Survey: Better Supply Chain Management Will Boost Margins Significantly
According to a recent survey, most hospital executives agreed that better supply chain management can increase profit margins by up to 3%. However, these same executives agreed that not enough investment in supply chain technologies and improvements have been made and that supply chain departments are using outdated technology to accomplish their mission.
The survey, conducted by Sage Growth Partners, pointed to a myriad of reasons why supply chain improvements have not been prioritized at the executive level. As this article by Heather Landi at FierceHealthcare noted:
“Supplies are an increasingly large component of healthcare spending, and the Association for Health Care Resource & Materials Management predicts that supply costs will exceed labor as hospitals’ greatest expense by 2020.
In a report last year, consulting firm Navigant found that hospitals could save up to 18%, or $11 million a year per hospital, by reworking supply chain. That’s the equivalent of 160 registered nurses, 42 primary care doctors or the cost of building two outpatient surgery centers, the firm said.
Most hospital and health system executives perceive supply chain management to be a priority and believe that it can positively impact costs and quality; 52% say it can increase margins by at least 1% to 3%, according to the Sage Growth Partners survey. And 35% believe it can increase margins over 3%.
To put this in perspective, a hospital with $900 million in revenues and a 1% margin could gain between $9 million and $27 million by improving its supply chain performance, the report said.
Almost all the executives (98%) said supply chain management is a medium (33%) or high (65%) work priority, but only 13% call it their highest priority for operational investment.
Executives’ top operational investment priorities for 2019 were identified as patient throughput (24%), process improvement (21%), perioperative environment (15%), and staffing turnover, retention and management (15%).
Hospitals are under pressure to cut waste and reduce costs, and 66% of executives cited this as a driver to change supply chain management practices. Other pressure points include the movement toward value-based care payment models like bundled payments (14%), demands from surgeons, OR staff and clinical staff to improve supply-related processes (12%) and regulatory requirements, such as The Joint Commission requirements for implants and tracking of expired products (5%).
And about two-thirds of executives say there is a clear ROI for supply chain analytics, especially to reduce costs. Sixty percent think applying analytics to the supply chain can positively impact quality as well as success with value-based care payment models.
The Navigant report also found that data analytics is key, as high-performing supply chain departments invest in getting actionable data to help tie costs to patient outcomes.
Yet many hospitals are not using supply chain data analytics to define areas for improvement, the survey found. Other organizations are using manual and low-tech approaches to managing the supply chain; for example, 37% of supply chain departments use Excel or Microsoft tools to track margins per case. Currently, hospitals are using different approaches to manage the supply chain: 39% use an in-house solution, 16% use their electronic health record, 19% use a third-party solution and 18% don’t analyze their supply chain at all.
When analytics are used, it’s typically for basic analytic functions such as tracking inventory (76%) or consolidating suppliers (71%).
Only half of the executives surveyed said they are using more advanced analytics functions such as obtaining cost per case or by surgeon or to anticipate supply expiration dates.
Executives cited lack of the right technology as a key barrier to reducing supply chain waste in the OR, along with surgeon allegiances to vendors, clinical staff lacking the time to consider supplies pre- or post-procedures and staff resistance to change.”
Read the full article here: Hospital leaders see clear ROI for supply chain analytics, but most use outdated processes: survey
Most hospitals are learning to live in the new value-based care environment in real-time and adjusting on the fly. Many hospitals and health systems are looking to achieve significant savings by eliminating waste in their supply chain. As the article mentions, making substantial improvements to supply chain spend requires powerful and accurate data about expenses. 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 could contribute tens of millions of dollars to the bottom line.