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Unnecessary healthcare supply chain spending reaches almost $26 billion; savings opportunities remain

Lower supply spending doesn't have to translate to lower-quality care, an important consideration as providers look to tighten up supply chains.

Jeff Lagasse, Associate Editor

Unnecessary hospital spending on supply chain products and related operations and procedures has reached about $25.7 billion a year, according to an annual analysis by Navigant. The potential savings opportunity represents a 11.8% surge from 2017, representing $2.7 billion.

For individual hospitals, the average total supply expense reduction opportunity by percent remained steady at 17.4%, but the dollar savings opportunity jumped 22.6% from 2017 to $12.1 million. This amount is equivalent to the average annual salaries of 165 registered nurses or 50 primary care physicians, or the average cost of 3,100 knee implants.

The analysis doesn't include the aggregate improvement in supply chain performance, with top performers widening the gap and lesser performers idling or even losing ground. Because of that, the authors advise providers and suppliers -- pharmaceutical and device manufacturers and distributors included -- to address rising expenses for the sake of patients and stakeholders within health systems.

As with previous years, the analysis suggests lower supply spending doesn't mean lower care quality. Supply chain savings opportunities continue to be lower for high performers in Medicare's Hospital Value-Based Purchasing Program and Hospital-Acquired Condition Reduction Program.

The analysis also found that savings opportunities are once again relatively equal across hospital size, regional location, and whether the facility is urban or rural, for-profit or nonprofit, system-based or standalone, or academic or non-academic.

WHAT'S THE IMPACT

Included in the report are a number of best practices designed to make supply chain operations more efficient and cost effective.

The first is to enhance utilization. Navigant advises health systems to identify which services, products, and procedures are truly needed and most efficient based on clinical evidence.

Second, supply chain departments should increase standardization. Ideally, they should partner with data-driven physicians to reduce physician preference item and medication options to those shown to produce equivalent quality outcomes at a lower cost. Using a standardized set of supplies -- or decreasing the variety used -- reduces costs while helping clinicians better focus on care variation and the overall quality of care delivered.

Third, health systems should be integrating clinicians with supply chain, finance and IT departments. The key, according to the analysis, is to employ physician executives -- such as chief medical officers or surgical subspecialty directors -- to lead standardization efforts with clinicians, many of whom still see conversations about cost as a potential threat to how they deliver care.

In addition, high-performing supply chains are establishing strategic partnerships with key suppliers to more openly share cost information and conduct joint product development. Such collaboration allows entities to move away from what has often been an adversarial relationship between procurement personnel and their health system's suppliers.

THE LARGER TREND

To maintain an acceptable level of spend and realize savings on medical devices and supplies, it helps to know how much items cost and whether there are less expensive, equally effective items on the market that can be used by clinicians on the front lines.

This price optimization is only one piece of the puzzle, though. It's a critical piece, since the fluidity of price points on certain items can be dramatic. But there are other factors supply chain leaders should keep in mind, including logistics, inventory management and managing both necessary and unnecessary utilization.

A March survey from Sage Growth Partners found 98% of hospital leaders said supply chain optimization improves margins. Fifty-two percent said better supply chain management could potentially boost margins between 1 and 3%. And 30% say it could improve margins 3% or more.

Twitter: @JELagasse

Email the writer: jeff.lagasse@himssmedia.com