Optimize Your Healthcare Supply Chain to Handle Shortages, Control Costs
Healthcare supply chain leaders are struggling to procure medical supplies amid widespread shortages. Supply chain disruptions stem from component scarcities, backlogged ports, transportation glitches, and lockdowns in China to combat the spread of COVID-19.
Optimizing healthcare supply chain operations—making them flexible, resilient, and proactive—is essential to keep hospitals operating in normal times and in crises.
Healthcare supply chain shortages raise costs
During the early days of the pandemic, supply chain staff scrambled to find personal protective equipment, ventilators, and test supplies. Now they’re facing shortages of a wider range of medical supplies and equipment. According to the U.S. Food and Drug Administration (FDA), the list of scarce items includes latex and vinyl examination gloves, surgical gowns, laboratory reagents, specimen-collection testing supplies, and dialysis-related products.
According to one healthcare logistics firm, 45% of the medical items it handles are supply constrained—including frequently used items such as hypodermic needles and flush syringes, blood-collection tubes, IV solutions, wound care products, catheters, and sharps containers. Pharmaceuticals, whose manufacturers rely on key ingredients from Asia, are also in short supply. And the severe global shortage of semiconductors threatens to disrupt the manufacturing of life-saving medical devices and systems.
Supply chain disruptions have driven up medical supply prices, according to Kaufman Hall’s 2021 State of Healthcare Performance Improvement Report. An astounding 99% of those survey respondents report have experienced challenges in supply procurement, including shortages of key items and significant price increases.
Supply chain issues—particularly higher transportation costs incurred by distributors—are decreasing healthcare organizations’ profit margins.
- Medical supply expenses increased 16% from May 2021 to December 2021, surpassing increases in labor expenses (13%).
- Medical supply prices (for imported goods) were up 46% at the end of 2021, compared to 2019. Thirty percent of medical supplies are manufactured abroad (primarily in China and Southeast Asia), and many supplies made in the U.S. contain foreign components.
- There have been large price increases across a range of imported medical supplies—not just PPE. Sterilizers cost 20% more to import than they did in 2019, and crutches and medical gauze cost 14% more.
Supply chain disruptions that started in 2020 are likely to continue through 2022 and into 2023 due to ongoing congestion at manufacturers, in shipping, trucking, and rail delivery. In the U.S., a shortage of 80,000 truck drivers and a potential dock workers strike on the west coast mean that port congestion and supply chain delays may increase.
When supplies are limited, just-in-time ordering—relying on distributors to deliver supplies quickly instead of keeping them in stock—doesn’t work. Longer product lead times—the time between placing an order and receiving it—mean that hospitals need to reevaluate their purchasing strategy. With health systems dealing with lower fill rates (in the high 80% range, versus the pre-COVID 96-98%), supply chain staff must maintain larger inventories of necessary supplies.
Optimizing your supply chain is essential to the ability to respond to disruptions, increase efficiency, and control costs.
Seven strategies to optimize healthcare supply chain operations
1. Identify alternate suppliers
With many healthcare organizations dealing with 800 to 1,000 backorders per day, you may need more than just one or two suppliers to meet your immediate needs. Identify domestic vendors if possible, to avoid higher costs and delivery delays with imported supplies.
2. Rigorously manage vendor contracts
Analyze prospective contracts before signing them. Compare quoted offers to knowledgeably analyzed, appropriately vetted, consistent, accurate, and unbiased benchmarks. This ensures they are competitive compared to multiple group purchasing organizations (GPO), non-GPO, corporate, and special conditions related to purchase. Examine benchmarking data for list price, component price, warranty terms, and other measures.
3. Regularly assess your suppliers
Measure your suppliers’ performance using key performance indicators (such as contracted price vs. invoice price; delivery in full and on time) to ensure they are delivering high-quality products and services at the best prices. Reconcile your invoices against the contract terms to identify overcharges.
4. Use predictive analysis
Artificial intelligence- (AI) and machine learning-powered technology solutions leveraging predictive analysis and/or business insight tools can help your supply chain leaders more accurately predict your facility’s future needs. For example, predictive modeling helps healthcare leaders anticipate future surges of COVID-19. By using predictive analysis combined with value analysis solutions, supply chain leaders can more easily identify long-term needs, share the information with key stakeholders, and address those needs with vendors.
5. Use AI and machine learning technology to optimize processes and expenses
AI- and ML-powered technology can help supply chain staff reduce costs by optimizing sourcing and better managing purchases, invoices, and inventory.
Analyze existing contracts to detect auto-renewals and redundancies. Auto-renewals can be costly contractual obligations when the terms are unfavorable, or when you no longer require a particular service. You may not need certain print and fax services if your administrative staff are working remotely.
In the case of a merger or acquisition, you may wind up with duplicate services. If the newly merged healthcare organizations are in the same geographic area, you won’t need multiple contracts providing the same laundry and waste management services, for example. AI-powered technology quickly scans contracts to find those with auto-renewal clauses. This lets you track critical dates, conduct an expedient review, and determine necessity prior to contract renewal. Contract analytics highlight redundant contracts and pricing that is higher than benchmarks, helping you determine which contracts should be canceled or shouldn’t be auto-renewed.
Analyze your spend data to identify savings opportunities. Examine your spend data to determine where you’re spending your money, then use AI-powered analytics tools to identify savings opportunities. Analyze existing contracts and spend data to:
- Document your spend over time. Organize and standardize your spend data, classifying it by category, to determine where your money is going. Using spend analytics, compare what various departments or facilities within your health system are paying for the same supplies and services. If there are discrepancies, find out why. Is there no contract; or are there multiple contracts—with different prices and terms—stored in different departments?
- Identify overspending and revenue leakage. Use spend analytics to detect spending outliers and off-contract spend. Spot-check your existing contracts against national pricing benchmarks to determine whether you’re getting the best deal. You can’t always rely on your GPO to garner the lowest prices.
- Pinpoint savings opportunities. Start by organizing, categorizing, and benchmarking your spend activities across your organization (refer to #1). Then continuously monitor your contract assets, spend data, and payments to vendors to identify spend categories with the greatest savings potential. Renegotiate your contracts accordingly.
6. Use unbiased clinical evidence to evaluate new and/or clinically comparable technologies
Your decision-making team should consider the clinical evidence and safety data for new products, instead of making purchasing decisions based solely on cost or subjective opinions that may be heavily influenced by vendor relationships. Clinical evidence reveals the effectiveness (or lack thereof) of a device or technology, which has a direct impact on safety, patient satisfaction, readmission rates, and measurable improvements in care.
When medical equipment and drugs are scarce and you can’t get the physician preference items, you may need to find clinically comparable alternative products. Use clinical evidence and safety data to compare the medical devices, drugs, and other products you’re considering purchasing. Standardize utilization based on clinical evidence to save money and reduce wasteful spending on ineffective treatments.
7. Standardize purchasing and new-product decision processes
If your health system has grown through acquisition, there may be several different systems and processes throughout your organization. Standardize your physical and financial processes, using industry-standard frameworks such as the Supply Chain Operations Reference (SCQR) model. Standardize your new-product decision making process by using value management workflow software that automates the collection and distribution of decision-support information.
You can simplify the new product decision-making process by taking these steps:
- Follow a standardized, organized, stepwise decision-making process that all participants can understand and visualize. Healthcare providers and other key stakeholders must be able to see where the request is in the decision-making process. Automated workflow technologies standardize your value analysis decision-making process and provide transparency and visibility.
- Automate the intake of new product requests. Providers should be able to submit their requests electronically. Streamline the request screening process by asking the right standard intake questions, such as: Is the product FDA approved? Is the vendor certified? Suppliers should also be able to electronically submit the product information you request.
- Include the right people in the decision-making process. Experts and clinicians who will actually be using the requested product should be involved. An orthopedic surgeon is probably not the best person to evaluate a new pacemaker, but that surgeon may be the right clinician to review new imaging technology. Value analysis software with automated workflow routes information to the right group of people to evaluate each new product request.
- Gather and organize decision-support data efficiently. Your value analysis team will need to collect a lot of information—such as clinical evidence, safety data, cost, and contract information—from many sources. Project management software automatically generates tasks, requesting specific documentation/reports from particular people, in the right order. One expert may need to review certain information (coming from another source) before providing related data.
Store decision-support data in a central, electronic repository. Your decision-makers need easy access to vital information, so they can review it at their convenience and engage in virtual discussions. They won’t have to wade through their inbox to find the relevant report or wait until next month’s committee meeting.
Take advantage of value analysis software with workflow automation. Value analysis software automates the decision-making process, distributing the right product data to key stakeholders, who engage in virtual discussions and collaborative decision making.
symplr’s spend management and value management solutions and services are your keys to optimizing your supply chain operations so you can better cope with disruptions. 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.