Supply Chain Management: Cornerstone for Savings in Health Systems

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Why supply chain is such an important piece of the puzzle?

Pop Quiz Question: What effects every corner of a hospital or health system’s lab or imaging department’s workflow and operations?

Answer: Supply Chain.

Really? Yes. It does! A recent Navigant analysis found that unnecessary supply chain spending costs hospitals $25.7 billion a year, a number that is rising steadily despite hospitals’ efforts to reduce it. The same study found that lower spending on supply chain does not correlate to lower-quality care. In other words, hospitals can cut supply chain spending significantly – saving an average of $12.1 million per facility – while still delivering the same quality patient care.[1]

Chances are, there are significant unclaimed savings opportunities in your organization’s supply chain. Improvements to supply chain that could positively impact your bottom-line costs while improving quality, sustainability, and patient outcomes.

Hit the ground running – The time to bolster your supply chain management is NOW!

Healthcare organizations’ laboratory and imaging departments have the potential to be robust profit centers. However, because of their operational complexity – and the fact that they are often distributed across the organization, hampering the ability to track performance accurately – they can also be sources of massive cost, quality, and service inefficiencies.

This is particularly problematic for hospitals and health systems, because a confluence of factors is creating a more challenging financial picture for lab and imaging departments. Some of the main factors include:

  • Accelerating downward reimbursement pressure – changes that may very soon result in dramatic cuts to reimbursement, reducing revenue.
  • High equipment and labor costs – a variety of specialized equipment that is expensive to maintain combined with a shortage of skilled staff keeps equipment and labor costs high and getting higher.
  • Changes to payor policy – payors are becoming more involved in site-of-service decisions, which may drive more patients to lower-cost standalone labs and imaging centers.
  • A crowded market – market pressure from more nimble competitors may eat into market share.

Supply chain management – a complex challenge

Healthcare’s supply chain is unlike that of any other industry. Hospital and health systems’ instrument and equipment needs are unique, and timing is critical. A delay or a misdirection in the supply chain can, and does, translate to longer test or procedure turnaround times. When patients and their healthcare providers must wait longer for results, it can delay treatment, leaving patients in an anxiety-producing limbo and increased length of stay.

As an industry, healthcare has not evolved to consider supply chain as a foundational element of its operations, the way that industries like manufacturing or aerospace have. Learning about supply chain best practices that are applicable across industries is an excellent first step toward improving a healthcare organization’s supply chain. However, hospital and health system executives are typically more focused elsewhere in the organization – on the Emergency Department or Operating Room for example – and less on lab and imaging. Lab and imaging departments, therefore, represent an overlooked area of opportunity for hospitals and health systems.

[1] Becker’s Hospital Review. “Hospitals Overspending by Billions on Supply Chain Expenses, Study Finds.” November 13, 2019.

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