The uncertain road ahead: Could technology offer hospitals relief from increasing margin pressures?

Rising labor costs, supply chain fluctuations, changes in payer mix, and regulatory changes, among other issues, are pressuring many hospitals and health systems to reduce costs and increase revenue. Indeed, the 2017 Deloitte Survey of US Health System CEOs found that declining margins is one of the top issues keeping chief executives up at night.1

Current and projected margin challenges are considerable: Commercial health insurance payments as a percentage of hospital and health systems’ total payments are projected to drop from 37 percent to 33 percent by 2024.2 The percentage of revenue from historically lower-margin Medicare payments is projected to increase from 35 percent to 40 percent of total payments.3 Labor costs are anticipated to continue rising due, in part, to patient volume growth from an aging and more chronically ill US population.4 Some future-state scenarios show that the combination of these trends could significantly reduce margins. A recent study from the Congressional Budget Office (CBO), for instance, suggests that absent productivity growth, between 51 percent and 60 percent of hospitals could have negative margins by 2025.5

To stay afloat—even thrive—in the face of margin pressures, health systems should consider identifying strategies to enhance revenue, reduce costs, and generally improve efficiency. New approaches such as using predictive analytics and Artificial Intelligence (AI) to improve the supply chain or robots and cognitive automation to enhance finance and revenue cycle processes have the potential to bend the cost curve and boost revenue in coming years.

To read the full report on how innovative technologies can improve hospital financial performance, download: The uncertain road ahead: Could technology offer hospitals relief from increasing margin pressures?

How a Small Hospital Developed Lean Supply Chain Management

When hospitals start to dig into how their organizations can reduce healthcare costs without lowering care quality, many run the risk of overlooking several cost-cutting opportunities in their healthcare supply chain management process. But developing a more strategic supply chain management approach can help providers optimize more than simply their stock room procedures.

Healthcare supply chain management is the second largest expense for most providers after reimbursement management, according to a 2015 survey from SERMO Intelligence. While a mere one-third of providers described their hospital’s supply chain process as very effective, about two-thirds reported that improving the process would lead to lower overall healthcare costs, boosts in revenue, and better care quality.

A 110-bed community hospital in North Carolina recently recognized the need to improve supply chain management to reduce costs. By implementing lean management strategies the hospital saved $2.62 million in just five months by consolidating and eliminating excess supplies.

The lean management approach to supply chain also helped the hospital — now doing business under the name of Caldwell UNC Healthcare — to identify $421,000 in savings related to distribution costs as well as $366,000 associated with the amount of resources clinicians used managing supplies.

Establishing a more strategic rather than transaction-based approach to healthcare supply chain management was key to generating healthcare savings, Caldwell UNC Healthcare CEO Laura Easton told Using the help of a consulting firm in 2014, Easton learned how moving beyond the traditional supply chain strategy would help improve the hospital’s overall performance and benefit patients.

“That was the basis on my introduction as the CEO into saying ‘Hey, the supply chain is a really important value stream,’” said Easton. “It is a stream of work in our organization that creates value for us and for our patients. I have an obligation as the CEO to delve into how are we performing as a small community hospital and what do we need to do to transform and to change.”

Although not well versed in the supply chain when Caldwell Memorial Hospital started their supply chain optimization project, Easton said that the hospital’s first step was identifying the major challenges across the supply chain areas.

“From an operational point of view, we really had to look at six areas — how we source products, how we contract to purchase products, how we manage the products that we buy, how we manage the suppliers who deliver those products, how we manage our inventory, and how we manage the productivity of our employees operationally,” Easton explained. “So that is where we started to look and we did a self-assessment as to what our biggest challenges were.”

Looking forward, Easton plans on further educating hospital providers on using the “most effective product for the circumstance at the best value.” She also intends to tackle other areas of the supply chain management to drive down healthcare costs.

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Amid healthcare uncertainty, hospitals will lean even more on their GPOs

The debate over the future of the Affordable Care Act (ACA) and the ongoing transition from fee-for-service to value-based care suggest a healthcare system full of uncertainty for American hospitals. Hospital executives who were already operating under severe budget constraints will be asked to do even more with less. This moment of great change for healthcare portends an expanded role for an often-unheralded supply chain player: the group purchasing organization.

The core mission of the GPO remains cost-savings – GPOs aggregate the purchasing power of providers to secure discounts and help procure the best products and services at the best value. A 2014 American Hospital Association (AHA) survey of hospital executives found that 90 percent of respondents were satisfied with the ability of their GPO to deliver cost savings, and an economic analysis of GPO operations prepared for the Healthcare Supply Chain Association (HSCA) estimated that GPOs save the healthcare system up to $55 billion annually.

Many providers, including some small and rural hospitals, lack the purchasing volume to obtain discounts on their own for specialized equipment and critical medical devices such as implants and diagnostic equipment. For these providers, the savings delivered by GPOs are particularly critical and will be even more so in the face of ongoing reimbursement challenges.

As hospitals face near total uncertainty over what will happen to the Affordable Care Act, and with Medicaid expansion, Medicare reimbursement, and a range of other challenging issues, hospital executives are assessing their vulnerabilities and trying to figure out how to best prepare for all contingencies. One of the first calls should be to their GPO.

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CQO and the Triple Aim: Supply Chain’s Strategic Connection

The Cost, Quality, and Outcomes (CQO) Movement within healthcare is the recognition that cost, while important, is only one of many components that need to be considered by supply chain professionals. Quality of patient care, patient experience, and financial and reimbursement outcomes are also vital components that support value-for-service models.

The Association for Healthcare Resource & Materials Management (AHRMM) of the American Hospital Association convened a diverse group of healthcare leaders from across the nation at its 3rd annual CQO Summit to discuss the supply chain’s most important challenges and opportunities. The CQO Summit presentations and roundtable and panel discussions were recapped in the white paper, which is available on the AHRMM website. The following is a brief summary of the white paper.

    • Data transparency and reliability are imperatives to healthcare success.
    • The measurement and the ability to benchmark progress, which is also dependent on data.
    • Supply chain’s unique position and the opportunity it presents; a core role for supply chain is that of conduit or liaison across the continuum of care.
    • As the delivery system extends its reach to post-acute care and population health, supply chain needs to participate and understand how external resources and capabilities can be leveraged to advantage system integration.
    • To succeed in the role as liaison across the continuum requires inclusiveness and skilled communications. Supply chain must able to engage and align stakeholders across all points of care.
  • Quality must be established as a core mission that drives clinical, operational, and financial outcomes.

The white paper may be found at:

Tips For Equipment Contracting: Seven Experts Share Their Strategies

Seven capital equipment experts share actionable and reliable strategies for capital equipment contracting.

Be informed: Contracts are a good starting place. However, it is important to have a strong leverage point for negotiation, with aggregation and pricing knowledge, as equipment lends itself to a transactional approach. Benchmarking is absolutely critical to understanding the competitive marketplace, but it is also important to exhaust all resources and collaborate with all stakeholders.
Be prepared: Providing Supply Chain professionals with the right applications, services and tools is the best defense against these challenges. Deploy technology to empower the purchasing team with real-time market data at their fingertips to drive decisions. Also, it is helpful to create a five-year replacement plan that allows a team to properly forecast equipment needed, allowing staff to aggregate purchases and bring maximum volume to the negotiation table.
Be ready: Make sure the team can easily benchmark the competitive quotes against the hospital’s own historic data and allow access to market pricing driven through the collective transparency of other health systems. The resources, services and applications deployed to empower the supply chain team should be intuitive and responsive, while allowing for time to work with key stakeholders in the hospital to negotiate with confidence. Successful execution of these strategies will give the supply chain the ability to drive savings and maximize value.
Have a plan in place that you and the organization know, understand and most importantly, support. It’s understood that there are occasions when an unplanned situation dictates that the general rule of thumb can’t apply. However, even in those situations, know the must-haves that are critical to protecting the organization while delivering the best product at the best price.
Educate your customers. Help them help you. Understanding their needs while explaining and helping them understand your needs creates a strong relationship. Walk in their shoes so that you understand their pain points when they don’t have the equipment to support their patients, or equipment that is aged and forces their staff to work harder, not smarter. They are our purpose for existing in the first place. It is our responsibility to support them with what they need, when they need it and at a price the organization can affort as they strive to provide positive outcomes for the patient.
Know your limits and don’t be afraid to ask for help. Capital purchasing — either for a project or a “one off” purchase” — isn’t easy. It requires communication, collaboration, coordination with the team and confidence in the team. So whether you’re a capital “acquisitions” expert or a combined capital acquisitions/equipment planner expert, you can’t do it alone. Being surrounded/supported with your team of experts is crucial to your success. It’s not always easy to share, but if you are really committed to successful outcomes, then being part of a team is the best thing you have going for you.
Celebrate your successes and learn from your defeats: Evaluate both situations. What did you do right to achieve the success and conversely, what happened that didn’t allow you to realize the outcomes you were looking for? There will be times when you’re just not going to be able to squeeze that last dollar out of the contract, or get that extended warranty or get that extra widget. Don’t take it as a loss, but as a lesson. Determine how you achieved the positives of what you’ve achieved and how you can apply those to the next opportunity that presents itself.
At the end of the day, share with your fellow Supply Chain professionals. Don’t operate in a silo. Let them hear how you’re challenged in doing your job. They could be experiencing the same things — albeit in different ways — you are. In spite of the fact that we don’t like to share that we may be struggling with a particular situation — or person — by sharing we might get feedback that helps us overcome those hurdles in a less painful way. Your struggles may be something they are experiencing — or have experienced — and their insight from a different perspective may help you. In the same way, sharing your successes, may be just what “the doctor ordered” to help them overcome some of the same headaches they have.

Ric Goodhue, Equipment Planner/Capital Coordinator, CaroMont Health, Gastonia, NC

Centralization of Capital Planning and Procurement is essential to driving standardization and efficiency in managing resources and utilization across the enterprise. Investing in resources and technology for capital management can deliver huge wins in effectively managing capital improvements.
Organizations must make the investments necessary to effectively control and direct capital planning and acquisitions. These Investments include people, technology and processes that are focused on ensuring that needs are addressed in a systematic manner while still being reactive to the requests in hand.
Conducting an organized asset inventory and then pairing that with condition indexes and utilization information will allow you to flip the capital planning model on its head and begin to push out capital budgets based on equipment age, condition and technology obsolescence rather than just buying the latest and greatest model on the market.

Allen Archer, CMRP, Director, System Supply Chain Management, Houston Healthcare, Warner Robins, GA.

Plan ahead to ensure end-users and equipment planners provide equipment recommendations early in the process. Start negotiating equipment purchases well before the design is complete. Doing this will save both time and costs with the project.
Ensure the project team reviews the final proposal along with the terms and conditions to avoid unforeseen costs and budget overruns.
Complete a full analysis of operational costs, service contracts, and consumables for each vendor’s equipment prior to selecting the vendor and equipment.
Some capital equipment is “permanent” and comes at a great expense to purchase and install. When making a 15-year equipment ownership decision, look to many sources for information as inputs to the vendor selection decision. Avoid the route of allowing one end-user the power to select a vendor when they may not be at the hospital next year or even see the project to completion.

Steve Sutton, Director, Planning and Design Group, Belimed Inc., North Charleston, SC

Always try to take into account all costs when negotiating equipment contracts.
Look for an equipment distributor to contract with that can help you consolidate the purchasing of those distributor-bought items and smaller manufacturers.
Analyze your service contracts periodically to make sure costs are in line.

Cindy Juhas, Chief Strategy Officer, CME, Warwick, RI

Find a simple way to learn about new and innovative equipment suppliers. This is a fragmented part of the healthcare supply chain. Use a simple market share tool from OpenMarkets to start.
Use data. Ideally, a Supply Chain professional will have access to organizations’ entire capital budget. Use this data to find opportunities to partner with suppliers across departments and timeframes. This saves time and money for all parties involved.
Automate your capital budgeting and requisitioning process. If your organization is one of the [approximately] 40 percent still doing equipment planning via email, pen and paper — find a modern Supply Chain-specific platform to support a more efficient workflow.
Join OpenMarkets! There’s no cost and it’s a simple way for providers to more collaboratively work with suppliers.

Tom Derrick, Senior Vice President and Co-Founder, OpenMarkets LLC, Chicago

Insist that software updates/corrections be at no cost and that software upgrades be offered at best pricing options.
Know the market for potential sources and pricing trends.
Distill marketing verbiage to get to the facts straight.
Become familiar with clinical practice trends and standards.
When appropriate, ensure coordination with clinical engineering, the IS/IT community, facility operations/construction, strategic planning.

Jeffrey Dunkle, Sourcing Manager, Capital, BJC HealthCare, St. Louis

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Amazon and Apple Getting Big Into Healthcare Won’t Be Easy

It won’t be super easy for Apple and Amazon to make big pushes into the healthcare space.

That is according to former Apple CEO John Sculley.

“It would make sense for Amazon to get into healthcare [PBM] industry,” Sculley told TheStreet in an interview when asked about rumors of Amazon looking to enter the pharmacy industry. “The challenge for Amazon is not that they don’t have the technology prowess, it’s the complexity of the domain of healthcare.” Sculley explained that it would be logical for Amazon to get into the supply chain management side of the business — the only question being does it partner with someone or build out a drug supply chain of its own.

Amazon may be about to give it all a shot. The company has gained approval to become a wholesale drug distributor in 12 states, according to the St. Louis Post-Dispatch.

As for Apple, which has been rumored to have shown interest in buying a health clinic provider, Sculley said such a move would come with challenges as well.

Sculley knows a thing or two about the healthcare industry. He is an investor and chief marketing officer at upstart pharmacy benefit manager RxAdvance. “I think RXAdvance is the most interesting company I have worked at since Apple — we are disrupting the most vulnerable and expensive area of the market.” Sculley said he expects RxAdvance to boast $2 billion in contracted revenue by 2018 and $10 billion by 2020.

For the full interview:

Healthcare Industry to create 4 million jobs by 2026

The healthcare industry will continue to drive the nation’s employment growth through 2026 by adding around 4 million new jobs, accounting for about a third of total job growth, according to Bureau of Labor Statistics data released earlier this week.

The fastest-growing sectors include healthcare support occupations (23.2% increase from 2016-2026) and healthcare practitioners and technical occupations (15.2%), which entail home health aides, physician assistants and nurse practitioners, among other positions. These two occupational groups—which make up 14 of the 30 fastest-growing occupations across all industries from 2016 to 2026—are projected to contribute about one-fifth of all new jobs by 2026.

The healthcare industry has long fueled the country’s economy. Demand is expected to pick up as the population ages, people live longer, more gain insurance coverage and chronic conditions become more prevalent.

Employment in outpatient care has grown at six times the rate of hospitals as more care is delivered in lower-cost settings, data from the Center for Economic and Policy Research show.

Home health aides are projected to be the third fastest-growing occupations in all industries, increasing 47% over the 10-year span, according to the BLS. Physician assistants are expected to grow 37%, nurse practitioners 36%, medical assistants 29%, health specialties teachers 26%, phlebotomists 24% and nursing teachers 24%.e gain insurance coverage and chronic conditions become more prevalent.

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Population Health and Supply Chain – What’s the Connection?

As hospitals and health systems face constant revenue stream pressures, financial managers are leveraging cost containment strategies that lean on population health, supply chain management and salary adjustments as a way trim costs.

When it comes to population health, the concept is simple: Keep people healthy, prevent them from over-utilizing the system, and they won’t come back for unnecessary follow-up care.

But there’s a catch. Hospitals have to first spend money to get the system in place.

Investing in population health management, however, is far from the only means a hospital system has to exercise control over its cash flow. Savings can also be found in the supply chain, where purchasing can be made cheaper by latching onto a group purchasing organization and essentially buying in bulk.

The article in it’s entirety is available at:

Bundled-Payment Joint Replacement Programs Winning Over Surgeons

In a study published in February in JAMA Internal Medicine, Dr. Amol Navathe, an assistant professor of health policy and medicine at the University of Pennsylvania, found that voluntary Medicare bundled-payment programs for joint replacements at Baptist Health System in San Antonio resulted in a 21% drop in average Medicare episode spending between 2008 and 2015. Readmissions, emergency department visits, and cases with prolonged lengths of stay all declined significantly.  The article in it’s entirety may be found here.


19th Annual Golf Outing

FirstChoice Cooperative

19th Annual Golf Outing – October 18, 2017

It’s that time again! Save the date! Get your reservations and payments in to save your place!

Where:      Eagles Bluff Country Club

When:       October 18, 2017 10:00 A.M. Shotgun Start

Benefiting: Pediatric Programs of ETMC

We try to make sure we get this packet to the correct person but if you are not the one who is likely to participate, please pass it on to the appropriate person within your organization.