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Reduced Variation, Data Analytics Cut Supply Chain Costs by 17.8%

Hospitals could save up to $9.9 million per year in supply chain costs by using data to reduce clinical, pricing, and product use variation, a study uncovered.

Healthcare supply chain management and data analytics

Source: Thinkstock

By Jacqueline LaPointe

- Hospitals could save a total of $23 billion by implementing evidence-based and data-driven healthcare supply chain management best practices used by the top 24 percent of organizations studied, a recent Navigant survey of over 2,300 hospitals showed.

On an individual basis, hospitals could reduce total supply chain costs by 17.8 percent, or up to $9.9 million per year if leaders focused on decreasing variation in pricing, product use, and clinical outcomes using best practices and insights from data analytics.

With the savings, hospitals can invest in care delivery improvements. For example, supply chain savings stemming from the best practices could pay for the compensation of 150 registered nurses, the costs of 4,000 cardiac defibrillators, or the expenses for five Da Vinci robots.

“The supply chain represents close to a third of the average hospital’s overall operating expense, and it’s predicted to surpass labor as a hospital’s greatest expense by 2020,” stated Christine Torres, Vice President of Supply Chain Management at Philadelphia-based Main Line Health. “Opportunities exist for all organizations, even top performers, to improve supply chain efficiencies while continuing to offer the highest levels of care to the communities we serve.”

Researchers noticed that hospitals with the most efficient and cost-effective supply chain management processes employed evidence-based protocols and data analytics to decrease variation in pricing, product use, and clinical outcomes.

The hospitals with the lowest supply chain costs used benchmarking data to analyze their performance and compare it to their peers.

“In-hospital benchmarks and year-over-year improvement goals are valuable in monitoring internal supply chain performance, but these measures don’t reveal an organization’s true improvement potential,” explained Paul Weintraub, Navigant’s Director. “To accurately uncover efficiency opportunities, providers must look beyond their facility’s four walls and leverage industry-wide benchmarking data that compares their supply performance against that of their peers.”

Top performing hospitals also implemented the following four healthcare supply chain management best practices:

• Consolidated the number of suppliers and contracts used to produce similar items and supplies needed for routine services

• Optimized product type and frequency use according to specific patient cases

• Increased provider engagement in effort to standardize the use of implantable devices that are proven to generate clinically equivalent outcomes at reduced costs

• Automated requisitions, invoices, and manual supply chain processes to eliminate documentation errors

Another recent analysis from the Healthcare Supply Chain Association (HSCA) pointed out that hospitals can boost their supply chain savings by up to 15 percent through group purchasing contracts. Group purchasing can help hospital leaders reduce the number of suppliers and contracts used, while realizing significant savings from leveraging the purchasing power and volume of several organizations.

Additionally, the survey pointed out that lower supply chain costs stemming from the best practices did not signify worse care quality at the top performing hospitals. Conversely, top performing hospitals fared better than their peers in the Hospital-Acquired Condition Reduction Program and the Hospital Value-Based Purchasing Program.

In terms of the Hospital-Acquired Condition Program, top-performers averaged a score of 5.33, while all other hospitals analyzed had an average score of 5.44. Hospitals that scored 6.57 or above are subject to a penalty of 1 percent of their Medicare reimbursement.

For the Hospital Value-Based Purchasing Program, top-performing hospitals scored slightly better than their peers, with an average score of 33.95 compared to 33.25 for all other hospitals.

“It’s clear that some hospitals have the appropriate strategies and processes in place to efficiently manage supply chain budgets while maintaining high-quality outcomes,” stated Rob Austin, Navigant’s Associate Director. “For example, we have found, somewhat counterintuitively, that the highest-performing providers are simultaneously able to decrease cost and improve quality, in part by reducing clinical variation. Lower-performing supply chain departments need to leverage these types of proven best practices to drive care delivery improvements.”

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