Unnecessary Hospital Supply Chain Spending Reaches $25.7B a Year

November 25, 2019 - About $25.7 billion of hospital supply chain spending is considered unnecessary, a $2.7 billion increase from just two years ago, according to a Navigant analysis. 

The analysis of 2,127 hospitals found that the average annual supply expense reduction opportunity grew by 22.6 percent from 2017 to $12.1 million, an amount equivalent to the average annual salaries of 168 registered nurses or 51 primary care physicians. 

“Physician and other clinicians understand the significant savings to be had in decreasing variation, and they’re as frustrated as any stakeholder by the lack of progress,” Chuck Peck, MD, Navigant managing director, stated in the analysis. “Realizing these opportunities requires system and supply chain leadership to have more direct conversations that start at a place no clinician can walk away from quality of care.” 

Lower supply spending doesn’t mean lower care quality, the analysis suggested, as Medicare hospital-acquired condition and value-based purchasing scores are only slightly better at facilities with more efficient supply spending. 

In order to tackle this spending issue, supply chain departments should identify which services, products, and procedures are vital and efficient and rid of those that don’t bring value. Departments should also partner with data-driven physicians to reduce physician preference item to produce like-quality outcomes at an affordable cost. In addition, employing physician executives to lead standardization efforts with clinicians may be effective as well, researchers stated.

“Our analysis does not point to aggregate improvement in hospital supply chain performance, with high-performing supply chains widening the gap as others tread water or lost ground. It’s incumbent upon providers and suppliers to attack these continually rising expenses to improve supply chain efficiency for all stakeholders, including patients,” stated Rob Austin, Navigant director.  

Employing clinical staff is vital in contributing to healthcare supply chain management, according to chain leaders at MaineHealth. 

MaineHealth had over $500 million in annual supply chain spending in 2017, and believe integrating a clinician’s voice in healthcare supply chain management be the answer for other health systems. The health system saved close to $18 million in 2015 and grew their savings by $27 million by 2016 due to collective management strategy.  

“Our mission is to understand what clinicians need to practice medicine and understanding those needs so we can negotiate the best value that we can to support clinical activities,” Kelly McLaughlin, MaineHealth’s senior director of contract management and procurement, told RevCycleIntelligence.com. 

The nursing-based value analysis team helped practices across the enterprise update their supply chain, according to Hillary Berry, director of strategic capital sourcing at MaineHealth.

Standardization helps, but people should focus these efforts on provider preference items, which account for 61 percent, according to an industry statistic.

Looking at the success of healthcare supply chain management, organizations that are interested in implementing this system should understand the value of health IT, the MaineHealth leaders noted. 

“Other healthcare systems should always focus on technology because that’s the forefront of what we do. Improving the process flow, looking at logistics to improve that,” MaineHealth’s vice president of supply chain Luis Soto stated.

The healthcare network also voiced that health systems should fill their gaps wisely and be flexible with where their focus lies, as these are crucial in optimizing healthcare supply chain management. 

“We’re constantly talking about what we do we need today, what do our consumers need, where is this business going,” Berry said. “We try to support that. That flexibility and long-term planning about what you’re doing with your human capital resource is a really important part of being successful.”