As hospitals grapple with increasing costs and declining reimbursements, reducing expenses has become an important tool for hospital CFOs to use to improve profitability. This contrasts greatly with hospital strategies from a decade ago that relied solely on increasing revenues to increase profitability.
Key areas that hospitals have been focusing on are their labor and materials costs. While controlling labor costs is a mathematical equation that is well understood, materials costs continue to be an area that is ripe for cost-cutting for almost any hospital. Hospitals are plagued by overstocked inventory and expiring items, and this has been the case for decades with no tangible improvements happening at most hospitals. With the proliferation of data analysis tools within hospitals, there is now the real opportunity to make meaningful cost reductions in hospital supplies and implants. As this article by Rachel Z. Arndt at Modern Healthcare explains:
“Within every hospital, supply problems are likely to lurk. Often, they’re problems of too much: too many sutures, too many surgical staplers, too much of too many items. Hospital staff, distrustful that they’ll have what they need when they need it, err on the side of excess.
But that’s beginning to change, as hospitals and health systems employ software with predictive analytics for inventory management. That way, they can forecast demand, reaching a Goldilocks level of supplies.
“The natural tendency is to just buy an entire mountain of inventory,” said Rick Conlin, a partner in the Advisory Board Co.’s spend performance solutions team. “Turning to some of these enterprise research tools gives them the ability to more confidently knock back some of that inventory and supply chain costs.”
Users of these inventory management tools will have to integrate them into their existing systems, and they’ll also have to learn to trust the data. That’s beginning to happen more, as ever-mounting costs are putting pressure on providers and health system staff to act.
The return on investment is fairly straightforward: As health systems use more advanced supply chain software, they free up cash, which they might use to buy new equipment or hire another physician—activities that generate revenue.
“If you can reduce the inventory you have on hand, it really can have a positive financial impact,” said Rob Austin, associate director at Navigant. And, he added, “if you’re managing your inventory more closely, you won’t lose it, it won’t become obsolete or expired, and you can run a more efficient operation.”
More efficient inventory management means not only cost savings but also better quality care, Spectrum’s [Bill] Selles said. Right now, he said, “we have the approach of more inventory is better, because the risk of running out of a critical supply is harm to a patient.” But because of that, there’s a lot of waste.
What’s more, if a hospital doesn’t manage its inventory well and a medical device recall is issued, for instance, the supply chain staff might not know if their devices are affected.
The problem of expiration dates isn’t unique to healthcare, Selles said, but its effects are potentially more profound. “If I work for Target and we expire a pallet of yogurt, that’s a problem, but it’s a wholly different story than if I expire medical devices that end up in point-of-care situations,” he said.
Even so, getting providers and supply chain staff to use these newfangled systems can be tough.
“Even within the past five to eight years, I’ve seen hospitals go out and buy demand and supply planning tools, and they don’t trust them,” Conlin said. “Or they’ll work back channels and maintain spreadsheets.”
But things are looking up, albeit not for ideal reasons. “Physicians, just in understanding how dire some of the finances can be, are starting to play nice,” he said. “There’s trust in performance.”
Read the entire article here: Hospital supply inventory management creating a cottage industry for technology
Having the right data can be a powerful tool in optimizing supply chain strategies. As this article shows, having accurate data and using it in the right way can lead to incredible cost savings opportunities for hospitals and health systems. 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 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.