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

Practice Management News

How Hospitals Bring in Revenue Through the Healthcare Supply Chain

Selling unused and retired items and equipment allowed a Colorado-based health system to transform its healthcare supply chain into a moneymaker.

Healthcare supply chain

Source: Thinkstock

By Jacqueline LaPointe

- The healthcare supply chain is a cost center for provider organizations of all sizes. Through the supply chain, healthcare organizations spend money on the items and supplies they need to deliver the services that bring in revenue.

As a result, the healthcare supply chain eats up a significant portion of provider resources. The department is the second largest expense for healthcare providers, according to data from Cardinal Health and SERMO Intelligence.

And a lot of that expense is spent on waste, researchers have found. The National Academy of Medicine estimates that the healthcare system wastes approximately $765 billion a year, about one-quarter of all the money that is spent.

The healthcare supply chain is a major source of that wasteful spending. The Cardinal Health-SERMO Intelligence report found an estimated $5 billion in annual waste on high-value devices alone, while a more recent study of the University of California, San Francisco revealed that the academic medical center wasted nearly $1,000 per procedure. For the neurosurgery department alone, the wasted supplies translated to $2.9 million a year.

Wasted supplies cost a provider organization. They can increase an organization’s overhead, which ultimately makes all costs at the organization higher.

READ MORE: How Clinicians Add Value to Healthcare Supply Chain Management

But what if there was a way to recoup some of that wasteful spending?

Transforming the large cost center into a revenue-generating department may seem like an impossible task to most healthcare executives. But a health system in Colorado is actually seeing some money come in from their supply chain, rather than coming out of it.

The health system started seeing some revenue come in through their supply chain after participating in a web-based marketplace for healthcare supplies and equipment about three years ago.

Since then, the system has sold everything from an excess number of catheters to hospitals beds after the health system upgraded their beds.

“I'm the only one in the supply chain department who makes money,” a Project Coordinator at the health system recently told RevCycleIntelligence.com. “In supply chain, we spend money. That's what we do. At the end of the day, it’s great to actually recoup some of the cost.”

READ MORE: Exploring the Role of Supply Chain Management in Healthcare

The health system started to bring money in through the supply chain by pursuing her passion for recycling at the health system.

“When I started at the health system I started out as an administrative assistant for the Director of Supply Chain and I was absolutely astounded when I discovered they had absolutely no recycling, particularly with purchasing,” she said. “We would get catalogs upon catalogs. A lot of those just go into the bin.”

Looking for a way to reduce waste at the health system, she created a green team that focused on waste reduction and sustainability improvement in the supply chain department. As those initiatives progressed, the health system realized the potential value in scaling up some of the projects.

“As these clean-outs occurred more often, it became more evident that we needed somebody in there who could come in and help by not just putting everything in the trash and figuring out different ways to either reutilize or donate whatever we can, but to keep it out of the waste stream,” she explained.

That’s when she decided to use H-Source, a web-based marketplace dedicated to helping hospitals across the country connect to sell and purchase supplies and equipment. The no-contract, no-cost platform allowed her to put her health system's excess or unused supplies up for sale.

READ MORE: Leveraging Group Purchasing for Hospital Supply Chain Management

“The sky is the limit,” she said in response to what type of items she can sell on the marketplace.

“Typically, we sell items out of the OR. Specifically, sutures, catheters, probes, forceps, and forceps tips. Those are a lot of what we're able to get rid of in the disposable world,” she added. “As far as equipment, probably the largest thing we've done is a bed conversion and we sold 41 beds to a facility in Brooklyn, New York. The beds were about ten years old. We've also done a lot of stretchers.”

The health system is currently working on moving ventilators that hospital leaders have retired out of the system.

She emphasized that her health system’s excess supplies and equipment are still in good shape and ready for use elsewhere. The marketplace ensures that hospital buyers can view product expiration dates, model numbers, manufacturer information, and more on every item for sale so hospitals do not purchase low-quality items.

With the aid of the marketplace, hospitals are buying high-quality supplies for a discounted rate compared to the prices set by manufacturers. But that doesn’t mean that the health system isn’t making a profit by selling its excess products for less than they bought them.

The health system makes a profit on every item sold because those were products that “we weren’t getting any benefit from it anyways,” she said. The items would either be thrown away or donated, bringing in zero revenue for the health system.

The health system also saves through the supply chain by using the marketplace. Once the health system accepts a bid on an item, which project coordinators still try to ensure is at a fair price, the web-based marketplace takes responsibility for shipping the item or items to the hospital buyer.

The entire process of selling excess items in the supply chain has been a success for the large health system.

“We were moving things so quickly,” she said. “There were some days we would have a buyer within 24 hours and we would move the products within a week.”

In fact, the marketplace was such a success for moving the health system's unused products that the health system had to team up with leaders at H-Source to sell their sought-after items in a more efficient manner.

“Once our projects started coming along, we were moving stuff so quickly, it really wasn't beneficial for us to actually put it on the online platform,” she explained.

“Now, I send H-Source pictures with all the information that I have,” she continued. “Lately, we've had a lot of luck with them either already knowing somebody that's looking for that product or having a lump sum of equipment that a buyer will come in and take from us.”

Using an online marketplace has significantly reduced the supply chain costs associated with wasted and retired supplies.

“These were dollars just given away four years ago and now, I’m bringing in money from the supply chain side. That's huge. You can't beat it,” she remarked. The strategy also decreased the health system's carbon footprint, which is a big win for her.

However, she stresses that everyone wins by adding a marketplace component to their healthcare supply chain strategy.

“If we have other people that have a need for that stuff out there who can get it at a reduced cost, we owe that to the communities,” she concluded. “Any cost that we can cut in healthcare is a win at the end of the day.”

*EDIT 08/07/2018: This article has been revised.

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