As 2018 gives way to 2019, margins for hospitals continue to shrink, and healthcare systems are becoming increasingly focused on supply chain.
Reimbursements are changing thanks to Medicare and Medicaid reform and labor is the number one spend for hospitals at 33 percent of budget. This is an area with less opportunity for change, as one can reduce a hospital's labor force but that only goes so far, and who's to say that's a good idea when you consider staffing level standards, patient safety and quality.
"You are never going to be paid more than you are today for what you do. It's only going to go down. Labor today is the number one hospital spend but those costs are rising too," said John Kupice, CEO of H-Source, an online marketplace for hospital groups to buy and sell medical supplies.
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By 2020, Kupice said experts forecast that supply chain costs will eclipse labor as the new number one cost in healthcare. Therefore, the hospitals that not only survive, but succeed will be those that manage supply chain most effectively.
As with any large transformation, often times a philosophical or culture shift must take root first. Supply chain is viewed today as a transactional model, he said. That view needs to shift to one of strategy. It needs to be seen as a strategic department, not just about managing transactions.
This will mean changes to how supply chain departments are structured, staffed, and accounted for. Like most culture shifts, system-wide buy-in is required.
"It involves everybody. Doctors and nurses need to get involved so you reduce doctor preference items and can standardize more. The only way you can do that is to get everyone around the table. Again, it's strategic. It's not a transaction," Kupice said.
As we speed toward the new year, here are Kupice's other predictions for the immediate future of healthcare supply chain.
1. Record bankruptcies in US hospitals
Kupice said from the intelligence he's gathered there could be 100 -150 individual facility bankruptcies or shutdowns over the next 16-18 months. That could also include consolidations. Critical access and smaller hospitals are already underwater and looking for funding. They are vulnerable and trying to be creative in how they operate. Consolidation could be an avenue to survival. Some are from larger systems or facilities within large groups that could be shut down if they aren't proving profitable. Also, in crowded market spaces with a lot of IDNs in play, privately held hospitals don't always survive.
2. New purchasing group structures direct to manufacturer
Kupice gave the following example to illustrate the reasoning behind this prediction. "If you have 20 facilities and you know what your suture purchase is going to be because it is very predictable, why would you buy that through a middleman? Why wouldn't you go directly to the manufacturer and save 3 to 5 percent? That can mean big numbers in savings."
3. GPO's will partner and try to build supply chain departments that become profit centers, versus just a cost center
This prediction is the result of his number two prediction, a reaction or proactive move by GPOs to ensure their own survivability GPOs are changing too, after all, with staff reductions at Premier and Vizient looming signals due to reduced margins. They will have to be creative in working with their clients and justifying the value for what they do. "I see them hiring supply chain expertise from inside and outside hcare for their consulting groups. They are getting creative and thinking outside the box," Kupice said.
4. Margins will continue to deteriorate in Healthcare so hospitals that manage their costs the best will be most successful
These two are inextricably linked. Margins are going to continue to deteriorate so unless a hospital or system manages its supply chain well, the future could be uncertain or ominous. Reducing waste, getting cost recovery, going direct to manufacturers and collaborating with other hospitals in the region to gain buying power are all solutions. "Hospitals used to put in another MRI or another clinic and "revenue" their way out of a problem. You can't do that anymore."
5. Tools that enable collaboration will be more necessary than ever to give visibility into supply chain costs
Specifically, data visualization and analytics in healthcare will optimize purchasing decisions and rules. Visibility and communication within an organization are key. And there is technology to help get you there. New cloud-based tools that allow new capabilities mean you don't have to go through a traditional IT department. The biggest problem in hospitals is that they have copious amounts of data that could be valuable to improve efficiency of supply chain, but they can't get to it because it is all in different silos. You have to be able to get to that data and get it into one place. "Cloud-based, AI and data visualization are going to be invaluable is improving supply chain. I see that as a big push," Kupice said.
6. Blockchain cometh
Cryptocurrency is a red herring for healthcare, Kupice said. It's all about chain of custody and blockchain for chain of custody is extremely powerful. "Chain of custody for asset management, custody for pharmaceuticals track and trade or from when you start with a product, the raw material to going to the patient. That is coming. Maybe it will take a couple years but it just makes sense and it is going to be a radical transformation."
7. There will be new purchasing models direct from original equipment manufacturers/product manufacturers
Kupice again used an example to illustrate this new path. He proposed a scenario where there is a new fda product that has been approved following clinical trials. It often takes 18 to 24 months to get a new drug on a GPO contract. This could be a cheaper product with a better outcome that reduces the cost to deliver a service, but the process can still take well over a year. Groups could serve as distribution channels for hospitals to get that product more quickly.
"There are other groups that are out there that could be very nimble and provide a distribution channel to a facility."
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