The prognosis is not good: Research suggests that hospitals in the United States are expected to waste $25.4 billion across the supply chain by the end of 2018. To remedy the situation, many health care leaders are now looking to demonstrate healthy financial stewardship by looking more closely at common causes of supply chain waste and how to best mitigate them.
The Health Care Supply Chain by the Numbers
According to Navigant’s survey of 2,300 hospitals across the U.S., each institution “could save around $11 million per year if it transformed its supply chain.” That’s equivalent to the salaries of more than 100 registered nurses, or the cost of thousands of cardiac defibrillators.
Operating margins are declining, and hospitals and other health care providers simply can’t afford the waste that Navigant identified. In fact, the report claimed that hospital waste was rising by 10.2%, or $2.4 billion, from 2017’s figures.
In discussing the 2017 figures, Christine Torres, system vice president of supply chain management for Philadelphia-based Main Line Health, noted, “The supply chain represents close to a third of the average hospital’s overall operating expense, and it’s predicted to surpass labor as a hospital’s greatest expense by 2020.”
Diagnosing the Symptoms
There are several main symptoms that health care industry leadership can address to cut down on waste. These include:
- Data silos
- Skills shortage
- Clinical variations
Below, we’ll discuss these in more detail, with potential solutions, or prescriptions (Rx), offered for each one to help get the supply chain back in good health.
Despite the ongoing focus on bringing top technology to the health care field and using data to support evidence-based care, in many cases the abundance of data available for analysis isn’t yet effectively integrated. With so many contracted vendors, it can be challenging to identify overlapping expenses or other opportunities for cost savings.
Also, within the health care setting itself, the people using and requisitioning the many software-enabled devices for care may not be the same people responsible for tracking maintenance. Thus, expensive purchase orders (POs) are often placed as the necessary supplies languish in a cupboard or on another floor.
As reported in Cardinal Health, 85% of hospital executives say that reducing supply chain waste and related costs is a top strategic priority.
Rx: Reduce the number of suppliers and contracts, rewarding those that provide the highest quality at the best rates in order to take advantage of economies of scale.
There is a huge amount of information available to health care managers to help streamline and optimize supply chain processes. But the deluge of data often proves overwhelming for those who have not been trained in effectively implementing analytical tools, let alone leveraging artificial intelligence or machine learning solutions.
Rx: Automate processes where possible to reduce the potential for human error. At the same time, technology can identify anomalies in purchase orders and requisitions, and, ultimately, via predictive analytics, bring about smarter purchasing and product sourcing decisions.
With a lack of integration and shortage of staff who can accurately monitor and maintain supply chain spending, there is little transparency offered for price variations or supply chain shortfalls. All too often, the goal is simply to maintain the status quo.
Yet Navigant’s research discovered, “somewhat counterintuitively,” that providers could both “decrease cost and improve quality” by reducing product and product price variations across clinical settings.
Rx: Standardize the type and frequency of products used to control costs while still producing clinically equivalent outcomes.
Reducing Waste in the Health Care Supply Chain
Keeping a close eye on supply chain economics to identify waste and realize full cost-savings potential is easier than ever with the right technological tools. Still, this effort may also require significant cultural change. Fortunately, these challenges aren’t without viable solutions. Doctors wasting perishable products (often in the name of being “at-the-ready") or floor managers stockpiling supplies, for example, can be dealt with through enhanced transparency initiatives and comprehensive trend analysis throughout the supply chain.
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