Between 2021 and 2023, economy-wide inflation grew by 12.4%, more than two times faster than Medicare reimbursement for hospital inpatient care. Meanwhile, negative outlooks for not-for-profit hospitals are proportionally at their highest in over a decade, according to S&P. Rising supply chain costs put additional pressure on organizations as medical supply expenses comprise approximately 10.5% of the average hospital’s budget.
As health systems navigate high labor costs, low reimbursement, and cash flow challenges, they are seeking innovative supply chain solutions and ways to improve their spend management while preserving patient care.
One promising avenue for significant cost savings in the healthcare supply chain is the integration of clinical systems into supply chain processes.
In hospital models that don’t integrate supply chain management within their clinical practices, supply chain partner’s purchasing decisions are largely divorced from the physicians using them. For example, in the hospital supply chain management process flow, physicians communicate with their supply chain function almost exclusively via product requests or new product introduction, with “product” defined as medical supplies or medical technologies. Once the requests are fulfilled, however, no data is collected regarding how they’re used, if they’re standardized, and how effective they are.
This represents a loss of key information that could potentially inform business decisions. Specifically, a lack of data analytics that connects a hospital’s supply chain with the physicians who use the products means hospitals miss opportunities for substantial cost savings and patient outcomes improvements.
What happens when you leave physicians out of the supply chain?
A lack of physician involvement in product purchasing can result in stockpiling and/or overutilization of certain medical products. A survey of 503 surgeons representing major health systems found that only 20% were knowledgeable about the costs of the devices they were implanting. This surprising statistic illustrates how detached many physicians are from the purchasing process and how critical it is for the clinical decision support system hospitals use to make product decisions is user friendly for clinicians.
Just as heartbreaking, only 19% of healthcare supply chain leaders are very confident their physicians and clinicians are supportive of supply chain activities.
The purchase of additional unnecessary medical supplies and technologies not only diverts limited hospital funds away from valuable internal improvement projects, but also potentially results in additional spend because products with limited shelf lives must be disposed of and replenished.
Although stockpiling results from the underuse of products, a lack of physician involvement and clinical integration can also result in overutilization. Physicians, unaware of the financial implications of purchasing certain medical products, might then use the products excessively, even in scenarios where use doesn’t translate to improved patient outcomes. As a result, a lack of standardization around product utilization is a substantial drain on hospitals’ bottom lines and impacts care delivery as well, representing a large area of improvement for some health systems.
How does supply chain optimization support value-based care?
On the regulatory front, the Center for Medicaid Services’ (CMS) value-based care initiatives are reaching maturity. Hospitals now must place greater emphasis on improving patient outcomes, or face penalties. Failure to leverage clinicians’ insights about the effectiveness or safety of certain products can result in the purchase of faulty or ineffective medical products. This, in turn, could result in higher readmissions rates and other negative downstream effects.
In addition, under the Medicare Access CHIP Reauthorization Act (MACRA), hospitals could be penalized up to 9% depending on their performance. Further, they stand to miss out on substantial bonuses built into MACRA. But by involving clinicians at the beginning of the supply chain management process, health systems can better align the administrative and clinical functions that combine to achieve spend management and patient outcomes goals.
What benefits does clinical integration provide in delivering value in healthcare?
Luckily, many health systems have evolved their supply chains to prioritize clinical integration and have seen substantial improvements in their bottom line by using data analytics. According to an article published by the Fierce Healthcare, Main Line Health leveraged data analytics and clinical engagement to connect its supply chain function with its clinical practices. As a result, the organization reduced the utilization of certain supplies by 80% while maintaining equivalent patient outcomes.
As another example, Johns Hopkins Health System adopted the “clinical supply chain integration movement,” and achieved $50 million in cost savings. Most illuminating is how the health system drove the savings. Johns Hopkins’ CFO Ron Werthman said, “Without the involvement of clinicians, we can only influence about 20% of the cost.” He added that with clinician involvement in standardization and utilization, something facilitated in large part through cloud-based technologies, “[We] can generate substantially greater savings.”
Next Steps: How to incorporate clinical integration into your supply chain
For healthcare leaders, a clinically integrated supply chain is no longer a “nice to have;” rather, it’s required to navigate the complex challenges of the modern healthcare ecosystem. As organizations achieve higher levels of clinical integration, the importance of overcoming resistance to change to prioritize collaboration between clinical and non-clinical stakeholders is at the forefront. Sometimes, the first step is simply going to where the clinicians are to communicate goals and opportunities to work together to support patient care while still managing supply chain costs.
By using a centralized clinical decision support system to manage your entire process, you can support collaboration and immediately center your supply chain business units and clinical systems around agreed upon financial and clinical objectives. That structure enables your organization to:
- Make data-driven decisions around purchasing
- Align key stakeholders in real-time
- Drive standardization
Collectively, these achievements combine to substantially improve your bottom line and reinforce a culture where all stakeholder approach decisions with a united front.
