Hospitals Have an Unrealized $25.4 Billion Supply Chain Opportunity

Rob Austin in Modern Healthcare

Hospitals can save $25.4 billion if they improve their supply chain operations and harness data, according to a new report

That amounts to a 17.7% average supply chain expense reduction, or up to $11 million a year per hospital, according to a Guidehouse Inc. analysis of 2,300 hospitals that compared the top-tier hospitals' supply cost per adjusted patient day with their peers. That is equivalent to the annual salaries of 160 registered nurses or 42 primary care physicians, or the cost of building two outpatient surgery centers.

The highest-performing hospitals engage data-driven physicians to identify and standardize the use of physician-preference items and medications that produce clinically equivalent outcomes at a lower cost, according to the report. They also hire quality staff to analyze data that tie costs to patient outcomes.

"Physician-preference items remain a huge opportunity," said Rob Austin, director at Guidehouse. "It's not easy to do. You need to get physicians, clinicians, and nurses engaged and agreeing to limit their choice and standardize care."

Collaboration is key, Austin said. Physicians, nurses, and other clinicians need to work with supply chain, finance and IT departments to identify what opportunities exist and adapt operations accordingly, he said. They also need to engage suppliers often to establish value-based contracts and follow up to ensure they are hitting their targets, he said.

Austin cited a regional group purchasing organization for about 75 hospitals in Pennsylvania and West Virginia. Provider Supply Chain Partners arranged a panel of physicians, suppliers, finance, and supply chain experts to drill down on physician-preference items, ultimately cutting costs by 14%.

The physician panels consisted of doctors that specialized in orthopedics, spine and cardiovascular surgeries. They met once a month to weigh which vendors and products to use as well as how to best standardize purchases.

Limiting the number of suppliers a hospital would use saved money and made the procurement process more predictable. Provider Supply Chain Partners would collect data from each hospital to ensure they were hitting their targets.

"It was ultimately successful because we had physician input and the data to hold them accountable," Austin said.

More health systems are saying they are trying to standardize purchasing. But some don't understand what that really means, Austin said. 

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