Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

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3 Strategies to Improve Healthcare Supply Chain Management

By Jacqueline DiChiara

- The evolution and progression of supply chain and reimbursement tactics and procedures within the healthcare industry serves as a keen focal point requiring acute attention to detail if success is to be met. The following is a compilation of selected highlights regarding supply chain management intelligence and insights to focus on from the Health Industry Distributors Association’s launch of a Thought Leaders initiative via a series of healthcare provider interviews on behalf of McKinsey & Company (McKinsey).

healthcare supply chain management

Healthcare providers mention a tri-fold concern regarding reimbursement challenges: drops in government reimbursement stemming from greater effects of the Affordable Care Act (ACA), challenges regarding commercial insurer adjustments, and increases in patient payments. Healthcare providers similarly point to the potential of upcoming physician shortages and an increasing aging Baby Boomer patient population as leading healthcare delivery change factors.

Consider amending the process of contracting

The healthcare industry must collaborate and unite its standardized contracting process, states an interviewed healthcare distributer within the McKinsey data. In terms of best addressing end-to-end supply chain costs, essential points to consider as per McKinsey are as follows:

  • Partner with customers to jointly assess waste in the supply chain from manufacturer all the way to patient (e.g., logistics, inventory management, data management, formulary development, customer demand management).
  • This will require more data sharing and “hand-in-hand” partnership.
  • Enable and promote shared savings goals that generate savings from both physical and data standards

One interviewed supply chain executive noted that although it is strongly preferred for a distributor to circulate preference items, doing so implies such are merely perceived as “large, monstrous organizations.” The question, therefore, remains, “[How] could they possibly do a preference item?” In light of such a question, McKinsey, poses two additional conclusions:

  • Expand the scope of products moving through distribution to improve provider logistics and lower “cost to serve.”
  • Include opportunities with physician preference products. This may require diverging from the standard “cost-plus” economic model for distributors.

READ MORE: Healthcare Supply Chain Issues Cause VA Center Director Change

Focus energies on streamlining, connecting products and outcomes

Supply chain management efforts on behalf of hospitals are focusing on notions of price transparency and disciplined accountability, as reported. Supply chain market growth is expected to jump from 2014’s projection $13.8 million to nearly $14 million by 2019 because of healthcare costs’ continuous escalation.

One interviewee, a device manufacturer, within the McKinsey data confirmed tools need a hearty “knockout effect” that are associated with bigger beasts, such as outcomes and total costs. Without the implementation of such a concept, the product could essentially merely be given away and lack the needed impact to promote any kind of actionable change, he/she says.

McKinsey confirms the following 4 takeaways regarding the concept of linking products with outcomes:

  • Help providers with analytics on key metrics for which they are now accountable: patient satisfaction scores, readmissions, infections, etc.
  • Retrain and/or restructure the sales force to ensure that representatives are competent to discuss clinical outcomes, productivity, finance, and other critical business challenges with providers.
  • Increase collaboration between manufacturers and distributors to share customer insights, develop proof points, and educate representatives to discuss product outcomes.
  • Ensure that compensation and incentives support these priorities.

Considering what is next around the supply chain bend

READ MORE: Leveraging Group Purchasing for Hospital Supply Chain Management

In closing, one point to consider in relation to the aforementioned information is that healthcare executives’ cost management concerns may indeed be on the decline, as reported.

Many of the interviewees confirmed success is possible, even as uncertainly within the healthcare space remains strong. Confirmed the CEO of a nursing home, “The times we are in are unpredictable, but these are the times when transformative change can actually happen.” Nonetheless, hospital executives, as confirmed, are falling short in terms of asset management and the like.

Provider organizations state they anticipate reimbursement cuts will drive reductions in operating margins up by one-third through the end of 2015. Supply chain remains both an immediate and long-term concern requiring further addressing. As reported, a greater sense of transparency within the healthcare supply chain space may save billions of dollars in waste.

As one Supply Chain Vice President confirmed, the art of supply chain is far from merely delivering boxes. “There’s a real opportunity for distributers to expand their model by providing logistics support and consulting around distribution/services,” he/she states.

Additionally confirmed another healthcare executive, “You need to figure out the value of your strategy and how you can contribute. The bottom line is that our organizations need to figure out how to deliver care more cost effectively.”


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