Supply Chain By the Numbers

By John Strong, Co-founder and Chief Consulting Officer, Access Strategy Partners Inc

Is your supply chain strategy aligned with what your C-suite is thinking about?

In most industries supply chain excellence is considered a key strategic initiative. In healthcare, where supply chain managed products and services fall right behind labor as the most expensive items, it is often not the case. Where supply chain management is prioritized it can mean the difference between profit or loss, amounting to millions of dollars annually. It is not always about the price paid for products.

Paul Keckley, the noted hospital strategist, has summarized seven concerns for the hospital C-Suite¹. Among them are two that the supply chain can have a direct impact on.

First is capital deployment. Progressive supply chains should have a voice, and in many cases final approval of contracts for all capital spending, service contracts and supply decisions in concert with the primary stakeholders. If supply chain is not playing an active role in these areas, ask yourself why not. Centralized procurement around an effective purchasing department is key to the controls necessary to ensure that capital is deployed in the most efficient fashion.

The second area is physician relationships. Physician stakeholders need to be active participants in capital, service, and supply decision making. Keckley notes that “Physicians are disgruntled. They believe their interests are not being addressed by hospitals.” Physicians should be a part of the supply chain team, either formally or informally across the organization.

In December 2024, Chartis² did a survey of 61 health system chief strategy officers serving systems with more than $1 billion in annual revenue. Of the seven key findings, three of them can be impacted by effective purchasing and supply chain strategy.

FACTOR	CSO SEES AS PRESSURE
Competition from other Health Care Systems	48%
Organization’s Overall Financial Strength and Ability to Invest in the Future	41%
Organizational Ability to Execute Plans	25%

Saving costs (in addition to lower pricing) through value analysis and other means does provide a strategic advantage. It takes a supply chain strategy that when implemented works together with a hospital’s overarching business strategy.

Year over year supply and pharmaceutical price increases continued unabated

The Strata monthly healthcare industry financial benchmarks did not hold good news for non-labor costs through March 2025. Non-labor costs jumped 9.1% from March 2024 to March 2025³.

Category	Total Year-Over-Year Increase 2024-2025
Pharmaceuticals	11.5%
Supply Expense	10.8%
Services Expense	9.5%

Category	Per Adjusted Discharge Year-Over-Year Increase 2024-2025
Pharmaceuticals	6.6%
Supply Expense	7.9%
Services Expense	5.9%

Strata data is drawn from over 1,600 hospitals and 135,000 physicians.

Is your addiction to rebates and “sharebacks” costing you money?

Getting “extra” is the great American way of expressing value. Ever brag about the great deal you got on a new car (beyond free floor mats)? Everyone loves a good deal – and extra value. It seems like every supplier is already conditioning us for price increases caused by tariffs – that in many cases are not imposed yet.

“Price at the pump” used to be the mantra for many hospital supply chain professionals, but over the past few decades we have been taught by suppliers, our group purchasing organizations and others that sometimes you can get something extra through compliance to contracts and greater volume. In our desire to attain that value, are we sacrificing sound supply chain practices like competitive bidding and meaningful product changes to our desire to gain that “extra”? How much is that extra worth?

• It is great to have “preferred products,” but by sticking with the same old products and not engaging in meaningful product evaluation are we sacrificing the same or better products at a much lower cost?
• Are you spending so-called “share backs” on services that are nice to have – versus needed? Are you using those services?
• Are pricing tiers and rebate schemes so complicated that it is almost impossible to determine the net price? Can you manage and audit the net price? If they are too complicated to manage, then how are you doing “apples-to-apples” comparisons of products and services? Is it time to look at things differently?
• Have you had certain “preferred” suppliers for too long? Nothing gets a supplier’s attention (and a price reduction) faster than making a product conversion.

As hospitals look to reduce expenses, it’s time to put everything on the table, and consider meaningful changes where they are appropriate. Unfortunately, expenses for supplies and services are increasing almost as fast as revenues in many organizations. Total non-labor expenses jumped 9.1% for the year ended March 2025, versus an increase in inpatient revenue of 9.6%.⁴ This is not a recipe for long-term profitable growth.