefficiencies can negatively impact value-based reimbursement models and contribute to overall waste. As organizations look to standardize purchasing, patient outcomes should be evaluated against the specific supplies utilized, particularly where there are multiple options available. The cheapest option may not truly be the most cost-effective when the quality of patient care and outcomes is included in the data analysis when making supply decisions.

Procurement and distribution channels

Because of the lack of inventory visibility and accurate forecasting that typically characterizes the “just-in-time” model, stockpiles of PPE were quickly depleted and manufacturers were unable to ramp up production to replenish supplies. Since most hospitals do not manage their own supply distribution, they found themselves very much at the mercy of third-party distributors, adding yet another layer of costly complexity.

How hospitals and health systems can control their supply chain

The complexities and fragmentation of the healthcare supply chain require focused, tailored solutions that transform both the technical and operational aspects of the supply chain. This allows hospitals and health systems to gain the visibility and control that will allow for data-driven decision-making, enhanced collaboration, and effective engagement with stakeholders, resulting in better financial and care outcomes.

Think of it in terms of an intersection of technology, process, and people.

Technology

An integrated supply chain solution streamlines data across a hospital’s IT systems and third-party suppliers and distributors. Identifying and connecting upstream and downstream systems through existing or new technology will allow for compliant and reliable data capture, resulting in the ability to make data-driven purchasing decisions, perform accurate forecasting, reduce waste and diminish variability, and lower costs.

Process

Technology alone won’t solve all problems. A strong combination of technology and operational process improvement is imperative to the establishment and maximization of the value of an efficient supply chain.

In assessing areas of opportunity, organizations must start at the front-end of the supply chain: intelligent procurement. Intelligent procurement options will vary depending on the strategic goals of the hospital or health system. For instance, an organization may consider the sophisticated use of machine learning and data, the diversification of their supplier network using a structured proposal and review process, or the implementation of a consolidated service center (CSC) to self-manage sourcing and procurement rather than relying on third party service providers.

In addition to procurement, process improvement opportunities exist across the hospital supply chain, from streamlining physician preferences, standardizing the purchasing approval process, and inventory management. All of these areas should be examined as part of any supply chain transformation.

People

Automation-driven supply chain management with standardized processes allows healthcare organizations to optimize the skill sets of their supply chain staff, shifting their core duties from reactive to proactive. Time that was previously spent conducting manual counts and data entry can be used to perform data analyses, assess cost, manage inventory, and further streamline identified inefficiencies and gaps.

Taking the next step to better supply chain management

It’s clear that there’s a great deal that hospitals and health systems can do to take control of their supply chain management destinies. But they’ll need help getting there, allowing them to continue focusing on the delivery of quality care to their patients while core technologies and processes are improved in the background. To those ends, organizations should lean on an experienced partner with a focused, industry-steeped methodology aimed at a strategic solutions that are tailored to a given hospital’s or health system’s unique needs and business initiatives.

The situation is complex and multifaceted, but the approach to addressing it should be simple, value-oriented, and customizable, built around the goals of any size and sort of supply chain transformation: targeting key value drivers across the supply chain, improving risk management and cost containment, gaining control, eliminating waste and fragmentation, and overall platform optimization.

From a high-level perspective, getting started comes down to four steps. Begin working on those steps by recognizing, considering, and answering the questions that go along with them.

1. Align

Given the number of factors and moving pieces in the process, it’s critical to first align your organization and stakeholders by establishing a vision of success aimed at long-term value. In many instances, this shift will require significant changes to processes and roles. Ensuring that everyone is aligned to the overall strategy, road map, and end goal is crucial to successful transformation.

  • Do you have a clear mission for supply chain management? What are you hoping to accomplish?
  • What conversations need to take place to achieve alignment, and which stakeholders need to be included?

2. Assess

Know where you stand. While most health systems and hospitals have insight into where their supply chain processes stand at a high level, a comprehensive assessment means a thorough examination of the people, processes, and technology with a specific eye toward optimization and transformation that align with that end goal in sight. This deep understanding of supply chain staffing as well as the current operating structure allow for more accurate strategies, quicker improvements, and faster implementation.

  • Do you have the right data to support your mission and the alignment that you’ve established?
  • Have you defined the right roles, and do you have the right people in them?

3. Analyze

Once you’ve aligned and taken a deep dive on assessing all parts of the supply chain, those answers help create a comprehensive business case that models a sustainable, scalable future state. Analyze existing data to map supply chain processes to identify improvement opportunities in each of people, process, and technology aspects. This, in turn, allows you to create a data-driven business case for the future to act as the guide for actionable changes and improvements.

  • At a high level, where are your biggest gaps? Procurement, sourcing, distribution visibility, staffing, execution?
  • More specifically, is there standardization of provider preference items? Are you seeing consistent use of items across sites and settings (in cath labs or the OR, for example)?

4. Plan

Bring the business case to life by developing a comprehensive approach that aligns key organizational priorities with both short- and long-term business initiatives. Pinpoint short-term investments and develop a road map for long-term transformation using the assessment and analysis of processes and data.

  • Given the projects on your road map, do you have the right resources in place to execute on this plan?
  • As it relates to those resources, do you have the right software and technologies to support the projects on your road map?

The bottom line: Cost, efficiency, and outcomes

The challenges posed to the healthcare supply chain by COVID-19 are causing the industry to pause, take stock, and transform. The integration of mature technology and standardized processes is essential and can no longer be viewed as a nice-to-have if hospitals and health systems are to transform their businesses, reduce costs, and gain operational efficiency (and independence) while improving patient care and creating better environments for clinicians.

The benefits are clear: greater visibility into valuable data streamlined across IT systems, reduced risks, and vastly improved confidence in everything from strategic sourcing, supply contracting, distribution, and inventory management to patient service.

It’s time for hospitals and health systems to take control of their supply chain. Whether that involves leveraging internal resources, engaging with an external partner, or a combination of both, the goal must be to organizational in scope and industry-wide in thinking: to create and maintain a safer, more efficient healthcare system for the benefit of everyone.

 

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