Restructuring hospital supply chains for better cost-savings

As with all organizations, hospitals are continuously challenged in developing cost-reduction strategies. And many rural health care facilities face distinct limitations that make achieving substantial savings difficult.

Tony Ybarra, senior vice president of Supply Trust, a sector of the Community Hospital Corporation, said in a CHC Supply Trust post for Hospitals and Health Networks, or H&HN, that smaller hospitals tend to have fragmented supply chains.

"What we find is you may have the lab manager, engineering, housekeeping and even multiple clinicians placing orders and performing a supply chain function without knowledge of or access to contracts, contract pricing, purchase orders or the materials management information system module," Ybarra said to the source.

Costly supplies and limited accessibility
In addition to decentralized operations, rural hospitals are also negatively impacted by higher supply costs. In an article for RevCycle Intelligence, Jacqueline DiChiana reported that Materials Management in Health Care revealed about 40 percent of a hospital's budget is accounted for by supplies alone.

And research conducted by CHC found that approximately 45 percent of supply inventory in these hospitals are used in the operating room, 35 percent in the pharmacy and 20 percent divided throughout the rest of the facility. Ybarra told the source that supply chain managers often prioritize general stores supplies, but it would be more effective to focus on the OR and pharmacy because these areas can significantly influence supply chain spend.

CHC also pointed out that these small organizations don't get the same benefit of large volume discounts that larger hospitals do. To alleviate the financial burden of buying supplies and managing costs, some health care businesses join group purchasing organizations but, as one Community Hospital finance executive added, even this does not guarantee big savings.

Lack of supply chain visibility, connectivity and accessibility to essential data and information is also a problem. Simpler Healthcare logistics professional James Spann told DiChiana that many health care supply chain managers don't realize that not being able to accurately identify inventory redundancy and other weaknesses can lead to unnecessary costs. Failing to implement standardized and consolidated ordering and delivery processes can further perpetuate the issue.

"The goal for executives should be to build a lean supply chain - which will help you advance up the profit curve," Spann said the source. "Having the right amount of the right supplies, at the right time and place at the lowest possible cost - can actually increase patient care quality as well as clinician satisfaction."

Investing in insight
Leveraging data analytics and financial metrics can provide hospitals with the increased insight needed to improve operations. CHC revealed that this is one of the approaches taken to stabilize its savings strategy. The corporation's director of materials management, Jon Reiners, stated that investing in supply chain analytics and automation tools and developing the appropriate infrastructure has vastly helped the company increase savings.

CHC reorganized its supply chain and improved many aspects of its business by collaborating with a third-party consulting firm, the organization reported. This strategic partnership helped strengthen the purchasing power of the organization and allowed it to uncover cost-savings opportunities.

In an interview with HIT Consultant, Global Healthcare Exchange, LLC CEO Bruce Johnson explained that the health care industry has undergone a major transformation over the past few years and has shifted to a model that allows supply chains to strategically use data and insight to develop more sustainable operations.

"The health care supply chain is inherently different than other industries because, at the end of the day, it deals with people vs. 'things," Johnson told the source. But it's that very reason - the drive to provide better patient care - why its transformation has been so impactful."

He also indicated that, by adopting digital technologies and data and automation tools, health care professionals can strategically use the supply chain as a useful resource and advantage.

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