Blockchain To Help Cure Hospital Supply Chain’s Ills?

healthcare costs

As blockchain cleaves from its association with cryptocurrencies, one way distributed ledger technology is finding new use cases is through the application to logistics and supply chains.

To that end, H-Source seeks to address inefficiencies tied to the healthcare supply chain. The company provides an online marketplace for hospital groups to buy and sell medical supplies, with an eye on using blockchain to boost transparency along the chain.

In an interview with PYMNTS through written commentary, H-Source CEO John Kupice noted that the waste in the supply chain is significant. He cited statistics from Navigant estimating the supply chain wastes $25 billion annually, or about $11 million per facility. The waste can be traced to a variety of factors, such as physician preferences — when physicians leave a facility they leave behind preferred materials that may be thrown away — or products ordered for procedures rarely performed, and the products expire.

“Bulk orders to save money, minimum purchase requirements, and decreased usage of an item all result in overstock; many facilities order for different departments which do not have a view into inventory across departments causing overstock,” Kupice said. In short, waste abounds, and as he stated, most hospitals “do not know the value of what gets wasted.” Profit margins have been steadily trending down from 4.2 percent in 2015 to an estimated 1.8 percent in 2018. That means $56 in revenue must be generated to earn $1 in profit ($1/1.8 percent), or $5.6M in revenue to earn $100,000 in profit. At the same time, supply chain costs are set to overtake labor costs as the number one overall spend by 2020.

Against this backdrop, he said, H-Source allows facilities to buy and sell inventory directly with one another. And with blockchain, he said, distributed ledger technology has the potential to streamline the supply chain by allowing hospitals to purchase “directly from manufacturers, removing cost layers from the healthcare supply chain. Blockchain can also facilitate FDA recall and track-and-trace requirements, making supply chains more efficient.”

By way of mechanics he offered the scenario where hospitals list excess inventory across the H-Source marketplace, set prices — and hospitals buy those same items using H-Source as the vendor (the executive said that the company does not handle sensitive or patient data). H-Source generates shipping labels and packing slips, creates and sends invoices, and collects payments from buyers, Kupice explained. Sellers, he said, box the items with the paperwork and ship it to buyers.

Larger facilities can offload excess inventory and recover at least some of their costs. Smaller facilities can buy that excess inventory for discounts, he said — and in addition, health networks can manage supply chain and pharma inventory across several locations. The overarching effect is to “bring supply chain principles to the hospital and healthcare space,” he told PYMNTS.