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5 challenges for the hospital supply chain

Incentives to build more accountable care-focused capabilities have given health systems good reason to evaluate their total cost structure

In our semiannual Economic Outlook survey, Premier, Inc., asked hospital supply chain, materials management and C-suite executives to tell us about trends impacting their supply chains over the next year.

Here are the top five issues confronting supply chain leaders in 2015.

1. The health system’s cost savings goal

Incentives to build more accountable care-focused capabilities (combined with minimizing reimbursement rates) have given health systems good reason to evaluate their total cost structure. Health systems are determining the cost savings necessary to both survive and thrive in this environment. And the largest areas of spend are the first targets for cost reduction.

Though healthcare executives may look to different targets for cost reduction, Inova Health System in Falls Church, Va., identified the cost savings necessary to achieve profitability on Medicare rates, and then distributed portions of that goal to different teams within the organization. Its supply chain management team is responsible for $40 million in cost savings, $28 million of which it saved in a year by:

  • Converting to a GPO
  • Joining a highly committed purchasing collaborative
  • Reducing costs in physician preference items

Other big areas of expenses, and potential areas for savings, included staffing and labor efficiency and purchased services.

2. Overutilization or variation in care

Data can help identify areas where there may be opportunities for savings. While some variation in care exists to ensure high quality outcomes, some differences in the procedures or products used is unwarranted by the needs of the patient – this is what we call unjustified variation.

One example is blood utilization. Overutilization of blood products can occur when patients receive a transfusion when they don’t need one, patients who may need 1 unit instead of 2, or blood that’s brought to a patient’s room and isn’t used. By looking at the data, you can identify those patients who are receiving blood (or too much blood) without better outcomes.

Also, Premier, Inc. and the Centers for Disease Control and Prevention (CDC) recently released research showing overutilization in antibiotics – particularly, combinations of IV antibiotics – that add cost but don’t improve outcomes. And in some cases, increase risks of antibiotic resistance or other safety issues.

3. Health IT implementation

EHR and advanced analytics that help make droves of patient data actionable are high-cost capital investments. While some of this investment is required to meet meaningful use requirements, some is necessary to see the return on investment.

According to C-suite survey respondents, 41 percent have spent more than $50 million on EHR systems to date.

Capital budgets are typically set, meaning that large IT investments limit spending in other areas of capital, such as clinical or laboratory equipment. Integration of supply chain data within an EHR system, however, can help achieve gains in identifying where overutilization occurs.

For instance, including product or supply information in a patient record allows you to later determine if outcomes were better for patients using different products. If not, the supply chain team may be able to consolidate to the less expensive product with the same outcomes, or determine which specific patients require the more expensive supply.

4. Integration across the continuum of care

Supply chain integration with revenue capture, quality and IT are important in terms of identifying areas for cost savings. But integration across the supply chain is also important for cost-effective and efficient processes.

Either through centralized purchasing channels or moving facilities to the same contracts for higher tier pricing, integrating the supply chain across the continuum of care can drive savings while building consistency among facilities within a health system.

As hospital consolidation continues and more physician practices and other facilities become part of larger health systems, creating consistency within the supply chain across the continuum of care will become increasingly influential to the bottom line.

5. Drug shortages

As I discussed in July, drug shortages remain an issue with health systems and their supply chains.

Drug shortages can occur without much warning to providers, though advocacy efforts are trying to improve early notification and response. Shortages of drugs (especially IV fluids, cardiovascular agents and surgical agents) can cause a variety of supply chain issues, such as having to keep back-up inventory of products in shortage or requiring the purchase of more expensive alternatives.

Though the number of new drug shortages dropped from 117 in 2012 to 38 in 2013, long-standing shortages still affect more than 300 drugs that supply chain managers will have to monitor and manage in the next year.

This post first appeared at Action for Better Healthcare.

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