Hospitals Spending $25 Billion More on Supply Chain than They Should, Study Finds

Healthcare Finance News

U.S. hospitals are spending about $25.4 billion more a year on the supply chain than necessary, according to an annual Guidehouse analysis. This represents a 10.2%, or $2.4 billion increase in potential savings compared to 2017.

The study of 2,300 hospitals also suggests a 17.7% average total supply expense reduction opportunity, or up to $11 million a year per hospital — an amount equivalent to the average annual salaries of 160 registered nurses or 42 primary care physicians, or the average cost of building two outpatient surgery centers.

Impact: Money unnecessarily spent on supply chain can't be invested elsewhere.

The Trend: An August report showed that savings from affiliating with a group purchasing organization can sometimes represent up to 18% of total supply chain costs

This has a ripple effect that can result in savings across the entire healthcare system, with the industry projected to save between $392.4 and $864.4 billion between 2013 and 2022.

What Else You Need To Know: Similar to 2017, lower supply spending may not negatively impact quality, as Medicare hospital-acquired condition and value-based purchasing scores are slightly better at top-performing supply chain facilities, the analysis shows. 

Also, Guidehouse found that savings opportunities are once again relatively equal across hospital size, location, and whether the facility is urban or rural, for-profit or not-for-profit, or system-based or standalone.

High-performing supply chain departments are enhancing collaboration with physicians, nurses and other clinicians with supply chain, finance and IT departments.

On The Record: "The key takeaway for health system executives is that investments in supply chain management pay off," said Kevin Connor, vice president of Supply Chain Management at TriHealth. "Those systems with the highest-performing supply chains are combining data analytics, collaborative clinician engagement and deep subject matter expertise to drive care delivery improvements to the benefit of the communities they serve."

"The supply chain department needs to act as waste or utilization consultants for the entire health system," said Paul Weintraub, director at Guidehouse. "Doing so requires having the right data at the right time, and the right experts who can leverage it to help reduce variation in pricing, product use, and clinical

Their Take: Reducing pricing variation and the use of certain drugs and products should continue to be areas of focus for hospitals to reduce supply chain costs. To successfully do so, providers need actionable data that helps tie costs to patient outcomes, and staff who know how to analyze it. 

Having this data allows for opportunities to optimize the utilization of products used during routine procedures and engage data-driven physicians on standardizing the use of physician preference items and medications proven to produce clinically equivalent outcomes at a lower cost.

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