When a healthcare organization lacks sufficient supplies of personal protective equipment (PPE), pharmaceuticals, medical devices, medical supplies, services, or blood, massive disruptions to business continuity can ensue. The health system’s ability to provide high-quality patient care can abruptly stop. In the healthcare industry, supply chain management is critical.
Unfortunately, fragmentation and inefficiencies that negatively impact patients and healthcare providers plague the healthcare supply chain. It’s why a data-driven, clinically-integrated approach to healthcare supply chain management is paramount.
Here’s what health systems can do to fortify their supply chain and improve the physician experience.
What is the healthcare supply chain?
The healthcare supply chain involves the flow of many products and services among stakeholders including as manufacturers, purchasers, and healthcare providers. Government institutions, regulatory agencies, and insurance companies also play roles, adding a layer of complexity. In healthcare, any disruption to this network can have dire consequences. What happened with PPE and ventilators during the early part of COVID-19 is a perfect example. Supply chain management was always a concern for hospital CFOs. But a recent survey found that supply chain management is now hospital leaders’ second-highest priority, outranked only by patient safety. Their goal is to create a radically more resilient, transparent, and efficient supply chain.
How much do healthcare supplies cost, on average, for healthcare providers? And how much can hospitals save through effective supply chain management?
One recent study found that supply expenses make up 15% of total hospital expenses on average and as much as 50% in hospitals with a high case-mix index (e.g., surgery-intensive hospitals). Hospital supply expenses form the second-largest expense category after payroll.
Therefore, strategic supply chain management presents opportunities for significant cost reduction. In fact, 52% of hospitals say better supply chain management can increase margins by at least 1% to 3%. To put this in perspective, a hospital with $900 million in revenues and a 1% margin of $9 million could gain between $9 million and $27 million by improving its supply chain performance.
What are healthcare supply chain challenges?
To begin, many hospitals and health systems don’t have insight into their supply chain.
- They don’t have a handle on what supplies healthcare providers use or the frequency of use/volume used.
- They don’t know when supplies are dwindling versus when there's excess inventory.
- They have no consistent oversight of vendor contracts.
In the absence of hospital materials management systems and formal processes, there are fewer opportunities for efficiency and cost reduction.
Another challenge? An absence of physician engagement. In many cases, physicians make purchasing decisions on their own based on peer advice or input from industry reps. These decisions are made in isolation, outside of an integrated, data-driven approach. In other cases, physicians are excluded from conversations about healthcare supplies and may even be forced into using certain medical devices and supplies without consultation. This approach breeds physician frustration and resentment. A recent healthcare industry survey found that 77% of clinicians want to play a bigger role in supply chain decisions.
There are several other challenges related to the healthcare supply chain that can cause bottlenecks. For example:
- The manufacturing of medical devices (e.g., pacemakers, defibrillators, heart valves, prosthesis and implants, and ventilators and monitors) is subject to approval by regulatory agencies such as the FDA, ISO, and the CDC.
- Medications have their own unique set of challenges related to recalls. When drug recalls occur, healthcare providers must follow FDA guidelines for properly handling and disposing of harmful and defective medication. Then they must update their stock to mark which medications are safe alternatives.
- Healthcare providers must follow strict guidelines for storing dispensing controlled substances. These regulatory requirements add complexity and time to what is already a highly complex process.
COVID-19 worsened supply chain issues
The COVID-19 pandemic caused many supply chain disruptions, and it has widened existing gaps in the healthcare supply chain. However, the pandemic is only one of many factors that can and has worsened the health of the U.S. supply chain. Other examples include crisis events such as natural or man-made disasters, terror attacks, viral epidemics, seasonal disease outbreaks, and more. Some of these factors cause specific disruptions (e.g., the opioid crisis causes a shortage of opioid medications) while others may cause supply shortages across the board as the healthcare experienced during COVID-19.
How does effective supply chain management affect the physician experience?
Effective supply chain management ensures that physicians and other providers and staff have access to medical supplies and medical devices when and where they need them. There’s typically no room for compromise in patient care (e.g., rescheduling surgeries or canceling appointments). Effective supply chain management maintains efficiencies in today’s high-volume healthcare settings.
Further, automating certain aspects of supply chain management processes reduces clinical burnout because it makes managing medical supplies one less task on the to-do list. Physicians and staff can instead focus their efforts on providing high-quality care. Finally, effective supply chain management gives physicians and other providers a greater voice in the healthcare administrative process.
What is a clinically integrated supply chain, and why is it important?
A clinically integrated supply chain promotes interdisciplinary partnership—internal and external to the healthcare organization. It maintains a focus on delivering high-quality care, yet achieves the best outcomes at the lowest cost and with minimal waste. In a clinically integrated supply chain, key stakeholders (e.g., physicians and other clinicians, administrators, supply chain executives, patients, and suppliers) are directly or indirectly involved in decisions throughout the process. Their representation begins with sourcing and contracting and extends all the way through utilization and tracking of clinical and financial outcomes.
Data-driven decisions are paramount. A health system’s own clinical, cost, and outcomes data becomes part of a value-driven decision-making process. Being able to link line-item purchase data to patient-specific outcomes is important. In a clinically integrated supply chain, there’s a link between specific products, patient outcomes, and financial impact of product choices even after patients leave the hospital (e.g., does the product cause complications or readmissions?).
And a clinically integrated supply chain is also important because it supports physician engagement. When physicians request a particular device or medical supply, for example, supply chain leaders are equipped with data and evidence-backed insights they can use to spark conversations with physicians. The goal? To determine whether clinical literature supports use of that medical device, supply, consultation, etc.—or whether there are other functionally similar, lower-cost options.
Finally, a clinically integrated supply chain is also important because it helps healthcare organizations answer this important question: What is the total cost of care? Through a clinically integrated approach, supply chain leaders gain insight into cost, quality, and outcomes.
What is healthcare supply chain software?
Many healthcare supply chain management companies offer supply chain software that coordinates and integrates the flow of goods and services from product to consumption. This software not only helps create a strong foundation for a clinically integrated supply chain, it also streamlines medical supply distribution, inventory supervision, and cost control. For example, hospitals can use supply chain software to:
- Track all on-site and offsite medical products, devices, and services
- Store key order information (e.g., vendor contact details, purchase quantities, delivery timeframes, and payment terms)
- Predict demand and prevent shortages
- Prevent supply chain disorganization during emergencies
- Automate quality checks on purchase orders
- Automate replenishment of high-volume PPE consumables and medications
- Manage medication recalls
- Reduce inventory waste
- Organize drugs during shipping and while in storage
- Maintain stock levels
- Generate accurate product reports
- And so much more
What are benefits of healthcare supply chain management software?
There are many benefits of supply chain management software in the healthcare industry, namely cost reduction, improved access, and increased safety. Some supply chain management software, for example, can analyze disruptions to the supply chain before they even happen. The software also allows for the cost-effective flow of medical goods to where they’re needed most.
Healthcare organizations can use supply chain management software to review average costs in comparing offers from competing suppliers, to get the best value. Supply chain management software helps organizations manage off-contract spending and optimize supplier contracts. Using the software, healthcare supply chain management companies with healthcare supply chain management certification can help healthcare organizations manage this highly-complex process more effectively.
What are the major types of supply chain management software?
The following are some of the most common types of supply chain management software:
- Order processing management software. This software is designed to automate and support critical steps, such as sales order processing, order fulfillment, order management, and billing.
- Warehouse management software. This software helps optimize the use of warehouse space and streamline production planning.
- Sourcing and procurement management software. This software automates a majority of the procurement process, including evaluating supplier bids and implementing spending limits for the procurement team. It may also provide performance analysis tools.
- Inventory management software. This software makes it easy to stock, track, and replenish internal goods and supplies.
- Shipping management software. This software provides real-time updates at every step of the shipping process.
How can healthcare organizations build a resilient supply chain?
Health systems use numerous strategies to strengthen their supply chain management processes. Consider the following:
- Use supply chain management software. This software promotes a holistic, strategic approach to supply chain management. It enables supply chain leaders to closely track inventory and costs at all times.
- Form strong relationships with manufacturers and distributors both nearby and offshore. Identify contingency plans to engage secondary and tertiary medical supply vendors when regular vendors can’t keep up with demand.
- Consider forming coalitions with other hospitals. This enables sharing scarce resources during a crisis or other serious disruption.
- Adopt tools that automate and update enterprise resource planning and materials management information systems. Automation can help healthcare organizations track and analyze data efficiently so they can respond to shortages more quickly and use limited resources more effectively.
- Form a clinically integrated supply chain that can become a strategic asset for your organization. This approach to supply chain management includes standardized supply chain practices; physician-led value analysis/purchasing committees; standardized supply chain analytics, metrics, and dashboards; and analytics to drive outcomes-based contracts and initiatives.
- Implement analytics and demand forecasting. Such actions help take supply chain disruption into consideration and enable better resource and fiscal planning.
Supply chain management has always been a key function in healthcare organizations, and now it is a top priority for CFOs. There’s no doubt that hospitals must strengthen their supply chains to prepare for the next disruption. They must also reduce supply chain waste to recover from COVID-19-related revenue losses.
An automated, clinically integrated supply chain solution can help with inventory tracking, storage, replenishment, decedent management, demand forecasting, and master data management. Now is the time to create a supply chain management process that promotes agility, scalability, and optimal distribution based on actual and anticipated needs.