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5 avoidable supply chain snafus that cost hospitals money

Hospitals need to be lean and mean when dealing with supply chain. It’s all about efficiency. John Biggers, senior vice president of group purchasing for Premier healthcare alliance, knows all about the trials and tribulations of successful supply chain management. Here he offers five avoidable supply chain snafus that can cost your hospital money.

[Also: 5 ways electronic supply management matters]

1. Not involving physicians in supply chain discussions, especially related to physician preference items (PPIs).

Not only do PPIs account for an estimated 40 percent of a typical supply budget, but they also present a potential roadblock in administration/physician relationships, Biggers said. Every year, medical device companies introduce new models of high-end, implantable devices such as pacemakers, artificial knees and spinal discs. But while the new model nearly always arrives with a higher price tag, there is often little data to suggest it is a clinical improvement over the incumbent.

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According to Biggers, a number of Premier’s health system members are addressing this through value analysis committees comprised of physicians, materials representatives and administration that evaluate PPI selection. If clinicians want to acquire a new PPI, they have to go before these committees and present evidence-based, clinically-sound information suggesting the new device would provide a safer or more effective result. By aligning physicians with administrative, supply chain and other leaders, and by taking a data-driven approach, health systems can limit the acquisition of new, costlier products to just those where data clearly shows increased value.

2. Ignoring the low-hanging fruit

For many providers, there are multiple opportunities to reduce costs by addressing so-called low-hanging fruit. This could be as simple as replacing branded items with non-branded ones, Biggers said. Other options include ensuring that all care sites within a health system are buying identical products using the same contract. This concept of product standardization can be extended to a regional or national level via participation in a group purchasing organization. While these opportunities may not result in huge savings individually, Biggers said they do in aggregate, and uncovering them isn’t resource-intensive.

3. Non-optimal product utilization

According to Biggers, although non-optimal product utilization is a much more complicated process it can produce big savings. Hospitals use comparative data that allows them to make decisions based on quality and cost, as well as benchmark performance to top performers nationwide. For example, using the non-optimal product utilization process saved Banner Health approximately $1.6 million a year on abdominal adhesion barriers alone, Biggers said.

4. Disregarding energy efficiency opportunities

Energy costs consume up to 3 percent of a hospital's total operating budget and at least 15 percent of their annual profits, Biggers said. Efficient energy use is an often-overlooked opportunity to reduce cost, increase net profits and contribute to the bottom line and is often as simple as replacing energy inefficient light bulbs.

5. Not addressing “deadstock”

Second to labor costs, supplies are the largest expense for most health systems. Biggers said reducing on-hand inventory value and increasing inventory efficiency can present significant savings opportunities. East Alabama Medical Center, for example, undertook a broad plan to eliminate unnecessary inventory, Biggers said. It identified items that had not been used for a year or more. Materials management then worked with unit managers to adjust levels and delete items where possible. Overall, average inventory value dropped by 15 percent in less than three years.