Author: R. Bishop

Selecting the correct purchasing group is imperative as purchasing and supply chain are immediate impact areas. 

February 07, 2018 – Financial challenges continued to keep community hospital CEOs up at night in 2017, according to a recent American College of Healthcare Executives (ACHE) survey.

Once again, hospital leaders identified financial obstacles as the top issue their organization faced in the past year. Respondents have consistently cited financial troubles as the most pressing issue for hospitals since the ACHE’s 2004 survey.

“Assuring patient safety and providing quality care is the No. 1 job of hospital leaders,” stated Deborah J. Bowen, FACHE, CAE, President and CEO of ACHE. “The survey results indicate that leaders are addressing the challenge of doing so in a changing and uncertain financial and regulatory environment.”

Specifically, the survey of nearly 30 community hospital CEOs revealed that Medicaid reimbursement was the biggest concern in terms of financial challenges. Hospital leaders experienced challenges with adequacy and timeliness of payment.

Healthcare executives in a recent Deloitte survey also cited Medicaid reimbursement and funding as a top concern in 2017. Health system leaders worried that political debates and proposals regarding the Medicaid program would lower funding to states, causing state actors to decrease Medicare reimbursement rates, cover fewer services, or drop enrollment.

Lowering rates would harm a hospital’s bottom line but limiting coverage and enrollment would also increase uncompensated care costs, the Deloitte report stated.

Uncompensated care costs are already on the rise for hospitals. Over 4,800 hospitals spent $38.3 billion on uncompensated care in 2016, up from $35.7 billion the previous year, the American Hospital Association recently reported.

Hospitals may see their uncompensated care costs grow under new Medicaid policies, too. CMS plans to implement an Affordable Care Act provision that mandates the federal agency to reduce Medicaid Disproportionate Share Hospital (DSH) payments by $43 billion between 2018 and 2025.

Medicaid DSH payments help hospitals cover the costs of treating greater proportions of Medicaid beneficiaries, especially since Medicaid reimbursement only pays hospitals 88 cents on the dollar for treating these patients.

When designing the Affordable Care Act, policymakers included the DSH payment cuts to offset coverage gains under Medicaid expansion programs. However, when the Supreme Court ruled that states could choose whether to implement the program, policymakers did not remove the payment cut provision despite some states not realizing coverage gains through Medicaid expansion.

Medicaid DSH payment reductions went into effect in October 2017.

According to the ACHE survey, community hospital CEOs also felt troubled by other financial challenges, including:

• Increasing costs for staff, supplies, etc., with 64 percent
• Reducing operating costs, with 57 percent
• Government funding cuts for items other than reduced Medicare and Medicaid reimbursement, with 56 percent
• Bad debt, including uncollectable emergency department and other charges, with 54 percent

Additionally, community hospital CEOs reported that their organizations faced significant issues with governmental mandates. This is the second consecutive year governmental mandates ranked second.

With governmental mandates, 70 percent of hospital leaders reported that CMS regulations were a major issue in 2017, followed by regulatory and legislative uncertainty impacting strategic planning with 67 percent, cost of demonstrating compliance with 54 percent, and state and local regulations and mandates with 54 percent.

Political uncertainty dominated 2017 as policymakers and health leaders debated a possible Affordable Care Act repeal and replace. A new administration also ushered in Medicare and Medicaid reform, with CMS Administrator Seema Verma canceling two upcoming mandatory bundled payment models and the federal agency launching the bipartisan Quality Payment Program.

Uncertainty and health policy changes had hospital leaders constantly responding to new mandates and rules.

The third challenge for community hospital CEOs was personnel shortages, which outranked patient safety and quality this year.

About 69 percent of hospital leaders stated that their organization is facing a registered nurse shortage. Not far behind are primary care providers, with 63 percent of respondents experiencing a shortage of these providers.

Other providers in demand at community hospitals in 2017 included:

• Physician specialists with 52 percent
• Physician extenders and specially certified nurses (e.g. physician assistants, nurse practitioners, and certified nurse midwives) with 36 percent
• Therapists with 30 percent

Personnel shortages may be a lasting issue for community hospitals. Overall, the Association of American Medical Colleges (AAMC) projects the physician shortage to reach up to 104,900  providers by 2030.

“That personnel shortages have become one of the top three concerns suggests that hospitals are keeping their attention on attracting and retaining a talented workforce to ensure the short- and long-term needs of patients can be met,” explained Bowen.

Original Link: Financial Challenges Continue To Keep Hospital CEOs Up At Night

There are many costs in a health system. Some are large (orthopedic implants), others are small (housekeeping chemicals); some are relatively easy to control (office supplies), others are much more difficult (biologic mesh).

Supply chain appropriately should apply resources to the highest cost categories, making sure the easily controllable ones are actually being controlled, and finding ways to influence the ones that are harder to control. But that should not mean that you ignore the somewhat lower cost areas — particularly if one is relatively easy to control and subject to waste if ignored.

Freight represents an excellent example. Costs for freight should be actively managed to reduce the number of expedited shipments and to reduce the cost of all shipments.

Freight costs are a fact of life in business. No matter how you look at it, there is a cost associated with getting supplies from the place they are manufactured to the place they are used. Ultimately, the purchaser of the goods pays at least part of this cost. However, there are many ways to control and reduce freight costs.

A package deal?

Perhaps the best way to limit freight costs is to get them included in the price of the goods. Purchasing goods “FOB Destination” means that all freight costs will be included in the cost of the goods. There will be no separate cost for freight added to the invoice. Some may argue that it is better to pay less for the goods and see the actual freight cost separately. The problem with this argument lies in the application of freight cost. The amount on the invoice may or may not be the actual cost. Many sellers actually label it “freight and handling,” which is another way of saying “freight and additional profit.” From my experience, most purchasing professionals agree that contracting for goods FOB Destination is ultimately less costly than paying for freight separately.

Sometimes it is not possible to negotiate FOB Destination terms. Some suppliers will not budge from FOB Origin where the buyer is responsible for the freight costs. In this case, there is still a good way to contain the cost. The one advantage to an FOB Origin contract is that the buyer can determine the method of shipping. This means you can require that the seller use your preferred carrier and use your negotiated rates. Not every supplier will agree to this easily. It is a little more work for them, and they often get some benefit from the shipping company based on the amount they ship using their outbound shipping contract. Many organizations now use a third party like Optifreight or Triose to help them manage these inbound shipments and convince sellers to use their negotiated rates – rates that are even lower (according to the companies) than you are likely to get on your own.

Know the code

Reducing the costs of expedited shipments is another strategy that should be used to minimize freight costs. An expedited shipment is any order that must be delivered faster than the norm. These are usually overnight or second-day deliveries from manufacturers. They can also be special deliveries from a distributor. One key element in controlling these costs is assuring that the user who is requiring the expedited delivery is also responsible for the costs associated with it. This is not always the case. Sometimes all freight charges are expensed to a single department, often Supply Chain. Other times the freight charge will just be buried in the expense to the department where they just see the total cost. In both of these cases the department has little information or incentive to do anything different. Part of this best practice is establishing a freight cost code for every department and applying all freight charges to that code.

Another key element is good inventory control in procedural areas like Perioperative Services and Cath Lab. Keeping adequate supplies and reordering in a timely basis can significantly reduce the number of expedited shipments required. Standardization in these departments will help as well. Controlling one or two items that you use frequently is much easier to manage than many items you use infrequently. But no matter how well you manage inventory in these areas, there are likely times when an expedited shipment will be needed.

The final strategy in controlling these costs is to use the least costly method consistent with the need and from where the item is being shipped. Second day is much less costly then overnight, and regular overnight is less expensive than “by 10:30.” Lesser known but as important is the “normal” delivery period. Depending on where the item is coming from, “normal” delivery might get there as early as an “overnight.” FedEx and UPS have programs that will have this information.

While the savings may not be as great as negotiating a new spine implant contract, the savings can be substantial and relatively easy to achieve. If you are not tracking and controlling freight costs now, take the steps needed and add this best practice to your operation.

Original Link: Don’t Let Freight Escape Cost Management Efforts

If healthcare professionals tap supply chain fundamentals, they can unlock a world of savings.

At the end of the day, the patient-focused supply chain runs like most others. There is a focus on customer service, process improvement, strong relationships, communication and cost management. Healthcare may be unique in its patient-centric focus, but the fundamentals of supply chains remain the same regardless of the industry. Below, a few strategies taken from the retail, manufacturing and service industries that can help turn cost-cutting drives into a competitive advantage:

Logistics has a direct result on patient outcomes

A stock out in the supermarket may force the customer to buy another brand of egg noodles. A stock out in the factory may delay a production schedule and initiate a prickly call to the supplier. But a stock out in the hospital may have life and death consequences.

In the healthcare supply chain, supplier performance has a direct impact on patient treatment and care.

Consider a family member needing a special heart stent that is sitting on the truck caught in a traffic jam on the way to a delivery at the hospital. Might this be an over dramatic example?  Not really. UPS offers a specialty service in healthcare logistics, where they focus on specialized healthcare capabilities of shipping and compliance, storage and distribution, cold chain, and integrated supply chain and fulfillment services. Their focus is on the importance of the patient, noting reliability, scalability and security. FedEx expands healthcare logistics to include medical devices, pharmaceutical and biotech, diagnostics, equipment, and clinical trials.

Both providers seem to understand the importance of their role in the patient centric supply chain.

In any industry, working with suppliers who understand the unique needs of your business makes managing the supplier chain easier. They understand the cost and performance issues, speak the common language, and provide the specialized products and services needed to support end user customers.

Suppliers in the healthcare supply chain, or those who have segments of their business focusing on healthcare, also understand their unique roles in impacting patient care. Buyers don’t need to convince them as to the importance of excellent customer service, flawless materials, and tightly managed supply chains. Their role in patient care is implicit.

Lean fundamentals have also found theirway into the healthcare environment.

The Virginia Mason Institute, part of the Seattle based Virginia Mason Medical Center, are experts in lean healthcare, working with hospitals, medical centers, and healthcare professionals in incorporating lean concepts to improve business operations. This results in lower costs and positive impacts on patient care. Using the lean concepts developed in the Toyota Production System (TPS), lean healthcare works to eliminate waste, improve flow and add value, all from the from patient’s perspective.

Lean healthcare, as advocated by the Virginia Mason Institute, provides a culture of continuous improvement, implementing processes that are value-added to the patient and eliminating those that are not. It aligns leaders and staff around a shared vision, empowers frontline staff to drive improvement efforts, and performs root cause analysis to get to core of problems.

The associated cost reduction and efficiency improvements are important in an industry under constant pressure to deliver cost reductions and improved patient outcomes.

The healthcare landscape is undergoing massive changes. Hospitals and medical centers are merging trying to create greater economies of scale, pharmacy and insurance companies are combining in an effort to leverage retail delivery of healthcare services, medical device companies are under manufacturing related cost pressures and big pharma is battling recent tax legislation around the funding of drug research.

Supply chain professionals will be under increasing pressure to lower costs through improved operations throughout the supply chain. Process improvements like lean certainly help, but they are only part of the solution.

Aggregating spend through GPOs provides leverage

Group purchasing organizations (GPOs) are entities that help healthcare providers to aggregate demand from multiple sites and organizations to create leveraged procurement opportunities with manufacturers and distributors.

According to the Healthcare Supply Chain Association (HSCA), members of GPOs include hospitals, ambulatory care facilities, nursing homes, and home health agencies. GPOs do not purchase any products, but negotiate contracts their members can use when making their own purchases. The GPO member still makes the final decision as their purchasing process, supplier selection and needs. The leverage provided by the GPOs may provide competitive support for their non-GPO related purchases.

Up to 98{3d48c2ffeac5b3f3ac54732d49a0b0ca9fd7cec0f4630955c0e7b180206e5d78} of hospitals in the United States utilize GPO contracts for procurement, according to the HSCA. They see areas of growth in the healthcare segment to include long-term care, ambulatory care, home care, and physician practices.

While operational improvements like lean healthcare and improved logistics can help in overall cost management, many of the cost savings will be found through better buying decisions. An expanded use of GPOs to aggregate spend is one way to leverage suppliers.

Pressures on buyers are well known, but the pressure on suppliers to find new and profitable customers, spurred by consolidation, is also building. And no one knows what will happen as Amazon enters the healthcare market.

At some point we are all customers and wish for the best experience possible.

Original article: How hospitals can turn cost-cutting drives into an advantage

 

Smaller devices push for larger gains in point-of-care, point-of-use performance

When fictional industrialist Diet Smith introduced to Dick Tracy in his eponymous comic strip the “2-Way Wrist Radio” in 1946 and then the “2-Way Wrist TV” in 1964, he might have envisioned physicians sending prescriptions to pharmacies, radiologists reading X-ray images and supply chain managers monitoring inventory locations and tracking individual products remotely via mobile devices.

Today, more than a half-century after Smith’s futuristic inventions made the funny pages, healthcare organizations employ mobile tech for a variety of communications, electronic interactions, and tracking and tracing functions. They include identifying patients and linking those patients to the proper clinical procedures and products used on them, tracking and managing access to and usage of medical/surgical and pharmaceutical products and equipment, tracking specimens for the laboratory, and transmitting data to electronic health records and billing.

Mobile tools employed by clinicians and administrators run the gamut between hand-held computers and mobile readers, including smart phones, wrist-mounted devices and electronic eyewear that can project images and instructions via online/wi-fi-enabled chips.

In short, if mobile capabilities represent the future of healthcare interoperability, then welcome to the future. Clinical and supply chain operations continue to push the boundaries of what’s possible, leaping over broken barriers even as they face and strive to be at least one step ahead of ongoing issues with security concerns.

The point is/of use

Mobile access makes it a good time to be in healthcare business if it’s simple and seamless, according to Carl Natenstedt, CEO, Z5 Inventory Inc., Austin, TX.

“Mobile technologies, including voice, scanning and other solutions that can accompany today’s powerful mobile devices, enable great advances in healthcare supply chain,” he said. “By placing easy-to-use mobile technologies that are reliably connected to the primary operational systems like ERPs and EHRs in the hands of clinicians and support staff, we can enable the capture of real-time product usage information accurately and consistently. This data, when analyzed with modern data mining techniques can open up new opportunities for operational improvements unlocking savings previously unattainable. The key to success for new mobile solutions is ease-of-use. These solutions need to be as simple and unobtrusive to use as today’s modern social media apps. They need to run on reliable, easily integratable platforms, making them ubiquitous in the clinical setting.”

Mobile tech can fuel financial and operational opportunities in several ways, which Gregory Seiders, Director, Supply Chain, Claflin Co., Warwick, RI, categorizes as preventing losses in terms of costs or increasing revenue.

“While mobile technology can certainly aid in preventing losses, perhaps the largest opportunity is increasing revenue through capturing patient charges,” Seiders insisted. “With clinicians rightfully focused on properly completing procedures and patient care, it is little surprise that not all billable items used in a procedure are recorded on paper. Mobile technology can be used to quickly tie captured bar codes and lot numbers to patient Medical Resource Numbers (MRNs), with scanning capabilities speeding data recording and preventing common errors. The inherent benefits of speed and accuracy lead to improved efficiency, lower cost, and a chance to create an environment of continuous improvement within the supply chain.”

Mobile tech also can reduce the amount of time that clinicians spend trying to locate products they need, Freund continued.

“We have all seen the case studies that show where clinicians can spend as much as 20 percent of their day on supply chain-related activities, the most frustrating of which is trying to find the items they need,” he said. “Using mobile technology, nurses can simply scan the bar code for an item that has stocked out of a supply room. The mobile device will display all locations in the hospital or even in other hospitals within the system where that item exists and enable the nurse to execute a transfer of the item from one stocking location to another. Having this capability allows nurses to spend more time with patients and less time looking for supplies.”

For the article in its entirety:  Mobile Tech Expands To Strengthen Supply Chain Links

 

 

 

Supply chain managers are used to cost-cutting drives. When expenses rise or revenues fall, it is their job to find savings through logistics, procurement or operational efficiency. But it’s a whole different ball-game when you throw patients into the mix.

The patient-centered supply chain cannot extend lead times, procure a different product, or afford to run out of inventory. For that reason, hospitals typically see supply chain as a cost of doing business: a necessary evil weighing down profitability — but does it have to be this way?

The discussion may be found at:  Healthcare supply chains are shifting as cost pressures rise

 

The top healthcare supply chain management challenges for provider organizations include provider preference items, a lack of supply chain health IT, and invisible costs.

From gauze and paper gowns to implantable medical devices and prescription drugs, provider organizations must implement efficient healthcare supply chain management processes to cut overall costs and standardize care delivery. But for many organizations, healthcare supply chain management is not as simple as tracking how items are acquired and where they go after purchase.

A December 2015 SERMO revealed that supply chain management was the second largest expense for healthcare providers.

While only one-third of the 150 surveyed hospital leaders described their organization’s supply chain management process as “very effective,” about two-thirds strongly agreed that improving healthcare supply chain management would lower costs, boost hospital revenue, and improve care quality.

Many healthcare organizations, however, face some roadblocks with making their supply chain more efficient. Some of the top healthcare supply chain management challenges include costly provider preference items, a lack of health IT implementation for supply chain functions, and limited hidden costs transparency.

The core of healthcare supply chain spending is product cost, but healthcare organizations should be aware of invisible costs associated with the supply chain, such as distribution and inventory holding expenses. To develop a healthcare supply chain management strategy that incorporates visible and hidden costs, healthcare organizations may want to consider a Lean approach.

With falling claims reimbursement rates and performance-driven payments, improving the healthcare supply chain management process is just one way to prepare healthcare organizations for the value-based reimbursement transition.

The article in its entirety may be found at: 3 Common Supply Chain Management Challenges

From Population Health to Disaster Preparedness, Supply Chain is your Strategic Asset

Tightening budgets, power deals threatening hospitals, Amazon and MACRA — those are just the start of industry-shaping trends that came about in 2017.

Let’s take a look at the ten most important developments this year and why they matter to hospitals and health insurance companies alike.

1. Squeezed tight

Not-for-profit providers are operating on ever-thinning margins, a trend expected to continue to be foremost on finance executives’ minds for 2018.

Hospitals’ median operating margin fell from 3.4 to 2.7 percent between 2015 and 2016, a Moody’s Investors Service report said  earlier this year. Cash flows also declined.

What is growing are expenses, by 7.5 percent last year, faster than annual operating revenues of 6.6 percent, the report said.

Everything is more expensive, from labor to prescription drugs. The shift to value-based payment is risky; Medicare, with its flat and lower rates than commercial insurance, is becoming a bigger piece of the reimbursement pie as baby boomers retire; and the amount of uncompensated care is expected to increase as a result of the tax bill ending the individual mandate.

Providers are getting no help from payers, as the insurance industry moves into their territory of basic care.

2. Payer power deals compete with primary care

The most recent direct assault is Anthem’s deal to buy HealthSun, a Florida network of primary care practices that will benefit Anthem’s Medicare Advantage members.

The acquisition signals Anthem’s intent to compete with UnitedHealth’s Optum, Forbes’ Bruce Japsen said.

UnitedHealth Group has been on its own buying binge for Optum, recently paying $4.9 billion for DaVita Medical Group. Perhaps not surprisingly, Anthem’s new CEO Gail Boudreaux, is a former UnitedHealth executive.

3. Payers, pharmacists and Amazon

In December, CVS Health’s $69 billion bid to buy Aetna had analysts wondering what companies would be next to integrate prescription drugs and insurers.

The data and analytics of a combined CVS\Aetna population health business redefines the retail healthcare business and what it means to offer high quality care in a lower cost setting.

Hospitals that have extended their reach by building outpatient facilities in the remote reaches of their market may find it hard to compete against a CVS that has mini health hubs in 9,700 pharmacies on city corners in just about every major metropolitan area.

Generating even more buzz and worry is a deal that’s still in the speculation stage, that of Amazon potentially getting into the pharmacy business. Cleveland Clinic CEO Toby Cosgrove said at a recent Medical Innovation Summit in Cleveland, “We are concerned about the major forces, Amazon … coming at us in purchasing.”

Some analysts have said the CVS and Aetna deal was spurred by the possibility of an Amazon Pharmacy.

Cleveland Clinic’s Toby Cosgrove said, “Without significant consolidation on the part of providers, it’s going to put us at a disadvantage.”

4. Drugs and the supply chain

During his first public appearance before Congress after taking over as head of the Department of Health and Human Services, Alex Azar, former pharma executive, said prescription drug prices are too high.

Retail prices for 768 prescription drugs commonly used by older adults increased by an average of 6.4 percent in 2015, outpacing the general inflation rate of 0.1 percent, according to an AARP Public Policy Institute report. This is at least the 12th straight year of substantial retail price increases for prescription drugs, the report said.

Cleveland Clinic’s Toby Cosgrove said the EpiPen hike took 10 percent out of the pharmacy and led to a major cost reduction. Two drugs that have been around for 50 years increased costs by 11 percent, Cosgrove said, calling the price hikes on generics “unscrupulous, unethical and words I can’t use in a mixed audience.”

Steve Ubl, president and CEO of PhRMA put it this way: “The entire supply chainwill need to be evaluated.”

5. Healthcare policy changes

Changes in leadership at the Centers for Medicare and Medicaid Services, a cut-back on mandatory bundles, a change in direction for CMMI, the new tax law ending the individual mandate and GOP aims to tackle some entitlement programs next year, add to market uncertainty.

6. Mega-mergers continue

While the unsuccessful Anthem-Cigna and Aetna-Humana mergers were winding down by the end of the first quarter of 2017, mergers and integration continued as a way to get the efficiencies of scale needed to stay competitive.

Some of the notable not already mentioned included the alignment of Penn State Health and Highmark on a $1 billion care network; Cigna‘s acquisition of IT startup, Brighter; Walgreens partnering with NewYork-Presbyterian to offer in-store telemedicine; and Advocate and Aurora Health Care combining to create an $11 billion health system. And these are just from December.

7. Instability in the individual insurance market

President Donald Trump said after the tax reform vote that Congress has essentially repealed Obamacare. While Maine Senator Susan Collins’ explanation for why she voted for the bill in the Portland Press Herald on Wednesday said, correctly, that the bill takes no one’s insurance away, the bill does end the incentive to avoid the financial penalty to get health insurance.

Without that individual mandate, only those needing healthcare will be certain to buy coverage, hiking premiums and putting the Affordable Care Act in a death spiral.

Collins had voted for the tax plan after voting against ending the ACA on assurances that individual health insurance market stability would be addressed through reinsurance and cost-sharing reduction payments to insurers in a year-end spending bill. But without full GOP support, Collins and Senator Lamar Alexander of Tennessee said those measures will have to wait until after the first of year, when Congress considers reauthorizing the Children’s Health Insurance Program, or CHIP.

8. Cost-sharing reduction payments

Insurers in the Affordable Care Act market for 2018 lost the cost-sharing reduction payments from the federal government. But by law they’re still mandated to help pay the deductibles and out-of-pocket costs for lower-income consumers on their ACA plans.

Some insurers were able to increase their premiums to reflect the increased expense, while others were not. Do insurers remaining in the market need another reason to leave the ACA business?

9. Physician shortages

Healthcare executives are facing a physician shortage due to an aging physician population and that of the general population. It’s not that young people no longer want to become physicians, but there’s a lack of residency slots.

Efficiencies include making sure physicians have a full appointment schedules, but those doctors in high demand are commanding ever-increasing salaries.

10. MACRA

MIPS and APMS are challenges providers and physicians have only started to get a handle on with the 2017 reporting period that will count towards payment in 2019.

As more providers aim for advanced alternative payment models to get better financial results, hospital executives will be planning for more change to their business model to reflect value-based care.

Original Link: 10 Top 2017 Healthcare Finance Trends

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?

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 RevCycleIntelligence.com. 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.

Original Link: https://revcycleintelligence.com/news/how-a-small-hospital-developed-lean-supply-chain-management