Hospital Supply Chain Best Source of Savings

Hospital Supply Chain Best Source of SavingsHospitals are caught between the proverbial rock and a hard place.  Hospitals’ operating expenses have grown about 10% annually since 2008—this, while net revenue per adjusted admission has been flat since 2008 and has actually gone down compared with operating expenses.[i] Combined with falling reimbursement and flat-lined patient volumes, healthcare organizations like you are fighting to maintain profitability.

So how can you get savings rolling?  The health care supply chain offers your best source for new savings and capital.

The top opportunities for hospital supply chain savings can be found by

  • Automating Hospital Procurement/Supply Chain Value Analysis
  • Improving Operational Efficiencies

Strategic Sourcing Offers Enterprisewide Savings Advantages

Traditionally, the main source of value analysis information on your med-surg supply spend was what was captured in your item master and your materials management information system (MMIS).  Unfortunately, that missed a big chunk of your spend—including those high-ticket physician preference items—so savings efforts were always limited.

Now, new cloud-based solutions give you visibility into your entire med-surg spend—including PPI—and provide the detailed data you need to make better purchasing decisions moving forward.

You can compare like items to determine the best value choice and to identify vendor consolidation opportunities.  For example, one procurement system utilizes expanded, “intelligent” attributes to identify functional similar and equivalent items for comparison.

In addition, you can better control purchases across your organization.  Formulary-based capabilities have the ability to compare the selected item to similar items and existing contracts to direct the buyer to the best choice—before they make the purchase.  This enforces your business savings goals every time a purchase is made.

Improving Operational Efficiencies

The goal of hospital supply chain management is not simply to reduce the cost of supplies, but to increase efficiency, transparency, accuracy and integration all along the chain.  But the healthcare industry has been slow to change.  Operational Improvement efforts have been stymied by lack of automation, inaccurate data, poor business intelligence and reporting, and departmental and informational silos that lead to a lack of visibility and delay action.

By implementing next-generation procurement systems, and utilizing point of use solutions in high-cost specialty areas, you can automate and integrate previously manual processes, as well as encourage the free flow of accurate, up-to-date data throughout the chain.

For example, in the OR, RFID-enabled point of use solutions are now capturing clinical data within the case, and are automating charge capture and inventory management functions such as decrementing inventory counts and reordering when levels fall too low.

Cloud-based procurement systems help ensure the right items are purchased to begin with, to save countless hours of rework and invoice-to-purchase order justification after the fact.  And some systems harness the power of artificial intelligence and analytics to crunch supply chain “big data” and provide relevant, actionable information without an Excel spreadsheet in sight.  Experts also suggest using the peer-to-peer component in BI technology to harvest answers to questions you can’t see in your own hospital supply chain and to add context to operations.[ii]

Organization-wide efforts to reduce waste and excess product can bring also financial awards.  It starts by making clinicians and nurses aware of costs.  A recent survey published in Health Affairs found docs were wrong 81% of the time when asked to estimate the costs of common devices such as replacement knees or spinal screws.[iii]

Organizations are responding with cost education programs, such as Cleveland Clinic, which posted prices of surgical tools in operating rooms. [iv] In a recent OR Manager newsletter, OR directors and managers cited costs savings as their second biggest accomplishment of the past year, right after improving patient safety.[v]  Survey respondees achieved results through saving on supply costs, reducing reprocessing costs, reducing inventory, becoming more conscientious about costs and decreasing expenses related to implants.

Additional savings can be garnered by establishing trading relationships and flexible contracts with responsible partners.  And some organizations that are growing in size have looked to self-distribute.

The Potential is Big

There is much to be gained.  A recent McKinsey reports identified a 12-21% opportunity for hospitals across the value chain through hospital supply chain transformation.[vi]

Find out how to drive more savings from the hospital supply chain by downloading new white paper: Predictive Value Analysis: “Closing the Loop and Beyond” to Make Informed Decisions.

[i] Where can hospitals find labor costs savings?; Molly Gamble, October 15, 2013, Becker’s Hospital Review.

[ii] Supply chain savings; Chelsey Dougherty; Healthcare Finance News; posted on July 25, 2013;

[iii] How Much Do Medical Devices Cost? Doctors Have No Idea; BoomberBusiness Week Technology; John Tozzi; January 23, 2014;

[iv] Supply chain efficiency trends: Hospitals continue to seek strategies to squeeze more efficiency out of their supply chain; Rodney J. Moore; Healthcare Finance News; posted Nov 26, 2013;

[v] Salary/Career survey: Increased patient safety, cost savings head list of overall accomplishments;  OR Manager Newsletter, October 2013, Vol 29, No 10.

[vi] Building New Strengths in the Healthcare Supply Chain: Pharmaceuticals and Medical Products Operations; McKinsey & Company; January 2013.