Hospitals spend nearly one-third of their overall operating expenses on healthcare supply chain management. Buying supplies, equipment, and the latest innovations to support high-value care delivery is expensive, especially as hospitals and health systems expand their provider networks.
Data analytics tools have the potential to give supply chain leaders insights into how to reduce their costs and automate their processes. One recent analysis found that analytics could bring a potential savings of almost 18 percent.
But organizations aren’t yet using them. Eighty-one percent of hospital staff in a recent Cardinal Health survey reported performing manual inventory management, and over one-half (51 percent) said the number of manual processes in the supply chain was a significant challenge.
Hospitals are eager to adopt data-driven tools that can improve management of their physical assets - for the second year in a row, data analytics was the most sought-after supply chain management capability, according to Global Healthcare Exchanges - but tight budgets often prevent investment.
“Right now is probably the toughest time in materials management because we have all our fingers in the fire,” John Walker, Executive Director of Materials Management at Owensboro Health, recently told RevCycleIntelligence.com.
“We're being held to very strict supply budgets, and it's very difficult when we can't really control what the hospital needs,” added the supply chain leader who manages the inventory supporting over 4,300 employees across 14 counties in Kentucky and Indiana. “There are sales reps in here all the time selling solutions. There are a lot of options out there. But at the end of the day, most of it is cost-prohibitive.”
Faced with limited funds and a responsibility to ensure high-quality items are available to providers, Owensboro Health and other forward-thinking providers are getting creative about applying data to the complex problem of supply chain optimization.
For Cambridge Health Alliance, a 13-health center system with two hospitals in the Boston area, analytics give supply chain leaders the support they need to keep every service line efficient.
“We have devoted a significant amount of time and energy into developing a supply chain analytics capability, so that we can not only track and monitor our supply chain cost trend, but also so we can dig down to understand utilization, which comes in handy when we go to negotiate our contracts and help departments work on budgetary issues,” said William McFarland, Senior Director of Materials Management at the Alliance.
Both Cambridge Health Alliance and Owensboro Health are newly-minted winners of ECRI’s Healthcare Supply Chain Achievement award, largely due to their commitment to integrating analytics into their supply chain optimization initiatives.
As a result of these efforts, both health systems have seen significant improvements in the way they manage the critical pipeline of supplies and materials that are essential for keeping a hospital functioning each and every day.
Aggregating supply chain data to identify cost-cutting opportunities
From supply utilization and provider preference cards to prices, the healthcare supply chain generates significant amounts of data. This information is vital to department heads charged with developing and implementing sustainable and scalable supply chain optimization projects.
However, sometimes large volumes of data can end up being too much of a good thing, said providers at another ECRI Healthcare Supply Chain Achievement winner.
WellStar Health System in Georgia embarked on a supply chain transformation in 2017 to reduce its costs. The health system, with 11 hospitals and over 225 other locations, wanted to standardize product use as the system added new providers.
The supply chain optimization project required item utilization reports that broke down each supply used during a procedure and the costs associated with that supply. The reports also had to compare cost performance with other providers in the health system.
Wellstar Health System knew it had the data necessary to create these reports, but encountered challenges with appropriately synthesizing the data pulled from multiple clinical and financial systems.
“Everything that we've done to date was capable of being done in-house. Our IT resources were all we required. We didn't have to go to Epic with any special requests or tickets. But it required a lot of internal resources to clean up some of the data,” Mark Charlson, VP of Surgery, explained to RevCycleIntelligence.com.
“For example, we went through and had to give a lot of items ‘nurse-friendly’ names because the nurses in the operating room need to complete the charge capture accurately. They need to be able to identify what is in Epic and charge it appropriately. Naming your items in the supply chain system appropriately is key to optimal charge capture and reporting,” he continued.
Hospitals and health systems face nomenclature and other supply chain data issues because the different systems used by supply chain leaders to inform decision-making do not always communicate with each other, McFarland of Cambridge Health Alliance explained.
The lack of interoperability between enterprise resource planning and revenue cycle management systems impedes the Alliance’s ability to create transparency between the cost and revenue sides of the organization.
Insufficient interoperability also leads to inaccurate charge capture. Providers cannot charge payers for their supply use if the chargemaster doesn’t include the items.
The Cambridge Health Alliance assigned the task of data cleanup and optimization to a group of analysts who work exclusively in the supply chain department. The Alliance employs a group of four supply chain analysts who tackle supply chain data, contract management, disbursement management, and value analysis.
Owensboro Health also employs a business analyst as part of its healthcare supply chain management department. The health system collaborates with ECRI to compile relevant supply chain information into meaningful reports that can inform decision making.
The health system sends supply chain data to ECRI every month. The non-profit organization then generates a report identifying items for which the health system is paying too much.
“ECRI gives me the entire list of what I sent them - some 9,000 items - and they tell me where I rank with the other hospitals that bought that item,” Walker explained.
A business analyst then works through the ECRI reports to ensure group purchasing contracts and other purchasing arrangements are accurate and have not expired. The business analyst meets with a vendor analyst at the health system, who communicates and negotiates with supply manufacturers or the group purchasing organization when the reports flag an item.
“Let's say my list from ECRI says I'm paying 10 to 25 percent too much for an item,” Walker posited. “Right away, I would know that that that item fell off a contract. I can jump in the system and see that the contract expired, and immediately redo that contract.”
“We haven't had anything expire in over two years without us knowing in advance,” he added. “That's something that we don't struggle with anymore.”
Using data to standardize products, reduce supply chain costs
Reducing provider preference items and standardizing products are common supply chain optimization goals that can quickly reduce spending.
Provider preference items make up 40 to 60 percent of total hospital supply costs, research shows.
Wellstar Health System started its standardization project in its operating rooms. Surgeons frequently use expensive equipment and medical devices. Catering to surgeon preferences for items that are already expensive can unnecessarily drive up costs.
Charlson and his team created reports in Excel that detailed each surgeon’s supply utilization and costs. The reports also compared cost performance across the health system.
The supply chain team then handed paper reports to surgeons and their department heads to ensure surgeons saw the information.
Equipped with their own performance data, surgeons started to reduce supply chain costs on their own.
“In six weeks, we saw a 14 percent decline in one procedure and a 24 percent decline in supply cost for another procedure,” Charlson reported. “We weren't telling the surgeons to do anything. Rather, we were telling them how they're performing and letting them make decisions off that.”
But Charlson knew that his team could not sustain printing and handing performance reports to surgeons. The team would not be able to scale the standardization project throughout the system without help from an analytics solution.
“We have 20,000 of these reports a year, so we went to our IT folks and asked for a digital solution,” he said. “We created a custom dashboard within our electronic medical record that interfaces with our supply chain and finance system.”
The EHR dashboard allows surgeons across the health system to track their supply utilization and cost performance and compare their performance with that of their peers. Surgeons can also drill into the data of top performers at WellStar Health System to see the products they prefer, and potentially adjust their own ordering habits accordingly.
“Surgeons don't want to be underperformers,” Charlson explained. “By giving them data that showed their performance and the top performer's receipt, we saw dramatic shifts in surgeon preference items toward the median or that of the top performers.”
“Surgeons are self-selecting the standardized items because we established their use as best practice. In the past, it would have been very difficult to get that surgeon to make that choice on their own without providing them that physician-level data,” he added.
The dashboard tool embedded in the EHR has been particularly helpful in reducing supply chain spending as the health system takes on more providers and hospitals.
“We're giving it to the physicians, as well as their department and business managers, if the department has them,” said Charlson. “They can be more proactive about monitoring supply usage, especially with new physicians that come into our system. It allows new members to be more proactive about eliminating something that might be different from what we currently use. We can show them what their new partners are using.”
At Cambridge Health Alliance, system-wide standardization projects are equally important for realizing significant and sustainable cost savings, McFarland explained.
“Standardization helps with contracting because it allows us to consolidate our volume and leverage our negotiations for better pricing,” he said. “It's a win for both the organization and the vendor because the vendor doesn't have to carry as many lines and can order more of what we need, so they can get a better price on their end.”
Supply standardization also supports patient safety efforts at health systems like Cambridge Health Alliance that operate multiple locations.
“We have been working to look across all 25 organizations to try to make sure that we're using the same products from the same manufacturer,” he stated.
“Staff go between locations, so having the same product in multiple locations means that the staff can work between different locations without having to get familiar with different products. It helps with patient safety to have that standardization.”
Adding a layer of quality to supply chain data
Supply chain leaders are also exploring the addition of quality data to transform the supply chain from a cost center to a value-adding resource.
“We're trying drive towards value and not just cost,” Charlson emphasized. “What we would like to do in the next phase is start layering in more quality data.”
“One surgeon might be less expensive than another, but maybe the surgeon that's slightly more expensive is using a specific product or technique has better outcomes or lower length of stay, which generates savings that are far beyond what the more expensive product would cost.”
The materials management and supply chain leaders agreed that their health systems could realize significant downstream savings by layering quality data onto healthcare supply chain spend and utilization information.
But hospitals still need to ensure they get the right price for those high-quality items, Walker stressed.
“We don't run out there and buy the cheapest stuff on the shelf. We allow our physicians to use the best that's out there, and we just make sure that we're getting a good price on it,” he said.
Artificial intelligence solutions may be able to help health systems achieve the optimal balance between up-front price and long-term outcomes, McFarland suggested.
“There's a lot of work being done in the area of clinical evidence research,” he stated. “We've looked at a number of systems that actually use AI or are starting to use AI to find information that's out there on the internet. The solutions aim to help us better understand how we use materials, what we're paying for them, and what kind of outcomes people are experiencing with them.”
“The problem with AI is going to be that it's at the very beginning stages,” he said. “It still has a way to go. It's similar to Alexa. They think it's got the functionality of a five-year-old if you were to put it in human terms. It has to grow up and mature.”
Artificial intelligence and other advanced data analytics tools are also too pricey at the moment for strict healthcare supply chain budgets to accommodate, the supply chain experts agreed.
“The AI tools are pretty expensive right now. Very expensive, as a matter of fact,” McFarland commented.
As artificial intelligence technologies become more integrated into the health IT marketplace, the prices are likely to fall, putting them within reach of supply chain experts.
In the meantime, more traditional data analytics approaches will continue to show their value by identifying opportunities to trim excess spending and optimize the purchasing process.
“We're continuing to look at better ways to service the clinics and give providers and their staff more time back to focus on patients,” McFarland said. “We're always looking to improve our distribution methods inside the hospitals to make sure that the right supplies are at the right place at the right time.”