Putting Hospitals’ Supply Chain Spend On The Examination Table

Supply chain management is essential for any company, but in the healthcare field, it can literally mean the difference between life and death.

Having the necessary supplies ready to go is critical for healthcare providers to do their jobs. More than 70 percent of clinicians surveyed last year by Cardinal Health said they could recall a time when a physician did not have a product needed for a procedure — when the procedure was already happening.

That may make the fact that hospitals overspend on supply chain expenses by $25.4 billion every year an easier pill to swallow. After all, when it comes to hospitals, it’s better to have too many products than too few — at least, for the patient. However, margins are razor-thin in the hospital sector, and costs remain the largest concern for providers and supply chain professionals.

Weighing down on those margins are the complex supply chain cost requirements of the hospitals, said Todd Plesko, CEO of hospital supply chain firm Syft. Beyond performing surgery and other healthcare procedures, hospitals also operate as hotels and restaurants, compounding the complexities of their supply chains and inventory requirements, which is clouding the ability of hospital administrators to understand where company dollars are actually going.

“Getting the right materials, the right parts, in the right place at the right time — that’s the logistical piece of healthcare supply chains,” Plesko told PYMNTS in a recent interview. “Then, there’s a productivity and quality aspect of ‘how do we ensure we have everything we need — but nothing more?'”

For any organization, the ideal inventory management strategy would be for inventory to flow in at the same moment an organization runs out of that product. Of course, the reality is far different, and for industries like manufacturing, relatively simple equations can provide guidance on inventory levels and procurement needs. In a hospital setting, however, there are thousands of opportunities for seemingly minuscule savings, based on a variety of factors.

To illustrate the point, Plesko provided the example of two doctors performing the same procedure with the same patient outcome, but with two different products — in this case, two different kinds of surgical screws. The performance of these products may not be different, but one could cost twice as much as the other. Doctor preferences for one screw or the other mean a hospital will stock both, missing an opportunity for cost savings and streamlining of the supply chain.

By having doctors agree to use one type of screw, not only can a hospital save money by procuring a less expensive product, but there are cost savings associated with supplier management, logistics, storage and warehousing to consider, too. This may not appear to result in a major money-save, but multiply this scenario by thousands of procedures and hundreds of doctors in a single facility, and there is a significant impact on margins.

This is what Plesko described as “dock-to-doc standardization.” That is, standardizing procurement from the loading dock to the doctor to ensure that doctors have what they need — nothing more, nothing less.

However, the complexities of hospital supply chains make identifying these areas of opportunity a monumental challenge. On top of procuring from a range of suppliers, ranging from hospital equipment to food and beverage items, supply chain payments are far from straightforward in this industry.

There is the change of money between facilities, providers, patients and insurance companies. In procurement, there exists a complicated web of agreements between manufacturers, wholesalers and group purchasing organizations to procure goods and negotiate costs. Then, there are the challenges of product expiration and recalls, Plesko noted, both significant barriers to supply chain cost optimization for hospitals.

Unsurprisingly, data is the key to providing a micro-view of how hospitals are spending money, and where there may be areas to limit wasted spend. Yet, having the ability to analyze supply chain, payments, inventory and other categories of data is a tall hurdle to overcome.

“The reality is most hospitals don’t have a good grasp on how much a case truly costs,” said Plesko. “They have a very good grasp on the reimbursement aspect, and financial folks have a good understanding of aggregate costs of running a hospital. But when you micro-inspect, down to the case level, it gets very blurry.”

This challenge is part of the inspiration for the Syft name. The company, formerly known as Management Health Solutions, recently announced its rebranding to reflect the concept of sifting — “to sort and identify, which is most valuable,” as Plesko explained.

On a broader scale, hospitals not only need to integrate technology that can analyze the data they have at hand, but there must be a shift in mindset. They must deploy investments strategically to uncover savings that, while seemingly small, can have a major impact on the overall margins of a facility.

“Being able to compare and contrast case cost by procurement and physical outcome is the next frontier in perioperative analytics,” added Plesko.