Transforming Health Care, One Supply Chain Tool At A Time

Under pressure to deliver top-quality care while controlling costs, health care providers are turning to supply chain management to balance the demands of resource management, cost of care, compliance and positive patient outcomes. Worldwide, the health care supply chain management market is expected to grow at a 8.3 percent compound annual growth rate over the next four years to reach $13.8 billion, according to a new market research study from MarketsandMarkets.

North America is both the largest health care supply chain market and the fastest growing, the report shows. In the United States, part of the rapid growth can be attributed to the Affordable Care Act in 2010. Passed in 2010, the law brought supply chain performance, previously ignored in health care, to the forefront. Before, the Affordable Care Act reimbursements were mainly volume based. The more services and procedures performed, the more money was generated. Now the industry is shifting to a performance-based model. A patient re-treated for the same aliment will have a negative impact on the health care provider. Eliminating inefficiencies and redundancies is at the core of a provider’s success.

Embracing the Value Chain

The adoption of a supply chain-focused mentality has real results. In an interview with Healthcare Finance, Laurel Junk, Supply Chain VP of Kaiser Permanente, discussed how the California-based health care consortium is using value chain management for better care. “We are starting to forecast our business, and that is allowing us to ensure the right items are always available for use,” Junk said. “Let’s take our Tamiflu supply chain as an example. We forecast our past usage across our entire network, but then add other influencing factors that are outside of the historical usage data, such as our member growth, and the CDC flu forecasts. Then we look at our stocking level of Tamiflu and compare it to what our models tell us, and we make decisions on where we need more stock, or less stock.” Having concrete forecasts gives Kaiser Permanente the added benefit of locking in suppliers. Ensuring items are always on hand when they’re needed.

While providers who have invested in supply chain tools have seen success, the MarketsandMarkets report reveals the expense of the software, long implementation times and lengthy payback periods prevent many small-to-medium size organizations from starting supply chain management programs and is limiting the growth of the market overall. Payback periods may not be as long as some health care providers expect. The University of Pittsburgh Medical Center (UPMC) reached payback just months after removing the middleman from their procurement and delivery networks. The hospital leased and outfitted a 150,000 square foot warehouse, hired workers and installed a warehouse management system, breaking even six months after moving approximately 10 vendors to self-distribution, Michael DeLuca, the Senior Director of Supply Chain Solutions & Consulting Services at UPMC told Forbes.

Limitless Upside to Big Data

Supporting the development of supply chain management in the health care industry is the myriad of ways the information generated by software not only reduces costs, but supports patient care. Integrating demand data from the supply chain with analysis of clinical outcomes helps optimize the link between spending and health care.

IBM is hoping to take this link one step further. Earlier this month, IBM announced a new business unit—Watson Health—with the goal of using the supercomputer’s cognitive power to translate data into insight. More than data storage and analysis, IBM teamed up with Apple, Johnson & Johnson and Medtronic to make it easier for health care industry players to more easily leverage the influx of data. This is no easy task. IBM estimates the average person generates 1 million gigabytes of health-related data during his or her lifetime, the equivalent of more than 300 million books. In an interview on PBS’s “Charlie Rose” talk show, Ginni Rometty, chairman and CEO of IBM, explained Watson’s potential. “What Watson can do is look at all your medical records—he has been fed and taught by all the best doctors in the world—and comes up with what are the probable diagnosis, percent of confidence, the why/rationale, odds, and conflicts.”

The big three—Big Data, the cloud and mobility—make the transformation of the health care supply chain possible. New tools allow users to continuously monitor performance in real-time and turn that data into actionable predictive plans. The benefits of supply chain management—improved inventory performance, lower inventory carrying costs, better efficiency—translate to health care with the addition of better patient care.