Average Hospital Spending $11 Million Annually On Supply Chain Waste

A recent study from Navigant Consulting concluded that hospitals across the US are wasting an aggregate of $25.4 billion annually in their supply chain, or $11 million per hospital. The amount of waste is up 10.2% from 2017.

With hospitals increasingly focused on eliminating waste from their operations to increase profitability, the supply chain is become a target area for reducing costs for many executives. As this article from Jack O’Brien at HealthLeaders continues:

“The study suggested proper supply chain spending would result in a 17.7% average expense reduction, totalling $11 million per hospital annually. That amount equals the annual salaries of 160 registered nurses or 42 primary care physicians.

In an era of shrinking operating margins and challenging revenue streams, supply chain costs are another aspect of the financial enterprise that hospital executives must address to ensure a stable outlook for the organization.

Rob Austin, director at Navigant, told HealthLeaders hospital financial executives have a heightened awareness of the potential to save significant costs, but health systems aren’t making a big enough impact due to underinvestment.

“There’s a huge opportunity to reduce supply costs, the second-largest costs for a health system behind labor, but [executives] need to do a few specific things,” Austin said. “[Executives] have to engage clinicians, focus on data, and have more people professionally trained in the supply chain. For a CFO to invest in supply chain, [they need] a supply chain leader who has a vision and skills, sometimes [from] outside of the industry, that they can apply to healthcare.”

Austin added that the systems he has analyzed with the most effective and efficient supply chain operations have implemented strategic initiatives to hire educated employees from outside of healthcare to get new ideas on how to streamline the process for the system.

Along with incorporating college-educated employees into two to three year timeline, Austin said successful systems have also embraced collaboration between the financial and clinical sides of the enterprise to foster new solutions.

Peer-to-peer communication, according to Austin, is one of the most effective steps to identifying areas where supply chain leaders, physicians, and nurses can determine what resources are most necessary for the system.

Another crucial step for a high-performing system is data utilization and technology management that results in effective supply chain operations. Austin said that systems may have a great item master or data inventory management system, but without proper usage and knowledge of how to pull the data to act upon it, the system will not benefit in the long run.”

Download a copy of the case study here: Annual Supply Chain Savings Missed by Hospitals Total $25.4 Billion

Most hospitals are learning to live in the new value-based care environment in real-time and adjusting on the fly. Utilizing the vast amounts of data that they are gathering around their procedures will allow them to identify areas of improvement and make adjustments that should yield immediate returns. One place that hospitals may find immediate opportunities for reducing their costs is by better managing their implants and supplies, which make up the second biggest component of procedure costs after labor. If your organization lacks the proper tools to provide powerful data around your supply chain spend, consider systems such as iRISupply which can collect real-time data around supply and implant usage using RFID technology and provide actionable insights to help with vendor negotiations, on-hand inventory levels and owned-consigned item mix. Powerful data analytics included with the software will give specific recommendations on which items to reduce or eliminate, and which items should be owned vs. consigned, leading to millions of dollars in cost-savings opportunities. These cost-savings opportunities can help hospitals increase their margins and provide valuable dollars to the bottom line.