Article

Collaboration and technology can address health care’s supply chain problem

October 10, 2024

Key takeaways

Supply chain disruption can be detrimental to health care organizations across the board.

Organizations must address inventories through appropriate management, forecasting and monitoring.

Improving the supply chain will help provide optimal care and attract and retain patients.

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Management consulting Supply chain Supply chain & operations Health care

Since the start of the pandemic, labor and supply shortages have remained a big issue for health care organizations. Costs continue to rise, and the production of certain goods is still facing delays. Difficulties filling job vacancies and global trade obstacles persist. At the same time, according to a recent Health Affairs study, clinical waste is a critical driver of excess health spending in the U.S., accounting for 5.4% to 15.7% of national health spending, resulting in failures in care delivery, care coordination and overtreating.

Given these concerns, health care organizations will likely continue to struggle and need to remain cognizant of their inventories through appropriate management, timely forecasting of orders and monitoring where supplies originate to determine the best course of action moving forward.

How we got here

According to Health Catalyst, approximately 30% of all hospital spending in the U.S. is related to supply chain overspending, which amounts to $25.4 billion annually for the U.S. health care industry. This overspending is an exorbitant amount of money that could be used otherwise to improve the quality of care and further other organizational initiatives.

According to the Bureau of Labor Statistics, the following chart shows the consumer price index annual percentage change of medical care commodities. Since 2021, the annual percentage change has nearly tripled (2021 roughly 0, 2.9% in 2022 and 3.4% in 2023). These huge cost increases have severely affected health care organizations’ budgets and margins to the point where they need to become more strategic with their product selection and how often they order supplies.

Supply challenges have many causes. The pandemic has displaced many workers and jobs to the point where there are still vacancies in the supply chain process that continue to slow production and distribution. While job vacancies are one piece of the puzzle, distributors and suppliers also face difficulties in receiving supplies from other countries that are navigating macroeconomic and global challenges and/or remaining COVID-19-related protocols.

However, while challenges persist, some health care organizations are finding solutions, too.

Addressing the supply problem with efficiencies and relationships

Over the past six months, elective procedures, surgeries and patient visits have increased, along with the supplies required to provide quality care to consumers. Recent supply shortages have exacerbated these challenges, making it more difficult for providers to procure the items they need for high-quality care at an affordable price. By promoting efficiency in the health care supply chain, hospitals and physician practices can create substantial cost-reducing opportunities across their organization. Some hospital supply chain leaders are pursuing initiatives that will consistently yield value, including manufacturer and supplier standardizations and purchasing consolidations through distributors to streamline processes and maximize contract savings.

The relationship between distributors and health care organizations has also evolved over the last two years as the communication of available products and knowing when orders will arrive has improved, which is key to both parties’ success. With the ability to connect with trading partners through a supply chain community, the frequency of accurate and efficient e-business transactions grows throughout the industry. Suppliers, partners and customers should form relationships with one another, with each party performing a role in the supply chain and each contributing to the movement of products, data or information, and funds. Strong relationships between health care organizations and their distributors are vital to getting the product to the end-user and the patient, and as a result, will keep costs down.

Technology provides answers, too

Fragmentation, complexity and disruption are three of the most common challenges in health care supply chain management. As health care organizations continue facing unprecedented price increases and certain volume growth, implementing strategies to make supply chain management more efficient is key to success. 

Health care organizations cannot control every component of the supply chain. But, they can improve internal efficiency by adopting technology solutions that track inventory and place timely orders to limit service disruptions.

According to the Food and Drug Administration’s device shortage list, cardiovascular circulatory support, structural and vascular devices, cardiac diagnostic and monitoring products, dialysis-related products, and a handful of others are in very short supply due to supply chain and production disruptions. As more consumers seek out more services and are unable to receive them in a timely manner due to lack of supplies, they will seek services at another organization or could see conditions worsen while waiting.

According to the American Hospital Association, the supply chain represents, on average, 20% of an organization’s operating costs due to inflation, so it’s critical that dollars are spent wisely for this significant line item. Recent Gartner research indicates many providers can reduce supply chain costs by 5% to 15% by utilizing streamlined supply chain technology solutions. Health care organizations can effectively track and monitor the inventory of products by having instant access to products, pricing and order information, as well as enhanced inventory visibility and tracking, thereby reducing costs, improving customer satisfaction and meeting compliance and regulatory requirements better. In addition, as positions for certain jobs remain vacant, hospitals and health care organizations can implement enterprise resource planning solutions and other ordering devices to help fill the void of these vacant roles.

Modern technology is also bridging the gap between the supply chain and the clinical side of health care by enabling greater data sharing. Automating the pricing synchronization process acknowledges and recognizes efficiencies by all participants in the contracting process, where all parties involved can share information electronically through robotic process automation.

Eliminating waste and redundancy across the medical supply chain is just one example. Supply chain knowledge and data can also be employed across a health system to achieve price reductions, utilization optimization and standardization that drive value to the entire health system.

The takeaway

Supply chain disruption can be detrimental to health care organizations across the board. Greater visibility into the supply chain is key to resiliency and efficiency. Effective inventory management solutions such as ERP, RPA and cost management tools enable supply chain leaders to pinpoint where certain supplies are located and what supplies have been used for patient care. The supply chain is also a key to creating better end-to-end visibility for any product recalls and managing expirations on equipment and medication.

As some patient care remains in a hybrid environment and more private organizations enter the health care space, consumers now have more options when seeking care. Improving an organization’s supply chain will help provide optimal care and attract and retain patients, as well as create cost savings so funds can be allocated for critical initiatives for the entire organization and the communities they serve.

A version of this article originally appeared in Healthcare Business Today, Collaboration And Technology Provide Answers For Health Care’s Supply Chain Problem.

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