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


Addressing Hospital Executives’ Supply Chain Management Gaps

By Jacqueline DiChiara

- Healthcare supply chain transparency may save billions of dollars in waste by strengthening financial performance and enhancing the quality of value delivered. The quite simple need for more money never really dies within the healthcare space. As healthcare reform evolves, more hospitals are considering supply chain management and revenue cycle as a directly unified entity. As reported, “the link between healthcare supply chain and revenue cycle is crystal clear.” How are hospitals, healthcare providers, and healthcare executives currently addressing and approaching this idea and what primary challenges impede their financial goals, resulting in a lack of supply chain control?

healthcare supply chain management

To help answer this question, James Spann, Practice Leader of Supply Chain & Logistics at Simpler Healthcare, spoke with about how hospital executives can more intelligently address supply chain challenges and maximize opportunities to drive out waste.

The following conversation with Spann is the first of a two-part interview. Can you provide a supply chain overview and discuss where gaps exist?

James Spann: Simply stated, supply chain is the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole. The challenge for hospitals is to align the supply chain to the care delivery model.

Three key areas we look at to impact the bottom line and take out waste in the care delivery model are the medical/surgical supply expenses, drug expenses, and the labor used to manage supplies. You see a lot of waste in product cost – how much I pay for the transaction, distribution cost – how managing and moving supply throughout the system relates to costs, and in invisible cost – how much clinical time is spent managing supplies.

For example, determining total costs of ownership of inventory and eliminating any wastes such as cost variance, off-contract spending, poor distribution flows, hoarding supplies, and staff not working to the top of license will reduce overall supply expense.  Success is achieved when clinical and supply chain staffer’s work together to align supply chain with the organization’s care delivery model.

From a cost curve perspective across the supply chain, there are four quadrants with some very specific activities which will help reduce overall cost. The first two quadrants of the curve – product price and standardization– are where most supply chain executives place their focus. As you move up the cost curve, and focus on quadrants three and four – utilization and optimization – that is where significant profits improvements can be achieved over time. What are hospital executives overlooking in terms of asset management? Where are they essentially falling short?

JS: Almost always, hospital executives say, “We’re somewhere between the second and third quadrant. We’ve done product price, we know there are opportunities to standardize and consolidate various products, and we’ve got methodologies and process to do that. But how do we utilize assets and create a standard working process?” They are generally not managing the assets from moving assets through the system.  

They fall short in making sure they have the right processes and standardization of procedures in place. Those are generally in that invisible cost bucket that you don’t have a tangible product price for, such as a box of gloves. You can’t say, “I’ve got 50 different types of gloves in the system. I’m going to standardize those.” The invisible cost causes heartache and financial problems for hospitals.

If products lack a good order requisition and sourcing system upfront for users to work with, different departments in the hospital order supplies based on what doctors want. And you get variation – 50 different types of gloves – with everyone ordering their own, based on user preference.

Vendors have responsibility in helping hospitals streamline, manage, and standardize products. It’s systematic of the clinicians ordering what they want to make sure they have the right product for the doctors to take care of patients. It’s systematic of the vendors, of selling their products to the hospitals, and getting market share from the standpoint. If you don’t have a management system, from order requisition, to sourcing, to managing you inventory, that’s how systems, inventory, and products get out of control.


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