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Healthcare market transformation: five areas for change in 2012

Healthcare is a complex industry, and changing the way business is done to ensure the viability and success of hospitals and medical suppliers is a daunting challenge. With the Supreme Court scheduled to review the healthcare reform act in the year ahead, 2012 should continue to be a disruptive one for the industry. And that’s not entirely a bad thing.

In order to move healthcare closer to long-term sustainable health, the marketplace must continue to transform in order to remain viable for the citizens it serves. The key inflections predicted to take place will move the healthcare industry in the direction to do just that.

Provider Consolidation

Some industry analysts have predicted the number of independent organizations could decrease by two-thirds over the next 10 years. In the coming year, hospitals and care providers will need to coordinate patient care to promote long-term wellness while delivering quality care in a cost-effective manner. This requires focus on the patient over time and across delivery organizations, as opposed to the historically common view of looking at specific episodes of care delivered by a specific provider. The larger, consolidated organizations will be able to deliver a broader range of care at many levels of acuity and in more locations.

Cost Reduction by Focusing on Quality

Healthcare suppliers and vendors need to focus more on bottom-line growth in 2012, which requires a focus on quality patient care as a means to reduce costs. Research conducted by the Dartmouth Medical School reported that the quality of care delivered in regions of the U.S. where healthcare spending is higher per capita is not necessarily better. In healthcare, quality care is less about the type of care provided and more about whether it delivers better health to the patient. Providers need access to data on the treatments they are employing, and in some cases on the supplies they are using, in order to improve outcomes and find the right cost/quality equation.


Industry Repricing

Under healthcare reform, hospitals must survive on what Medicare pays them, which currently only covers about 87 percent of the actual cost of care and is declining. Significant expense is also being incurred to install and demonstrate meaningful use of electronic health records (EHRs). Many estimate that reimbursements promised by the federal government will fall short of the real cost of implementation. Further, those who cannot achieve meaningful use will be penalized. These pressures will result in repricing services and products as providers and suppliers work to adjust to the changing reimbursement schedules to remain sustainable.

Centralization of Supply Chains

The supply chain represents the second largest and fastest growing operating expense for most hospitals. Gartner Research says the supply chain represents 40 to 45 percent of hospital or healthcare system operating expense and these organizations can reduce those costs by 5 to 15 percent if they better analyze, plan and control the purchase and use of goods and services.
Hospitals are increasingly relying on supply chain leaders to work cross-functionally with teams around their organizations to reduce costs and consolidate what have historically been multiple, separate supply chains. This can result in business process automation for lower costs, more extensive contract management and product standardization and the return of clinical time to patient care instead of supply ordering and management.

Improving Trust

With hospitals facing lower reimbursements and suppliers challenged by ongoing Wall Street requirements of new revenue growth, the relationship between hospitals and suppliers sometimes appears to be at an impasse. Hospitals are hard-pressed to pay more for products that are not proven to lower hospital-acquired infections, readmissions and other factors influencing reimbursement levels. Suppliers face new requirements for more outcome data on products, driving up the cost to bring new products to market.
The conversation between providers and suppliers needs to become less focused on where they agree or disagree and more focused on how to navigate a future course together. The trust equation has the potential to make a measureable difference in performance and quality.


Never before has the industry been on the brink of such change, and healthcare providers and suppliers cannot wait for the next steps of reform to transform their organizations. Planning now for the bold moves needed to achieve fiscal health while continuing to deliver high-quality care and products to patients is the key to ensuring the long-term health of the industry.

Rob Gillespie is the CFO of supply chain management firm GHX.

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