Hospitals Could Save $25.4B in Healthcare Supply Chain Costs

November 06, 2018 - Hospitals could save approximately $25.4 billion a year in healthcare supply chain costs by reducing variation and waste, a recent Navigant analysis showed.

The analysis of 2,300 hospitals indicated that hospitals and health systems are not moving the needle in the right direction when it comes to streamlining healthcare supply chain processes and product use, researchers stated.

Potential supply chain savings are increasing, they pointed out. In the previous year’s analysis, Navigant projected hospitals to save about $23 billion a year in healthcare supply chain costs.

The supply chain savings opportunity increased 10.2 percent, or $2.4 billion, in 2018.

“Even with ongoing efforts to improve supply chain processes and product utilization, it’s clear that significant savings opportunities remain for many hospitals and health systems,” Rob Austin, Director at Navigant, stated in the report.

According to the analysis, hospitals could safely reduce their supply chain costs by an average of $17.7 percent, or $11 million annually per facility by matching the performance of the top quartile of hospitals for supply chain budget efficiency.

Recouping millions of dollars per year in unnecessary healthcare supply chain spending could fund the construction of two outpatient surgery centers, the salaries of 160 registered nurses, or the compensation for 42 new primary care physicians, researchers noted.

Hospitals and health systems could start to see millions in healthcare supply chain savings by focusing their efforts on reducing variation and waste.

“Those health 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,” Kevin Connor, VP of Supply Chain Management at TriHealth, a health system based in Ohio, stated in the report.

High-performing hospitals and health systems are using data analytics and clinical engagement to standardize physician preference items, the report added. The organizations engaged data-driven physicians on standardizing the use of physician preference items and medications to other items that have been proven to generate clinically equivalent outcomes at a lower cost.

Physician preference items are a persistent challenge for healthcare supply chain departments.

Providers may prefer specific devices, drugs, and other items to deliver care safely. However, these preferred items can drive up supply chain costs if they are more expensive than other items that can deliver similar or even better clinical outcomes.

Physician preference items also contribute to healthcare supply chain waste when preferred items sit on the shelf. A Cardinal Health-SERMO Intelligence analysis found that healthcare organizations waste about $5 billion a year on high-value devices alone. And another recent analysis showed an academic medical center wasted almost $1,000 per procedure. The wasteful spending translated to $2.9 million a year for the center’s neurosurgery department alone.

Engaging physicians using actionable data is key to reducing the variation and waste attributable to physician preference items, researchers at Navigant showed.

The hospitals and health systems fostered collaboration among physicians, nurses, and other clinicians with supply chain, finance, and IT departments to implement supply chain standardization. The organizations also partnered with suppliers to develop value-based and other contracting strategies for increased standardization.

Data was a critical component to their supply chain efficiency strategies, the report added. High-performing hospitals linked costs to patient outcomes and gave the actionable data to physicians.

Armed with information, clinicians could understand how specific devices, drugs, and items impacted the hospital’s costs and their patients’ outcomes.

At least, that was the case at WellStar Health System in Georgia. The health system created reports that detailed each surgeon’s supply utilization and costs. The reports also compared the surgeon’s costs and performance to his peers throughout the system.

After receiving the reports, surgeons at WellStar started to change their supply chain patterns.

“In six weeks, we saw a 14 percent decline in one procedure and a 24 percent decline in supply cost for another procedure,” Mark Charlson, VP of Surgery, recently explained to RevCycleIntelligence.com. “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.”

WellStar eventually integrated the reports into their EHR system so surgeons could easily access their supply chain data.

The healthcare supply chain is still a major opportunity area for hospitals to cut costs. And as reimbursement rates fall and hospitals must become more efficient to keep their doors open, ensuring providers are using the highest-quality supplies at the lowest cost will be key.