Supply Chain Management’s Impact On Hospitals’ Financial Health

It is generally accepted that digital supply chain management (SCM) strategies are good for business, yet it can be difficult to put a price tag on just how beneficial enhanced SCM can be. In the healthcare sector, tight margins have hospital executives looking to their supply chains as a source of strengthened financials, particularly as they shift their focus from driving revenue to cutting costs, as per Becker’s Hospital Review analysis.

However, even as hospital executives have said they understand the importance of strategic supply chain management, a new report from Syft, conducted by Sage Growth Partners, revealed that C-Suite leaders and SCM professionals at hospitals aren’t always able to execute on their visions for their supply chains. Sage Growth Partners surveyed 100 of these professionals to assess how supply chain management fits into their hospitals’ overall strategies of cutting costs and driving revenue, and found that the vast majority said they understand how important supply chain management is in promoting financial health.

Still, though executives understand the potential benefits, few actually achieve them, researchers found, even as regulations like the Bundled Payment for Care Improvement (BPCI) Advanced initiative heighten pressure on these organizations to demonstrate value. There is evidence that hospitals are responding to these regulations by embracing technologies that promote cross-organization integration, but Sage Growth Partners found major gaps in the capabilities of some of the solutions they implement.

Overall, the report concluded, supply chain management remains a priority for hospital executives, but, unfortunately, is not a key investment focus. Rather, hospitals continue to rely on basic SCM technologies, with researchers concluding that “many organizations are complacent” about their supply chain management capabilities.

Below, PYMNTS uncovers key data points in Syft and Sage Growth Partners’ report: “The largely untapped value opportunity: optimizing supply chain management.”

Ninety-eight percent of C-Suite execs and SCM officials said supply chain management is a moderate-to-high priority, while 87 percent acknowledged the potential for strategic SCM to improve margins by more than 1 percent. That may not seem like much, but as Sage Growth Partners pointed out, a 1 percent improvement in margins for a hospital with $900 million in revenue would yield gains between $9 million and $27 million.

Ninety-seven percent said supply chain analytics have a positive impact on costs, while 63 percent acknowledged a “clear ROI” on supply chain analytics. Yet, the technologies these organizations have in place often fail to provide the sophisticated analytics they seek. Forty-six percent said they continue to rely on in-house solutions that use spreadsheets and manual processes. Only 9 percent said they track margins, while 8 percent noted they aren’t even sure if or how margins can be tracked at their hospitals.

Sixty-six percent said the biggest area impacting supply chain management strategy is the internal financial pressure to reduce waste and costs. Nearly two-thirds also noted that supply chain analytics could have a positive impact on quality of care, while 14 percent said the shift toward value-based care payment models imposes the greatest pressure to adopt supply chain analytics.

Eighteen percent of respondents don’t analyze their supply chains at all to improve quality, though 73 percent said they have used supply chain analytics to improve quality. Basic functions, including inventory management and supplier consolidation, are commonplace for hospitals’ SCM solutions. More advanced capabilities, like managing expired goods or accessing operating room data by case, are significantly less common.

Twenty-one percent said surgeons’ alliances with suppliers are the largest barrier to reducing supply chain waste, while the lack of time clinical staff members have to manage supplies pre- and post-procedure is another major barrier. Sixty-six percent of the biggest barriers involve physician and staff resistance to change, and a lack of adequate technology.