Sustainable Cost Control Tops List of Priorities for Healthcare Executives

The top two priorities boil down to cost and consumerism has surged into the top 5 for 2018, mirroring industry trends.

When it comes to a hospital executive’s list of priorities, there’s a new occupant in the top slot according to Advisory Board’s Annual Health Care CEO Survey. Previously occupied by “revenue growth,” it’s cost control that has taken up position as the top priority among health system CEOs.

“While interest in revenue growth remains high, both of the top areas of concern were related to cost structure and management,” Advisory Board said.

Specifically, the new top concern for hospital executives is “preparing the enterprise for sustainable cost control,” according to the nationwide poll of 146 C-suite executives that was conducted between December 2017 and March 2018. This is the first time this particular concern has appeared in the survey, and it was a strong debut, with 62 percent of executives saying they were extremely interested. That level of interest is higher than for any topic in at least four years, Advisory Board said.

C-Suite executives voted “innovative approaches to expense reduction” into the number two spot for the second year in a row, with 56 percent of respondents expressing extreme interest.

“Health system CEOs recognize that any effective growth or financial-sustainability strategy must be built on a competitive cost structure in order for their enterprises to deliver high-quality, cost-effective care to the patients they serve,” said Christopher Kerns, executive director, Research at Advisory Board. “The entrance of nontraditional healthcare providers, such as retailers and consumer-focused imaging and surgery centers, adds to the urgency of health systems improving cost structures, sometimes radically so, such as redesigning staffing models, rationalizing service lines across their market, and even transforming their facility footprint.”

For the survey, executives were asked how concerned they were about 33 different topics. Those included building an agile enterprise, strengthening primary care alignment and developing a robust cybersecurity strategy.

The rest of the top five were: exploring diversified, innovative revenue streams with 56 percent of respondents expressing extreme interest; boosting outpatient procedural market share with 50 percent; meeting rising consumer demands for service with 50 percent.

As a testament to the rapidly evolving healthcare landscape and the need for agile, flexible leadership, none of the top five areas of interest from 2016 made this year’s top five. Also we have watched over the past few years as consumerism emerged as a driving force for change, and it has also made its way into the survey. Consumer demands for service rose from the number 10 spot in 2017 to number five this year.


Original Link: Sustainable cost control tops list of priorities for healthcare executives

Three Tips Toward Smarter Healthcare Supply Chain Management

Digital disruption is arguably one of the most overused terms in business today, but there really is no other equivalent to describe how technology is drastically changing the world. In healthcare, delivering the best care at the best value has become the multi-billion dollar question healthcare providers are looking to technology to help answer.

Supply chain management is another area within healthcare that’s being radically transformed by technology, with increasing opportunities to improve optimization and the flow of goods among manufacturers, purchasers, and providers.

Yet there’s still a lot of work to be done. The healthcare supply chain has typically been fragmented, and this lack of cohesiveness makes it difficult to adapt to fluctuations in supply and demand from different suppliers, group purchasing organizations, and distributors. Add to this the increase in healthcare industry mergers and acquisitions, new types of suppliers and competitors, policy reforms, and even the rise in healthcare consumerism, and the complexity of the supply chain only continues to grow.

One thing’s for sure: as a supply chain leader, you’ll need to advance your skills and knowledge, as well as your organization’s technology, to adapt to healthcare’s changing landscape. Here are some steps you can take.

Become a Better Collaborator

A new supply chain process calls for a new type of supply chain leader. Research from the Association for Healthcare Resource & Materials Management (AHRMM) and Strategic Marketplace Initiative (SMI) sheds some light on this, revealing that the supply chain leader of the future must be highly skilled in communication, negotiation, and analytics, while also having experience in people management, project management, and technology—not to mention healthcare and supply chain.

One reason for this expanded scope is supply chain management has become increasingly collaborative, requiring more than the traditional responsibilities of solely managing logistics and purchases. As a supply chain leader, you must be able to work with other functions and technical systems to understand the total costs of the supply chain, including the cost of ownership of supplies, procedures, and care. This holistic view encompasses the intersection of cost, quality, and outcomes—what the AHRMM refers to as the CQO movement.

The skills needed to support the CQO movement across the supply chain are changing, and as you work to improve your own skills, you must also be able to find and retain the right talent in your organization to support more efficient processes. One way you can do this is by comparing employee performance and goal attainment with supply chain data to more readily identify the skills and strengths essential for operational excellence and, critically, plan for succession.

Gartner’s research in its June 2018 “Healthcare Provider Supply Chain Outlook, 2018” report reveals there was about a 35 percent turnover among supply chain leaders at 40 health systems over the past 18 to 24 months. To mitigate this, the firm recommends that leaders should “identify people in the organization who can evolve into the leadership role. Empower your direct reports in sourcing, logistics, clinical alignment, and analytics to lead initiatives to orchestrate beyond their functional area to build future leaders.”

Arm Your Team with the Right Insights

Both a surplus or deficit of supplies is often the result of the outdated, inflexible supply chain systems that require healthcare providers to do at least some manual inventory tracking and replenishment. Another big problem area is waste, with ProPublica finding that hospitals routinely toss out brand-new supplies or gently used equipment. Access to real-time data can help identify and stop waste before it happens.

The Global Healthcare Exchange’s “Supply Chain Leaders Survey” found that the top priorities among supply chain leaders were data and analytics for better decision-making and the standardization of data and business processes across the organization. The right technology can improve the purchasing, tracking, and replenishment of supplies, capturing real-time data to make decisions that increase efficiency and value.

Streamline the Supply Chain Across the Organization

In many healthcare organizations, clinical utilization and supply chain information reside in different systems. To break down those silos, adopt a single system that enables you to align your approach with the organization’s overall strategy, process, and metrics. Using a unified system, you can gain insight into costs and usage patterns throughout the entire healthcare system, which in turn reduces shortages and surpluses.

Christiana Care is among the organizations that are adopting a unified system. Rob McMurray, chief financial officer at Christiana Care, explains, “Our Workday supply chain deployment project is really exciting for the organization—it gives us the ability to identify areas of spend control and improvements within an integrated system. So if I can marry finance, supply chain, and HR data in one system, I have a really good outcome.”

Digital disruption is more than a buzzword, and it’s likely that it’s already impacting your healthcare supply chain. To ensure you come out on the positive side of digital disruption, take steps now to transform your supply chain with the right skills and technology, gain real-time insights into your supply chain, and eliminate the system silos that prevent those insights that help move your organization in the right direction.


Original Link: Three Tips Toward Smarter Healthcare Supply Chain Management

Hospital Operating Margins Dropped 39% Over 3 Years

  • Nearly two-thirds of 104 U.S. health systems saw deteriorated operating margins from fiscal year 2015 to fiscal year 2017. For systems reporting decline, the overall hit tallied in at a $6.8 billion loss, a 44% reduction overall.
  • A new Navigant study analyzed for-profit and nonprofit provider networks and found that the average operating margin declined by almost 39% over the same time span, from 4.15% in 2015 to 2.56% in 2017. Nonprofit systems had a slightly lower than average decline, reporting margin drops of 34%.
  • Though a slew of interwoven factors have contributed to hospitals’ operating woes, the report pinpointed one main cause: expenses grew by 3 percentage points faster than revenue. The 2008 recession didn’t help the matter, as the decade-ago economic downturn put enormous pressure on hospital bottom lines and increased the number of uninsured Americans. The ACA added coverage for more than 21 million people between 2014 and 2015.

The report is quick to point out, however, that in the three years after the introduction of the ACA, health systems experienced slowing demand for services that were once foundational for providers. About 27% of hospitals studied lost money on operations in at least one of the three years and 11% saw negative margins across all three.

The Navigant study isn’t the only one showing concern about hospital finances. A recent Moody’s Investors Service report found that not-for-profit and public hospitals spent more than they gained in revenues for the second consecutive year in fiscal 2017. Moody’s said the gap puts facilities “on an unsustainable path.”

Navigant found multi-year reductions in the rate of topline operating revenue growth. Co-author Rulon Stacey, managing director and leader of Navigant’s Healthcare Strategy practice, said in the report that lower expenses didn’t offset revenue declines.

The drivers of topline weakness included:

  • Less demand for core hospital services, such as surgery and inpatient admissions, caused partly by rising out-of-pocket costs from high-deductible health plans.
  • Lower collection rates for private plans in non-ACA expansion states.
  • Lower Medicare payment rates.
  • Lower patient volume (attributed to value-based insurance contracts) that isn’t able to “offset steep upfront payer discounts and significant hospital population health investments,” according to a press release.

The biggest operating income drops were found in the nation’s fastest-growing regions: the West, Southwest and south central America. Navigant also determined that size and market dominance didn’t protect health systems against operating declines. Three of the six largest operating income declines came from the three largest for-profit systems, which all had at least $15 billion in operating revenues in 2017, according to the report.

“There was no statistical relationship between total operating revenues and operating profit in 2017, or the change in operating profit from 2015 to 2017,” Navigant said. “This finding flies in the face of the incessant chorus of advocacy for scale and market dominance among prominent strategy firms and their colleagues in investment banking. Scale was of no help in system operating performance during this difficult period.”

Navigant National Advisor Jeff Goldsmith, the lead author of the report, said in the release that margin pressures are happening at a time of a healthy economy. Goldsmith called this unusual. Often, hospital financial performance drops a year or two after a recession — not during peak economic times.

This issue could set hospitals up for trouble in an even more difficult financial ecosystem if the economy falters.

“Any downturn in the economy will erode investment earnings health systems experienced last year and increase pressure to contain Medicare expenses. Organizations that cannot manage their operating performance more effectively will be damaged financially,” Goldsmith said.

Navigant made four suggestions for hospitals looking to reverse the trend: invest capital in areas of “reachable” demand based on local market growth potential; adjust physical capacity, including beds and ambulatory sites, to the demand and consolidate or eliminate excess capacity; improve use of clinical capacity by enhanced patient throughput; and leverage managed care tools to improve risk contract performance and reduce Medicare operating losses.

“To reverse this operating performance trend, system management and boards must take a fresh look at their strategies based on the markets they serve, and size and target their offerings to actual market demand,” Stacey said.


Original Link: Hospital operating margins dropped 39% over 3 years

Data Analytics Add Value to Healthcare Supply Chain Management

Data analytics are offering innovative healthcare systems more visibility into supply chain management issues, allowing for reduced costs and greater efficiencies.

Source: Thinkstock

Hospitals spend nearly one-third of their overall operating expenses on healthcare supply chain management. Buying supplies, equipment, and the latest innovations to support high-value care delivery is expensive, especially as hospitals and health systems expand their provider networks.

Data analytics tools have the potential to give supply chain leaders insights into how to reduce their costs and automate their processes. One recent analysis found that analytics could bring a potential savings of almost 18 percent.

But organizations aren’t yet using them. Eighty-one percent of hospital staff in a recent Cardinal Health survey reported performing manual inventory management, and over one-half (51 percent) said the number of manual processes in the supply chain was a significant challenge.

Hospitals are eager to adopt data-driven tools that can improve management of their physical assets – for the second year in a row, data analytics was the most sought-after supply chain management capability, according to Global Healthcare Exchanges – but tight budgets often prevent investment.

“Right now is probably the toughest time in materials management because we have all our fingers in the fire,” John Walker, Executive Director of Materials Management at Owensboro Health, recently told

“We’re being held to very strict supply budgets, and it’s very difficult when we can’t really control what the hospital needs,” added the supply chain leader who manages the inventory supporting over 4,300 employees across 14 counties in Kentucky and Indiana. “There are sales reps in here all the time selling solutions. There are a lot of options out there. But at the end of the day, most of it is cost-prohibitive.”

Faced with limited funds and a responsibility to ensure high-quality items are available to providers, Owensboro Health and other forward-thinking providers are getting creative about applying data to the complex problem of supply chain optimization.

For Cambridge Health Alliance, a 13-health center system with two hospitals in the Boston area, analytics give supply chain leaders the support they need to keep every service line efficient.

“We have devoted a significant amount of time and energy into developing a supply chain analytics capability, so that we can not only track and monitor our supply chain cost trend, but also so we can dig down to understand utilization, which comes in handy when we go to negotiate our contracts and help departments work on budgetary issues,” said William McFarland, Senior Director of Materials Management at the Alliance.

Both Cambridge Health Alliance and Owensboro Health are newly-minted winners of ECRI’s Healthcare Supply Chain Achievement award, largely due to their commitment to integrating analytics into their supply chain optimization initiatives.

As a result of these efforts, both health systems have seen significant improvements in the way they manage the critical pipeline of supplies and materials that are essential for keeping a hospital functioning each and every day.


From supply utilization and provider preference cards to prices, the healthcare supply chain generates significant amounts of data. This information is vital to department heads charged with developing and implementing sustainable and scalable supply chain optimization projects.

However, sometimes large volumes of data can end up being too much of a good thing, said providers at another ECRI Healthcare Supply Chain Achievement winner.

WellStar Health System in Georgia embarked on a supply chain transformation in 2017 to reduce its costs. The health system, with 11 hospitals and over 225 other locations, wanted to standardize product use as the system added new providers.

The supply chain optimization project required item utilization reports that broke down each supply used during a procedure and the costs associated with that supply. The reports also had to compare cost performance with other providers in the health system.

Wellstar Health System knew it had the data necessary to create these reports, but encountered challenges with appropriately synthesizing the data pulled from multiple clinical and financial systems.

“Everything that we’ve done to date was capable of being done in-house. Our IT resources were all we required. We didn’t have to go to Epic with any special requests or tickets. But it required a lot of internal resources to clean up some of the data,” Mark Charlson, VP of Surgery, explained to

“For example, we went through and had to give a lot of items ‘nurse-friendly’ names because the nurses in the operating room need to complete the charge capture accurately. They need to be able to identify what is in Epic and charge it appropriately. Naming your items in the supply chain system appropriately is key to optimal charge capture and reporting,” he continued.

Hospitals and health systems face nomenclature and other supply chain data issues because the different systems used by supply chain leaders to inform decision-making do not always communicate with each other, McFarland of Cambridge Health Alliance explained.

The lack of interoperability between enterprise resource planning and revenue cycle management systems impedes the Alliance’s ability to create transparency between the cost and revenue sides of the organization.

Insufficient interoperability also leads to inaccurate charge capture. Providers cannot charge payers for their supply use if the chargemaster doesn’t include the items.

The Cambridge Health Alliance assigned the task of data cleanup and optimization to a group of analysts who work exclusively in the supply chain department. The Alliance employs a group of four supply chain analysts who tackle supply chain data, contract management, disbursement management, and value analysis.

Owensboro Health also employs a business analyst as part of its healthcare supply chain management department. The health system collaborates with ECRI to compile relevant supply chain information into meaningful reports that can inform decision making.

The health system sends supply chain data to ECRI every month. The non-profit organization then generates a report identifying items for which the health system is paying too much.

“ECRI gives me the entire list of what I sent them – some 9,000 items – and they tell me where I rank with the other hospitals that bought that item,” Walker explained.

A business analyst then works through the ECRI reports to ensure group purchasing contracts and other purchasing arrangements are accurate and have not expired. The business analyst meets with a vendor analyst at the health system, who communicates and negotiates with supply manufacturers or the group purchasing organization when the reports flag an item.

“Let’s say my list from ECRI says I’m paying 10 to 25 percent too much for an item,” Walker posited. “Right away, I would know that that that item fell off a contract. I can jump in the system and see that the contract expired, and immediately redo that contract.”

“We haven’t had anything expire in over two years without us knowing in advance,” he added. “That’s something that we don’t struggle with anymore.”


Reducing provider preference items and standardizing products are common supply chain optimization goals that can quickly reduce spending.

Provider preference items make up 40 to 60 percent of total hospital supply costs, research shows.

Wellstar Health System started its standardization project in its operating rooms. Surgeons frequently use expensive equipment and medical devices. Catering to surgeon preferences for items that are already expensive can unnecessarily drive up costs.

Charlson and his team created reports in Excel that detailed each surgeon’s supply utilization and costs. The reports also compared cost performance across the health system.

The supply chain team then handed paper reports to surgeons and their department heads to ensure surgeons saw the information.

Equipped with their own performance data, surgeons started to reduce supply chain costs on their own.

“In six weeks, we saw a 14 percent decline in one procedure and a 24 percent decline in supply cost for another procedure,” Charlson reported. “We weren’t telling the surgeons to do anything. Rather, we were telling them how they’re performing and letting them make decisions off that.”

But Charlson knew that his team could not sustain printing and handing performance reports to surgeons. The team would not be able to scale the standardization project throughout the system without help from an analytics solution.

“We have 20,000 of these reports a year, so we went to our IT folks and asked for a digital solution,” he said. “We created a custom dashboard within our electronic medical record that interfaces with our supply chain and finance system.”

The EHR dashboard allows surgeons across the health system to track their supply utilization and cost performance and compare their performance with that of their peers. Surgeons can also drill into the data of top performers at WellStar Health System to see the products they prefer, and potentially adjust their own ordering habits accordingly.

“Surgeons don’t want to be underperformers,” Charlson explained. “By giving them data that showed their performance and the top performer’s receipt, we saw dramatic shifts in surgeon preference items toward the median or that of the top performers.”

“Surgeons are self-selecting the standardized items because we established their use as best practice. In the past, it would have been very difficult to get that surgeon to make that choice on their own without providing them that physician-level data,” he added.

The dashboard tool embedded in the EHR has been particularly helpful in reducing supply chain spending as the health system takes on more providers and hospitals.

“We’re giving it to the physicians, as well as their department and business managers, if the department has them,” said Charlson. “They can be more proactive about monitoring supply usage, especially with new physicians that come into our system. It allows new members to be more proactive about eliminating something that might be different from what we currently use. We can show them what their new partners are using.”

At Cambridge Health Alliance, system-wide standardization projects are equally important for realizing significant and sustainable cost savings, McFarland explained.

“Standardization helps with contracting because it allows us to consolidate our volume and leverage our negotiations for better pricing,” he said. “It’s a win for both the organization and the vendor because the vendor doesn’t have to carry as many lines and can order more of what we need, so they can get a better price on their end.”

Supply standardization also supports patient safety efforts at health systems like Cambridge Health Alliance that operate multiple locations.

“We have been working to look across all 25 organizations to try to make sure that we’re using the same products from the same manufacturer,” he stated.

“Staff go between locations, so having the same product in multiple locations means that the staff can work between different locations without having to get familiar with different products. It helps with patient safety to have that standardization.”


Supply chain leaders are also exploring the addition of quality data to transform the supply chain from a cost center to a value-adding resource.

“We’re trying drive towards value and not just cost,” Charlson emphasized. “What we would like to do in the next phase is start layering in more quality data.”

“One surgeon might be less expensive than another, but maybe the surgeon that’s slightly more expensive is using a specific product or technique has better outcomes or lower length of stay, which generates savings that are far beyond what the more expensive product would cost.”

The materials management and supply chain leaders agreed that their health systems could realize significant downstream savings by layering quality data onto healthcare supply chain spend and utilization information.

But hospitals still need to ensure they get the right price for those high-quality items, Walker stressed.

“We don’t run out there and buy the cheapest stuff on the shelf. We allow our physicians to use the best that’s out there, and we just make sure that we’re getting a good price on it,” he said.

Artificial intelligence solutions may be able to help health systems achieve the optimal balance between up-front price and long-term outcomes, McFarland suggested.

“There’s a lot of work being done in the area of clinical evidence research,” he stated. “We’ve looked at a number of systems that actually use AI or are starting to use AI to find information that’s out there on the internet. The solutions aim to help us better understand how we use materials, what we’re paying for them, and what kind of outcomes people are experiencing with them.”

“The problem with AI is going to be that it’s at the very beginning stages,” he said. “It still has a way to go. It’s similar to Alexa. They think it’s got the functionality of a five-year-old if you were to put it in human terms. It has to grow up and mature.”

Artificial intelligence and other advanced data analytics tools are also too pricey at the moment for strict healthcare supply chain budgets to accommodate, the supply chain experts agreed.

“The AI tools are pretty expensive right now. Very expensive, as a matter of fact,” McFarland commented.

As artificial intelligence technologies become more integrated into the health IT marketplace, the prices are likely to fall, putting them within reach of supply chain experts.

In the meantime, more traditional data analytics approaches will continue to show their value by identifying opportunities to trim excess spending and optimize the purchasing process.

“We’re continuing to look at better ways to service the clinics and give providers and their staff more time back to focus on patients,” McFarland said. “We’re always looking to improve our distribution methods inside the hospitals to make sure that the right supplies are at the right place at the right time.”


Original article: Data Analytics Add Value to Healthcare Supply Chain Management

Conquering The Top Supply Chain Cost Drivers

Ask progressive doctors, surgeons and nurses to list their top cost drivers and they’ll likely unspool a litany of clinical, fiscal and operational sins familiar to just about anyone on the clinical and business sides of healthcare.

Of course, each clinical specialty may have its own nuances. But cost drivers making the scroll can include overuse of antibiotics, prescription drug consumption, unnecessary testing and treatments in laboratory and diagnostic imaging, population growth and aging, price inflation, technology advancements and changes, as well as over-utilization of services, such as the emergency room as primary care doctor. They also might cite increased demands for administrative participation, such as populating patients’ electronic health records and submitting payer paperwork, as well as searching for needed supplies that may be misplaced or missing for whatever reason. Naturally, they blame Supply Chain, and maybe rightly so.

As supply chain operations expands to assume larger “support services or system services” roles and embarks on the road to becoming what some studies predict as a healthcare organization’s largest expense category, particularly with the inclusion of outsourced labor and purchased services in the mix, what would Supply Chain professionals tag as their top cost drivers?

Healthcare Purchasing News reached out to more than 20 executives from providers, suppliers and service companies to share their insights. Here’s what they revealed in random and wide-ranging order.

Motivating factors

“As reimbursement declines and cost pressures increase, hospitals/healthcare providers must look for new ways to save money,” she said. “They must go beyond product price and place a greater focus on effective management. The Supply Chain team should not be held back by manual processes, and clinicians should be spending more time at the bedside.”

Lisa Zierten, Director, Marketing, Hospital Services,
Cardinal Health Inc.

“The conversations that we are having with leading health systems revolve around their desire to create a more clinically driven supply chain,” Scagliarini said. “The reason this is important is because health systems are looking to Supply Chain to better contribute to value-based medicine. In this era of value we can no longer be focused solely on contracts and price points.”

Mark Scagliarini, President and CEO,
Blue.Point Supply Chain Services

“For a healthcare system with a 3 percent net margin, a $1 reduction in costs is worth $33.33 in revenue. Therefore, if your reimbursements decline by $33.33 million and you want to keep your cash flow stable, you need to save $1 million in costs in the same period. To do this, you can either reduce direct labor, goods or purchased services costs. Supply Chain is responsible for managing goods and purchased services costs representing 45 to 50 percent of operating costs. The imperative, therefore, is to reduce goods and services costs aggressively to make-up for reduced revenues without sacrificing quality. This is similar to industries where cost management is an existential priority like automotive, computers, oil and gas, and retail.”

Chris Gormley, CEO, MedPricer

“The cost of doing nothing is leaving millions of dollars untouched at most healthcare organizations.”

Robert T. Yokl, President and Chief Value Strategist,
SVAH Solutions

Purchased services

“Purchased services typically account for half of health system spend. And purchased services are like the Wild West with many different groups owning contract negotiations. When contracts are created outside the Supply Chain department without oversight and knowledge from those trained to negotiate contracts, it exposes the health system to risk and increased cost, such as warranties that result in exorbitant maintenance and support costs.”

Michael DeLuca, Executive Vice President of Technology and Client Services, Prodigo Solutions

“Of the 45 to 50 percent of operating costs managed by Supply Chain, almost half of this is purchased services. Supply Chain has traditionally focused on reducing costs for physician preference items, medical/surgical goods and pharmaceuticals through price and usage reductions. Purchased services are anything bought by a healthcare system that isn’t a direct labor cost or good and includes items like lawn care, snow removal, elevator repair, transcription services, data storage, legal services, reference labs and radiology services. The large savings is driven in part because these categories have never been centrally sourced by health systems. These systems have grown through acquisition and left contract negotiations to local users in facilities, such as IT, administration and HR, who are not sourcing experts.

“Purchased services are different on several dimensions. For example, services are difficult to compare since there is no ‘part number’ equivalent. Services are based on contracts and statements of work. Services are highly preference-driven. For example, what makes one lawyer worth more than another lawyer? Price and [consumption] volume are difficult to collect because invoices rarely have granular detail. POs are not issued universally. This also makes benchmarking of services difficult. Challenges aside, proper management of purchased services costs can unleash substantial savings.”

Chris Gormley, CEO, MedPricer

“Purchased service expenses represent a significant portion of an organization’s total operating expense — oftentimes totaling even more than recorded supply expense. These significant numbers can be attributed to the fact that the category is largely decentralized with contract processes owned by several departments. This means that purchased services spend is not typically under the supply chain’s purview and, therefore, not subject to standard competitive processes and enterprise-wide terms and conditions. However, this means that if Supply Chain leadership is able to gain ownership of purchased services, the opportunity for savings is significant.”

Christopher J. O’Connor, President, Acurity Inc. and Nexera Inc.

“Of the $160 billion in spend that Valify has collected, cleansed, and categorized, the largest purchased services cost driver for Valify subscribers is in Facility Support Services, which includes categories such as property management, utilities, food service outsourcing, and bioengineering services. The next highest purchased services spend categories include information technology, outsourced clinical services and financial services.

“Property management and utilities are primary drivers due to the fact that there are over 3,000,000,000 total square feet of hospitals and clinics within the U.S., according to the most recent CMS data. Facility directors typically hire third-party service providers to maintain their properties cleaning, heating and cooling, and general maintenance.

“Food and Biomedical engineering services are resource-intensive functions and are commonly outsourced by many health systems. Outsourcing dollars largely contributes to these categories being the top drivers of purchased services spend. Additionally, spend in these areas is increasing year-over-year at a rate faster than other purchased services categories.

“Biomedical engineering cost trends have steadily risen due to increasing need to meet requirements of medical equipment being integrated to hospital technology networks and becoming more expensive to service. Health providers have found it more cost-effective to simply outsource these departments to the original equipment manufacturers and third-party vendors. The price of food has also increased by 26 percent over the past 10 years and is expected to continue to increase based on the USDA’s Food Price Outlook for 2017.

“One of the largest areas of growth in cost is coming from services around technology. Ten years ago, no one was talking about mobile strategies or cloud strategies, and electronic medical records were in their infancy. X-rays were stored in manila envelopes, and scheduling was done using a big book and a pencil. The move of these examples to digital, online and mobile device technologies has created a large need for services in healthcare. Additionally, services are needed to maintain ever more sophisticated hardware and equipment. Why this issue matters to the healthcare providers and payers, is that contracting for these services is something that Supply Chain managers across the spectrum are still figuring out.”

Les Popiolek, COO, Valify

“GPOs have done little in the area of purchased services, specifically IT. [These are] all areas that we have struggled with for years to try to control, and areas that suppliers are reluctant to put on contract as they know that we are not organized nor disciplined.”

Dee Donatelli, President & CEO,
Mid-America Service Solutions LLC

“Purchased services represents 11 percent to 15 percent in new supply chain savings.”

Robert T. Yokl, SVAH Solutions

Data management/science

“[One] key cost area is bad item master data. Without a single source of truth, provider Supply Chain teams may be ordering the wrong products and spending valuable time fixing errors. This means providers can miss out on negotiated contract pricing and reimbursement opportunities that offer significant savings. As a result, many Supply Chain staff teams are focused on reactive activities rather than proactive value-added tasks.”

Chris Luoma, Vice President, Product Management, GHX

“Organizational spend is being consumed by the cost of modernizing discrete technology systems, and attracting and retaining top talent to support an expanding span of responsibility. While provider systems are upgrading their data management platforms to create a digital advantage, they are uncovering the myriad of ways in which these discrete applications do not integrate with each other, and in so doing, create data deficits and necessitate continued and inefficient dependencies on provider-funded labor.

“The focus on single system solutions has converted providers’ significant and continuing investments in data management technology into annual annuities that have not achieved their objectives of automated data analysis, timely access to and evaluation of key metrics, and integration of clinical management systems to critically improve operating margins. All of these goals require unprecedented collaboration by and between suppliers and providers, and depend on a common and sustainable operational infrastructure that supports the independent benefit of all constituents. This collaboration requires technological and operational talent that, if available, is not typically present or funded at the required levels within the healthcare market.”

Mary Beth Lang, Executive Vice President for Cognitive Analytics and Computing, Pensiamo, and Vice President of Healthcare Pharmacy and Supply Chain Management Commercial Services, UPMC

“Data is king and the ability to manage and mine data will heavily influence the speed to which we identify, execute and sustain cost savings, not to mention gain clinical alignment. Data serves to accurately inform, and our ability to get at it [in] real-time can facilitate prioritization, but it also allows the Supply Chain professional to have a meaningful conversation with our clinical partners.

“Unfortunately, our systems and applications haven’t quite caught up to our data needs, and when they do we Supply Chain professionals haven’t adequately invested in the resources to manage and mine the data that exists in these systems. I believe the current situation is further compounded because we’re entering an era of evidence-based decision making where expectations are rising for quality and outcomes data to drive what products we put on our shelves.”

Ed Hardin, Senior Vice President, Supply Chain Management, Beaumont Health

“Managing the GS1 Healthcare US Initiative, we work with providers, suppliers, distributors and GPOs in the healthcare industry. Our perspective is unique in that we lead a collaborative industry group to help companies achieve supply chain efficiencies and comply with regulations through the adoption and implementation of GS1 Standards. So we get a lot of input from many different industry members from all points in the supply chain. We know that supply chain costs represent about one third of providers’ operating budgets – second only to labor.

“Three of the top challenges driving supply-chain costs are preventable errors, transactional inaccuracies, and reliance on manual records or inconsistent management of electronic health records (EHRs). All rooted in the use of proprietary information systems, these issues create major inefficiencies throughout the industry and can be solved with the proper implementation of GS1 Standards. Proprietary data systems are highly inefficient because their information is not easily understood by trading partners up and down the supply chain. The complexity and siloed nature of this model creates costly inaccuracies such as problems with inventory and supply chain disruptions, as well as serious risks in patient care.”

Greg Bylo, Vice President, Healthcare, GS1 US

“Multiple systems — both electronic and manual — that must be maintained with the ‘correct’ information are a cost driver throughout the entire healthcare supply chain. Price is just one of many details that can gunk up the works. Systems are rampant with packaging string, nomenclature and other item and vendor identifier issues. In addition, merger and acquisitions cause havoc on billing and ‘ship to’ addresses. Finally, it seems that most business partners build their systems to make themselves more efficient — not necessarily to make their business partners more efficient. Since these definitions of ‘efficient’ are different for each business partner, systems can tend to work against each other, causing operational cost increases and product not being delivered on time.

“Due to a lack of trust in these systems, human beings still need to interface into systems or between multiple systems. Human ‘middleware’ are left to make judgment calls on what needs to be done to make sure their customers have what they need to do their jobs. Not only is there additional costs associated with this work, the impact on data can be significant. Prices are changed on [purchase orders], but the reason for the need for the change never researched. Vendor representatives make changes on the fly,  GPOs issue new contracts and prices but do not affirm that the vendor, distributor and customer all agree and have made the change before transactions go through. Multiple changes across multiple systems cause both data integrity issues and supplies to be delayed.”

Joe Colonna, Vice President, Supply Chain, Piedmont Healthcare

“Our customers have multiple data management systems in place, but it’s becoming increasingly challenging to leverage deep actionable insights when the data is not aggregated appropriately.”

Doug Golwas, Senior Vice President, Corporate Sales,
Medline Industries Inc.

Contract/non-contract pricing

“What if you perform better than 90 percent of your price benchmarks? Is this good enough? A price benchmark is only as good as sourcing approach used to arrive at the prices and terms used in the benchmark. What if all price benchmarks are based on buyers accepting the first offer made by a supplier? What if they are based on simply rolling over a contract with prices negotiated three years ago in a supply market with declining prices?

“The only way to really know that you have the best price in the market is to compare your contracts fairly with appropriate tradeoffs for quality and cost, but to set-up methods where suppliers compete for your business. GM, United Technologies, Dell, Exxon Mobil and Wal-Mart know they must constantly strive to have a lower cost since the market demands it and consumers compare prices every day.”

Chris Gormley, MedPricer

Manual vs. Automated processes

“Time spent on manual tasks, like supply chain management, is nearly 20 percent of physician and nurses’ workweek. Supply chain administrators have an opportunity to improve their role through automated solutions, which reduce the amount of time spent counting inventory. For clinicians, there should be a greater focus on removing non-value added, nonclinical tasks from their workloads. This would allow clinicians to spend more time and effort on patient care. Our survey found that 66 percent of respondents wish supply, inventory and administrative tasks were something they didn’t have to do because it takes the focus off patients, education and training.

“Revenue leakage results from inefficient charge capture. Manual processes that rely on clinicians to document product usage introduce the potential for human error and items beings overlooked. Seventy-eight percent of participants in our survey said they are manually counting their supply chain inventory. Respondents identified a lack of urgency around updating the supply chain and introducing solutions that would address manual inventory management challenges. And nearly one third of respondents believed their facility had not introduced a new inventory management system in six or more years.”

Lisa Zierten, Cardinal Health Inc.

“Even the top health systems average contract utilization rates of 60 percent and many are much lower. They’re paying more for supplies than they should be. The solution to improving compliance is using a contract management and marketplace solution that operationalizes the contract and drives health system users to the right product, at the right price, every time. These same technology solutions can update prices and add new items to your marketplace in real-time, and alert you to contract renewals before they come due. The ROI can be significant due to dramatic cost savings potential.

“If Supply Chain can improve process efficiencies and do more with less, it means more time and money to spend on patient care and other revenue generating activities. Health systems are turning to supply chain technologies that improve the purchasing experience for clinicians, administrators and others involved in the requisition process to give them more time to focus on patient care or their primary business function.”

Michael DeLuca, Prodigo Solutions

“Manual processes and limited ability to forecast supply needs result in poor inventory management discipline. This causes costly overstocking in some instances, ‘fire drill’ logistics in others when products are out of stock when they’re urgently needed, and waste due to product expiration.”

Chris Luoma, GHX

“Spending too much staff time to make up for operational inefficiencies, inadequate data and analytics to provide visibility into supply chain spend, and limited visibility into total landed cost of product.”

Don Carroll, Vice President, Business Development,
Vantage Point Logistics Inc.

Time is the commodity that most of us never have enough of bcause so many supply chain operations are conducted using manual processes.”

Glenn Tamir, Vice President, Sales & Business Development, Supplymind LLC

Lack of product/service standardization

“It’s an ongoing challenge to manage product, contract and pricing data with thousands of changes occurring across the industry on a daily basis. The absence of standardization in the way this information is managed, shared and transmitted creates price leakage or missed opportunities for savings maximization between providers and suppliers.”

Chris Luoma, GHX

“Often hospitals report having seven or more separate supply chains running within their organization. A huge driver of supply chain costs are the Clinical Specialty Areas, including the OR, IR, Cath Lab, and several others. In these areas, clinicians have often assumed responsibilities for purchasing — after all, they’re experts in the products used and care delivered. But they don’t have supply chain skills, nor do they have the tools — including data about consumption — needed to drive good decisions. They’re responsible for managing expensive inventory, but without data, they’ll err on the side of overstocking to avoid stock-outs. In turn, expirations run high and costs are driven up. In many organizations, I see such a high number of product expirations that literally, a provider could fund several more nurses, or purchase much needed equipment, by eliminating this unnecessary expense.

“Managing these separate supply chains means more clinical time is spent managing inventory, taking time away from patients and driving up overtime. With a more centralized approach, you can create greater visibility to products being used in each of these areas, which can also drive more product standardization, reducing costs and supporting value analysis efforts.”

John Freund, CEO, Jump Technologies Inc.

“Variation not only drives price but it also increases the overall cost of managing the products. This variation also makes it exponentially harder to make sure that you have the right stuff at the right place at the right time, especially when the definition of ‘right’ is set at the individual user level. Think about the extra effort and cost that go into managing multiple vendors with multiple contracts across potential thousands of items, In some cases you can have a dozen contracts for essentially the same type of device. Price is one thing but making sure you have those items on the shelf is an operational cost driver as well. Beyond cost, keeping all of these same/different items in stock means there is a constant dance of contracts, item adds, purchase orders, invoices and stock management that could lead to an item not being available.”

Joe Colonna, Piedmont Healthcare

“[Variation] is a cost driver that exhibits itself in many forms. Included in this are things like the way clinicians provide care, care pathways, and supplies used in the delivery of care to the business processes used across the healthcare industry. Let’s look at two examples, one clinical and the other business. As the clinical example, joint replacements in any given health system could involve different brands of joint replacements used across physicians. This variation in supply costs money to train clinical staff and to maintain inventories, and could also contribute to the variation in patient outcomes and experience. A business example is the lack of automated ordering and supply chain processes that require manual processes instead of electronic processes using data standards. Both examples contribute to significant costs.

David Reed, Vice President, Healthcare Business Solutions and Operations,
Cook Medical Inc.

“Variability in both clinical and business processes is a challenge. Variation impacts cost through waste, inventory, defects, waiting, motion, etc.”

Richard Beach, Assistant Vice President, Materials Management, Intermountain Healthcare

“Many of the healthcare organizations that we have studied take a fragmented approach to logistics. Each department manages its own logistics or courier function, with no visibility to what the other functional departments are doing. This can lead to service overlap, where drivers pass each other on the highway, or even show up to the same facility at the same time to deliver items from different departments. The waste and expense that this kind of system can produce is obvious. What is less obvious is that lost opportunity cost. By fully connecting the transportation of the entire organization and creating an intra-company logistics network, healthcare organizations can leverage their scale, reduce intra-network shipping and freight costs, and share supplies and pharmaceuticals. They can eliminate waste and overlap, while taking full advantage of the economies of scale and physical connectivity.

“As health systems have expanded geographically, many have built [central] fill pharmacies, laboratory operations, equipment warehouses and print shops in each of their facilities. While this approach allows the health system to provide the services needed to care for patients, it also produces redundancies. As agility and scalability become more necessary for the healthcare of the future, centralizing and streamlining these redundant facilities is top of mind for healthcare leader. An integrated intra-company logistics operation can transport the pharmaceuticals, specimens, equipment and print material to facilities that do not have these departments and liberate real estate, taking significant costs out of the health system without impacting care. It also allows for better inventory management and sharing.”

Bonni Kaplan DeWoskin, Vice President, Marketing, MedSpeed


“The issue of supply chain cost drivers is a multifaceted problem due to variations in reimbursement methodology, particularly how hospitals get paid. Advanced healthcare delivery organizations must understand their costs across all services so they understand their internal expenses per patient episode by procedure, diagnosis and location of service. Reimbursement schemes have taken on a life of their own, and now we are faced with multiple alternative payment systems, ranging from bundled payments to fee-for-service, to shared-value and global-fee models. All these different methods assume the delivery organization has systems and management tools in place to track, monitor and allocate purchases, services, staffing and capital expenditures for actual ‘episodes of care.’ Therefore, the top three cost drivers are the technology to allocate capital, expenses and costs, which must include labor to track, monitor and provide feedback financially and clinically per episode of care to the organization.”

William D. Kirsh, D.O., MPH, Chief Medical Officer, Sentry Data Systems


Clinical preference items, implantables & technology

“Many organizations do not have a process in place to address their strategic clinical technology needs effectively. This includes reviewing existing clinical assets, including imaging, laboratory and robotics, etc., monitoring the life cycle of key systems, assessing risk (such as cyber threat monitoring), or analyzing the impact of new technologies on improved patient outcomes, throughput, and reimbursement. This is a critical area for acute care providers to consider as they face shrinking reimbursement and limited access to capital while more patients are seeking care in outpatient settings.

“As organizations shift from fee-for-service to value-based reimbursement, the supply chain needs to play a leading role in creating a strategy for managing new implant technology as well as a safe and effective way to assess its effectiveness. For example, the decision to shift the ratio of cardiac valve implants more toward a transcatheter approach (TAVR) can spell the difference between a cardiovascular surgery program that is profitable or one that is not. Providers must be able to quantify and weigh a product purchase based on the impact of that decision on the clinical and financial outcomes of the procedure for which it is used.”

Christopher J. O’Connor, Acurity Inc. and Nexera Inc.


“Technology continues to advance to the point where depreciation isn’t completed before the next ‘big thing’ needs purchased. Software and devices that are expensive in both purchase, implementation and training costs also require health systems to maintain current upgrades on all systems to reduce risks from hackers, potential ransomware and obsolescence. Often, facilities also face additional costs to make certain staff understand how to use the technology and keep up with medical advances.

Suzanne Alexander-Vaughn, Senior Product Manager, Product Development, Global Automation & Medication Adherence division of Omnicell Inc.


“The cost drivers for pharmacy play out across the rest of the healthcare continuum, particularly correlating to the clinical equipment parts and orthopedic implant markets. The primary issue in both spaces is the cost to manufacture and store small volume parts both of which are prevalent for differing reasons. In the clinical engineering space, the time over which equipment is maintained leads to an issue with the availability of parts. Original equipment manufacturers purposefully maintain a decreasing inventory of parts over time, the exact inverse of what is required for the strategic maintenance of assets for which there is no capital or differential reimbursement driving replacement. Non-existing dynamic parts management and predictive failure models only exacerbate the OEMs’ inability to drive to a more cost-effective life-cycle maintenance model. Unless OEMs accept the economic reality of equipment being maintained and used until such time as a total-value assessment justifies replacement, this cost-pressure will remain. Change in this space is possible but not while OEMs continue to target large margins on their sale of service and parts.

“The same macro-issues exist in the orthopedic and spinal implant markets where hundreds of thousands of SKUs are produced by suppliers who are supporting actual annual SKU demand measured in the low-thousands. This issue is marked by supplier inventories of implants and specialty instrument trays with turn-rates lower than 1.8. The inventory carrying cost to the supplier is translated as increased and non-negotiable cost to the provider. Until collaborative evidence based practice and product-patient demand-matching is facilitated, the costs of this critical area — as well as other similar categories — will drive unsustainable contribution margins for providers.”

Mary Beth Lang, UPMC


“Our customers are also consistently faced with how to manage holding costs for high-value inventory — not a small challenge. The ability to move non-traditional med/surg items into the traditional distribution channel allows our partners to save on the buy side, have greater control over the inventory that may reside on consignment or trunk stock, save on freight and receive it with their daily orders on the same trucks delivering their med/surg items.”

Doug Golwas, Medline Industries Inc.


“Collaboration with physicians continues to be of concern. Many aggregation groups are working to reduce physician preference item expenses but to do so needs commitment. To drive commitment we need to reduce the variation in practice and products. That’s difficult to do even in the very best managed organization.

“Recently I had a member of our aggregation group say [that] we spent millions on capital last year without a budget. The lack of asset management, new technology review and processes and the impromptu spending in capital is costly and dangerous. How many pieces of new technology do you have under a dust cover in the OR corridors?”

Dee Donatelli, Mid-America Service Solutions LLC


Mergers & acquisitions/continuum of care

“As hospitals merge and affiliate with other institutions and non-acute providers, the additional operating and supply chain costs represent new cost saving opportunities. However, they must first address the complexity of disparate systems (such as enterprise resource planning systems), overlapping services (such as warehouse and distribution/services centers), and labor (such as multiple purchasing departments), as just a few examples. Failure to create an integration plan to address these complexities can result in challenging hurdles that prevent the organization from realizing cost savings across the expanded corporate supply chain and instead result in increased operating costs.”

Christopher J. O’Connor, Acurity Inc. and Nexera Inc.


“Our customers are increasingly moving towards an integrated care model that includes acute care, post-acute, physician and other specialized services so they can keep patients within their system. With this includes the challenges of controlling the total cost of the supply chain across the entire continuum of care. As health systems increase in size, so does the complexity of managing the overall health system’s supply chain needs.  The question becomes how can they deliver the right product, at the right time, to the right location?  Then the new question becomes how can they replicate that process across the entire system?

Doug Golwas, Medline Industries Inc.


“All costs are going up — from supplies, technology, medications, utilities and construction projects while reimbursements continue downward. Care locations are also changing to areas of lower reimbursement, including urgent care and community-based healthcare facilities. Many health systems that house these facilities are still working through how to manage the expenses of supply and medication delivery to those areas while maintaining an effective level of cost oversight. Consumers are more likely now to shop for care and base decisions on information found online, sometime requesting certain products that may not be the most effective treatment for their need, financially or clinically. Increased regulatory requirements around tracking expiration dates, temperature and environmental monitoring also add to operational expenses. “

Suzanne Alexander-Vaughn, Omnicell Inc.


“The extent of coordination across multiple clinicians for a single patient can drive costs up or down. And as consumer expectations enter healthcare this also can have a huge impact on things like patient satisfaction and even their ability to follow care instructions. Let’s look at an example. Two doctors are seeing the same patient. Doctor A, the patient’s primary care physician, orders a chest x-ray and refers the patient to a specialist. The next day the same patient goes to see Doctor B, a specialist, who orders a chest x-ray as well. Historically, both chest x-rays get done and read, and in some instances, get paid for. But there’s no value in that. Situations like that highlight poor care coordination and can leave a patient wondering why they are having the same test performed twice. Care coordination extends beyond the healthcare institution all the way through to the patient’s home. Do I have the patients’ drug/devices when they go home? Do I have their procedure of care documented?”

David Reed, Cook Medical Inc.


Labor/management expertise

“Labor costs continue to increase and many hospitals are challenged to find and retain employees with the skill sets they need. This includes clinical positions, supply chain positions and leadership positions. All departments and roles require a range of skills to manage their operations while balancing growing uncertainty in healthcare due to reimbursement constraints and rapid technology changes. In many areas the addition of opioid addiction, and associated costs of drug diversion and compromised care also impact labor costs.”

Suzanne Alexander-Vaughn, Omnicell Inc.


“Finding qualified supply chain personnel to manage the expanded operational demands has become increasingly difficult. Experienced professionals are in high demand and are expensive to recruit and retain. As such, many smaller healthcare delivery organizations are unable to sufficiently invest in the talent required to optimize their operations. Further complicating this issue is the disproportionate talent gap that exists between large healthcare suppliers and the customers that they serve. This gap has resulted in, at its most progressive, a non-reciprocal model that focuses on improving the provider inefficiencies while leaving supplier opportunities for operational reductions untapped.”

Mary Beth Lang, UPMC


“It’s rare that an organization doesn’t have a handful of non-labor cost savings initiatives and with that financial objectives, but the ability to put them into effect and sustain the savings is most often a direct reflection of the supply chain professional’s ability to execute on multiple initiatives at once. Good project management helps to facilitate execution of initiatives, particularly multiple initiatives, but most importantly helps to coordinate and prioritize resources and, when necessary, can say no to competing expectations. Unfortunately, well-meaning ideas and their subsequent initiatives to drive down costs don’t deliver because of a lack of good execution. I’ve often quoted a line I heard many years ago as a consultant working for what was then one of the Big 6 firms: ‘The execution of ideas is really what separates capable from great talent. Be the latter!’”

Ed Hardin, Beaumont Health



“Two key drivers of rising pharmacy supply chain costs are inefficient pharmaceutical inventory management and drug price inflation. Provider organizations are faced with complex choices around optimal inventory selection and volume, managing classes of trade, including 340B and specialty, and supporting drug shortage mitigation. Inefficient or nonexistent predictive data modeling leads many healthcare organizations to select suboptimal strategies to manage inventory, therefore increasing costs and complexity.

“The acquisition cost of the drug inventory that needs to be managed also continues to rise. The onerous FDA approval process for DESI drugs, continual launches of new specialty, biologic, and orphan drugs, high cost shortage management alternatives, and standard inflationary drug pricing practices are drastically increasing the cost of pharmaceutical products in inventory.”

Mary Beth Lang, UPMC


“From the pharmacy supply chain perspective, the top three cost drivers we see are pharmacy practice compliance mandates (e.g., USP 797/800, DSCSA, DQSA, 340B); the need for capital expenditures on physical plant, IT, and related software applications; and the new high-priced biotech drugs that are coming to market. “

Christopher J. O’Connor, Acurity Inc. and Nexera Inc.


“The primary cost driver that our CEOs voice is pharmacy costs. The ever-increasing expenses are becoming unmanageable at the in-patient level based primarily around reimbursement, or lack thereof.”

Dee Donatelli, Mid-America Service Solutions LLC


Supplier partnerships

“It has been well documented across other industries that companies and suppliers that have true partnerships have lower costs. Unfortunately, there are few examples of this in healthcare. The good news is that a shift in approach is occurring. We are working with health systems and suppliers to assist them as they partner on value based contracts. All parties should be measuring outcomes, cost, and quality tied to product decisions and working together to optimize the value achieved through the correct level product at competitive prices.”

Mark Scagliarini, Blue.Point Supply Chain Services


“One inventory management-related cost contributor is poor vendor collaboration practices. Lack of visibility to consumption and on-hand inventory limits supplier partners’ ability to help providers minimize costs through efficient ordering and inventory management practices. All of these issues lead to time and cost inefficiencies for providers.”

Chris Luoma, GHX


Inventory consumption/usage patterns

“According to our benchmarks we often see where a health system has market leading price, but total costs and usage are higher than peer hospitals. Supply Chain needs to understand where there is waste, overuse of items, and misalignment of use when compared to clinical best practices. Variation in product selection leads to variation in clinical care and can impact outcomes.”

Mark Scagliarini, Blue.Point Supply Chain Services


“Increased use of products, equipment and technology are all good for improved healthcare but there is an associated cost. We must ask the question: Are we doing the necessary cost-to-outcomes analysis to determine the efficacy of the increased use?

“Over utilization of tests, procedures and services is another issue. These result in a waste of time, energy, and resources. Over-utilization also has safety aspects for patients.”

Richard Beach, Intermountain Healthcare


“Inventory waste, including expired products, lost products, and the risk of over or under stocking is an issue. Without proper visibility into the supply chain, many hospitals/providers could be ordering too much or not enough. Our survey found that one in four hospital staff have seen or heard of expired products being used on a patient and 18 percent have seen or heard of a patient being harmed due to a lack of necessary supplies.”

Lisa Zierten, Cardinal Health Inc.


“One area that’s getting a lot of attention lately is bulk buys. I’ve had a number of Supply Chain leaders comment that they’ve been able to successfully negotiate great pricing with key vendors by making some pretty significant bulk buys. Often, the dollar amount of these buys is in the millions, and of course, the product pricing is significantly discounted. But when you look at actual usage data on these items, you might see the hospital has now purchased enough inventory to last several years and frequently, they’ll end up with product that’s going to expire and be wasted before it can be used. More cash is tied up, more cash is wasted. These bulk buys are great in theory but need to be approached with more caution — and more data.”

John Freund, Jump Technologies Inc.


“By creating a demand-driven supply chain, where all purchasing, inventory, and demand systems in the health enterprise are connected using a single standardized platform, dramatic reductions in inventory excess can be realized.”

Glenn Tamir, Supplymind LLC


“The biggest cost driver we help our clients with in relation to supply chain is the underutilization and over-purchasing of mobile equipment. For example, IV pumps, of which hospitals have hundreds if not thousands, cost upwards of $3,000 each, and they typically sit idle 60-70 percent of the time. Yet nurses will tell you they never have enough because they can’t find them when they need them. We often see hospitals with a 3:1 ratio of IV channels to beds, to cover this perceived shortage. This is a case of over-purchasing, spending millions on equipment that goes unused the vast majority of the time.

“Realistically, and we’ve seen this with clients, most hospitals can operate at a 2:1 ratio or even lower if they have a method to keep track of this equipment. The issue is compounded when missing equipment causes delays or risks to safe patient care. A lack of readily available IV pumps can impact on-time case starts in the OR, and not being able to find equipment for recall or preventive maintenance presents patient safety risks. Multiply this across not only IV pumps but wheelchairs, specialty beds, sequential compression devices, bladder scanners, mobile radiology equipment … the cost is far more than most hospitals realize.”

Charlie Springsteen, Product Manager, Versus Technology


“Inventory management inside and outside of the care facility with visibility reduces inventory carrying costs, reduces obsolescence and ensures integrity regarding recalls, lot control, etc., and ensures material availability at the point of use by the clinician.

“Technology is a force multiplier. Reducing the constant search for available goods saves time on behalf of the clinicians, increasing their ability to focus on patient care. Overstocking, due to lack of confidence in material availability, creates wasted space in an already confined space.”

Norman Brouillette, Vice President, Operations for Technology & Healthcare, Ryder


“Supply utilization management represents 7 percent to 15 percent in new untapped supply chain savings.”

Robert T. Yokl, SVAH Solutions

Lack of clinical alignment/support

“Standardization efforts should focus on a department and patient formulary approach, not just a contract and SKU approach. Value Analysis team’s first step is to define and/or understand clinical best practices and the optimal use of products for their patient needs. Once this is done then supply chain can focus on getting the appropriate contracted suppliers and the most competitive price. Too often this process happens in reverse. An analysis is performed on the price of a product that has always been used without understanding functional alternative products that can perform the same task at a fraction of the cost.”

Mark Scagliarini, Blue.Point Supply Chain Services

“The proverbial low-hanging fruit does not exist or certainly not to the degree it once did. It’s harder to reach and it’ll take a multi-disciplinary team of people to get it down, including the willing involvement of one’s physicians. As a former consultant and most recently with the provider roles I’ve been a part, my initial weeks on site working with my new customers would always include, among other things, an assessment of cost saving initiatives, their success and sustainment. What I have repeatedly found is that a correlation exists between lack of clinical alignment and the inability to manage and drive down costs. I don’t know how we as supply chain professionals can expect to bend the cost curve without walking side-by-side, as partners with physicians but to do that our position must be that physicians aren’t the drivers of cost. Rather, it’s in our ability to align with them — or not — that serves to drive costs.”

Ed Hardin, Beaumont Health

Off-contract/Rogue/Shadow Purchasing

“Purchasing control leakage that allows off-contract, rogue buying techniques is a cost driver. For many hospitals, the requisition process is highly reliant on end-users to manage inventory and submit orders, making it labor-intensive and error-prone. A fully automated supply chain provides visibility and control to help providers pay on contract and identify savings opportunities.”

Chris Luoma, GHX


“An enormous driver of costs in provider organizations is the overstocked inventory that sits on shelves “just in case” it’s needed. In facilities I’ve worked with recently, I’ve consistently seen supplies by overstocked by 40-50 percent and even higher in some areas. Recently, I had an opportunity to meet with 15 hospital CFOs and when I asked them about supply chain, to a person, they seemed to downplay the importance. Either supply chain reported into a different area of the hospital or they didn’t really think it had a high impact on their overall financial performance. But when I asked them about their total supply spend and if they knew what their annual inventory turns are, I could see them starting to think about how much cash is sitting on their shelves in unneeded inventory. After some conversation, they agreed that a major source of cash for capital projects was reducing the inventory sitting on their shelves. With cost of cash high, these wasted dollars in inventory grow even more significant, because at the bottom line, it’s game changing.

“Remember, supply chain is an area where you are punished for stocking out, but not rewarded for managing inventory to velocity. The incentive is to over stock a supply room.”

John Freund, Jump Technologies Inc.

Strategic sourcing

“Many healthcare systems have outsourced their sourcing capabilities and price control to GPOs. GM, United Technologies, Dell, Exxon Mobil and Wal-Mart wouldn’t combine with other industry players and buy off the same contract. These organizations recognize the importance of strategic sourcing and purchasing excellence as a critical differentiator against the competition. They fund their operations and invest in their own teams, technology and methods. They use the appropriate sourcing strategy for each category whether it is conducting competitive bids for leverage categories or forming close partnerships with mission critical suppliers.

“Leading IDNs in healthcare have adopted a similar approach shifting over 60 percent of their spend to contracts managed by their own teams or with closely affiliated independent regional groups. This is because they gain more savings and save fees through their own sourcing efforts than as a part of a national GPO. This is not simply because of their volume, but also committed contracts and targeted sourcing strategies. The tools, technology and information sources that power GPOs exist to power your own sourcing team and gain similar results to larger IDNs even if you are a smaller healthcare system. It just takes a commitment to invest in the resources for a repeatable and efficient process.”

Chris Gormley, MedPricer

Outcomes & readmissions

“Outcomes are a key cost driver. To start, I am making the assertion that outcomes and readmissions are interlinked. This becomes important as healthcare funding moves toward outcomes-based payments that are bundled together for an episode of care. I don’t think anyone wants to have a patient readmitted. However, readmissions do happen. As funding models shift towards value-based care we need to think about what each patient needs to get back to health beyond the procedure or event itself. Think about a patient who is chronically showing up at the emergency department with respiratory issues. They receive treatment and are sent home — only to show up again a few days later with the same issue. In an outcomes-based reimbursement model a provider may not receive any additional reimbursement for the readmission. Ensuring that the patient recovers and remains healthy may require that a healthcare worker visit their home only to discover that environmental issues in the patient’s home contribute to the cause of readmission.”

David Reed, Cook Medical Inc.

Operational Risks

“As healthcare takes on added clinical and financial risk, one of the areas that we are asked to solve is how to reduce risk. Intra-company logistics is an often overlooked source of risk. A branded vehicle that gets into an accident can cause negative publicity for a healthcare operation, impacting reputation in the community. A specimen or controlled substance pharmaceutical that goes missing can inconvenience a patient or affect the care they receive. Even a late delivery of an item needed for surgery, could force a hospital to delay the surgery and cause physician and patient dissatisfaction.

Bonni Kaplan DeWoskin, Vice President, Marketing, MedSpeed

How Can Healthcare Supply Chains Improve? Experts Weigh In.

Across the board, healthcare is seen as one of the greatest opportunities for supply chain improvement.

Whether it is a hospital, pharmaceutical manufacturer, drug distributor or retailer, every link in the chain could better manage their inventory, or work more closely with suppliers. The opportunity for growth is so great, third party providers are investing heavily in the sector, with specialized services tailored to a growing healthcare logistics market.

But, beyond noting the vast potential for efficiency gains, news reports rarely hone in on how hospitals can better manage their value chain. Perhaps it’s self distribution? Increased investments in technology? Vertical integration? In our latest series, we explore how hospitals can better manage their supply chain, and why they should. But first, the expert’s take:

How can healthcare supply chains improve?

Abe EshkenaziCEO, APICS

In the past, each hospital department was responsible for ordering and maintaining its own inventory. This approach was inefficient and costly.

As the healthcare industry has evolved, many hospitals have become part of affiliated systems or hospital corporations. As part of these changes, centralized supply chain management organizations within these healthcare systems have become much more common, but there continues to be significant opportunity for improvement.

The industry needs to modernize its supplier relationship management activities, increase product standardization, and allow clinicians who perform supply chain functions, such as inventory and ordering, to focus on patient care. Hiring, training and retaining supply chain management professionals should be an imperative for the industry.

Cathy Morrow RobersonFounder and Head Analyst, Logistics Trends & Insights

A number of industry-specific concerns have created opportunities for supply chain improvements. For example, healthcare has been highly regulated over the years; the 2012 patent cliff which caused the U.S. drug market to contract by 1{3d48c2ffeac5b3f3ac54732d49a0b0ca9fd7cec0f4630955c0e7b180206e5d78}; and the rise of the middle class in emerging markets, including China, have all resulted in a rethink of how to store, transport and deliver healthcare goods in the most cost-effective and efficient means possible.

Healthcare companies have responded through mergers & acquisitions and relocating facilities to emerging markets. Logistics providers have responded by following their healthcare customers. In addition, with the rise of biopharmaceuticals and other temperature-sensitive pharma, logistics providers began to introduce temperature-sensitive transportation and inventory management, all tracked and monitored via sensors in many situations. We’re also continuing to observe logistics providers acquire niche pharmaceutical logistics providers to expand capabilities and further penetrate particular geographies.

Technology has played a major role in the transport, inventory management as well as in supplier relations. Online collaborative tools and the management of healthcare goods from origin to destination can be done in real-time including those goods that are sensitive to temperature, humidity and/or bumps while in transit.

IoT, also known as Internet of Things, is another opportunity within the healthcare industry. Using sensors and in combination of your smartphone, one can monitor and share with physicians on a regular basis such readings as blood sugar, heart rate, cholesterol and more. In fact, a lot more can be done via the vaguely described IoT. Many startups are popping up to offer a variety of unique offerings for the healthcare market.

Lastly, white-glove last-mile delivery services are on the rise. On average, the US population is aging and for many of our elderly, staying at home has become a choice. Delivery, set up and training of such medical devices as oxygen machines and even delivery of pharmaceuticals and medical supplies is a service offering that several logistics providers are introducing.

Jon SlangerupPresident and CEO, American Global Logistics

Due to its sensitive and personal nature, the healthcare supply chain is perhaps the most critical and often most criticized service delivery system of all. My experience in healthcare is limited, but I do know a thing or two about creating positive customer experiences, and healthcare services have a ways to go in this regard.

Most importantly, it’s important to acknowledge that transforming healthcare is not obvious or easy. There are many moving parts within the industry’s highly complex, institutionalized system of government regulators, insurance providers, hospitals and clinics, pharmacies, and other physical and digital infrastructure. However, I view the common denominators as being information access and patient care/experience. These “high tech and high touch” components are fundamental to the efforts being made across most supply chains to optimize services and goods fulfillment, and equally critical to healthcare. The key difference here, of course, is that healthcare is about people who deserve and expect very special care.

So what are the core drivers and opportunities for improving the healthcare customer experience? I would say it begins with choice and ends with the quality of care and in between are the various decisions and hand-off points which characterize the healthcare value chain. Fortunately, we live in a time of ubiquitous information and instant communications, so the high tech part of the equation is progressing rapidly. The internet enables an ever-increasing array of healthcare options, underscored in part by the emerging online fulfillment of prescription drugs.

Technology will go a long way in leveling the playing field for those in need of care through instant information access, speedier patient processing, personalized post-care follow up, and proactive reminders about future appointments and care requirements. However, how this ultimately improves the patient experience boils down to how people are treated, which in the final analysis, is the core value proposition that trumps all the rest.

Tania SearyFounding Chairman, Procurious

Healthcare isn’t my forte….but luckily I have a few healthcare gurus in my network….so I “phoned a friend” or two to gain insight on this one.

Traditionally healthcare is an area that is less mature than other more advanced supply chains such as FMCG, IT or automotive which are typically leaner and have had more of a cost focus. For example with inventory, Pharma still holds extremely high inventory with DIO of 6 months+ when others measure in days. Sometimes stocks run into years and the high value of some products can really impact cashflow. Conservatism has meant many companies have not been as ambitious in their outsourcing models for logistics retaining their own warehousing facilities.

Equally the supply chain is complex and fragmented. In many cases there are multiple hand-offs before a product reaches a patient – this adds complexity and cost and prevents end-to-end supply chain management. Digital has a key role to play in this simplification and as the supply chain starts to consolidate, it will begin to change rapidly as distributors/pharmacies become redundant.

Original link in it’s entirety: How can healthcare supply chains improve?

Keeping Track Pays You Back

Tracking solutions improve patient care and bottom line

The future looks bright for for-profit hospitals, which are likely to see a 2.5 percent to 3 percent growth rate in 2018.1 But for not-for-profit and public healthcare facilities, the horizon looks a little dimmer as they continue to grapple with the same fiscal challenges as last year.2 Despite good inpatient volume, for these facilities, revenue growth is likely to plummet in the months ahead as spending continues to climb. This is according to a 2018 outlook report by Moody’s Investor Service which says low government reimbursement rates — which accounted for 61 percent of gross patient revenue in 2016 — clinical staff shortages, labor costs, bad debt, escalating insurance deductibles and co-pays, and increased spending on essential technology all play a role. However, it’s essential technology that could also play a role in leading healthcare providers closer to the light.

Big data is the big focus

Hospitals that provide quality care, greater efficiency and patient safety are likely to be using data analytics and other information gathering technologies to achieve their goals. Omnipresent connectivity — interoperability — is the target most facilities are aiming for. Compliance deadlines for GS1 standards are also approaching and while nearly all non-federal acute care hospitals have an electronic health record (EHR) system in place,3 not everyone see it as the seamless, communication dynamo it was meant to be — not without the right technology in place.

Capturing data at the point-of-care is one way that healthcare facilities are tying all of their once disparate data systems together in real-time — a practice that is likely to be as common as it is for clinicians to don personal protective equipment before starting a surgical procedure.

“We wanted to change the need for each system to utilize its own numbering and nomenclature methodologies, which force the providers to expend significant time trying to manually manipulate and maintain data that really isn’t ours,” explained Mosser. “We needed total system-to-system interoperability.”
Franciscan Missionaries of Our Lady Health System (FMOLHS) is an admirable example of how perceptive planning and smart product selection can lead to success. The organization recognized a need to synthesize the varying content they generated and stored in multiple data systems. The goal, said William Mosser, Vice President, Materials Management, FMOLHS and LogisticsOne, was to connect the Supply Chain, Clinical and Financial departments so that they could immediately share and access each other’s information in a joint effort to improve care, eliminate waste, and cut unnecessary spending.

Implementing a system that would allow clinicians to scan medical supplies at the point of use was part of the build. “Since we are very active in promoting and using GS1 Data Standards, we saw the opportunity to utilize manufacturers’ data, based on our contracts, to directly feed our Clinical Information System (EPIC) automatically,” explained Mosser. “The data required by EPIC (item number, description, UNSPSC Codes, HCPCS codes, dimensions, price and so one) are all known and driven by the manufacturer of the products we use. For us to take that data and translate it into other system-driven naming conventions simply makes no sense. The GS1 data standards that the manufacturers feed into the required data pools meet all of our expectations. The challenge was to find someone who would be willing to work with us to connect the dots … and make this all interoperable.”

FMOLHS was satisfied with the various supply chain management technologies they were already using from GHX so they decided to enlist another application from the vendor to help make their vision a reality. “They are a trusted partner and one who already had the wherewithal to understand the need and help drive the change,” Mosser said. They adopted GHX’s ClinicalConnexion solution and point-of-care barcode scanning which increased OR efficiency significantly since clinicians no longer had to manually key in surgical supplies to patient EHRs. Charge capture also increased dramatically from 40 percent to 95 percent, along with other benefits that prompted the organization to implement EPIC and ClinicalConnexion across FMOLHS’s entire healthcare system.

“Our clinical teams simply capture what is used via EPIC tools and bar coding and the ClinicalConnexion feeds the required data to allow us a clearer picture of cost per episode of care, including highlighting financial variation in similar procedures and care plans,” said Mosser. “We have immediate access to information that was previously maintained in different systems, with different keys that required manual intervention to align the data points. Plus we don’t need to maintain our item master with staff manually updating elements that are all owned and maintained by the manufacturers.

“In the end, the investment is minimal compared to the benefit of seeing first hand, what devices and supplies are used by physician for each episode of care,” he continued. “The level of data we have available for identifying costs and revenue improvement opportunities are fantastic. And providing this level of data to our physicians and clinical leaders allows us to have more evidence-driven decisions to achieve best practice clinical outcomes.”

“The introduction of the Universal Device Identifier (UDI) initiative created broader mandates surrounding the tracking and tracing, and chain of custody, of these critical products. With the current Class 2 and Class 3 UDI requirements in place, it is federally required that patient identification is tied to the use of these products,” added Robert Sobie, Senior Worldwide Director & Business Leader at BD.”With a POU tracking system in place inside the procedural/OR rooms it’s easier for the circulating nurse to document patient specific usage of these items while allowing interoperability between systems to reduce clinical documentation time and increasing accuracy. This can also be accomplished with systems outside of the procedural/OR rooms but would require the circulating nurse to leave the room during the case potentially increasing the possibility of nosocomial and surgical site infection rates with repeated exits and reentry.

“A correctly deployed tracking system allows inventory tracking and data confirmation in real time eliminating the need to wait until the conclusion of the procedure to do this,” continued Sobie. “Postponing this documentation until the end of the procedure can increase the turnover time thereby decreasing efficiency and causing costly delays. Lastly, the digital integration reduces the time spent with inventory reconciliation, order entry, order tracking, audit and recall management, all things that ultimately increase labor costs and the risk of a stock-out event.”

Sobie discussed the success that the multi-site Memorial Hermann Healthcare System has after implementing the BD Pyxis system in an effort to eliminate the time-consuming task of manually loading and locating products, improve accuracy of inventory information, address duplicate data entry and other issues. “With concerns over increasing labor and supply costs, regulatory compliance and patient and caregiver satisfaction, the Supply Chain team at Memorial Hermann worked in conjunction with their OR clinical counterparts to implement the connected, end-to-end supply solution from BD Pyxis,” Sobie said. “By deploying this advanced tracking system Memorial Hermann has also successfully implemented the GS1 standards and have been tracking Universal Device Identification (UDI) information for over five years.”

Pyxis advanced tracking system from BD

Also, recall management labor decreased 95 percent and staff now spends less than one hour a day managing implantables, physician-specific and trunk stock inventory. “By working together with BD Pyxis we’ve created a truly end-to-end patient care focus from the point-of-order through the point-of-use by the entire Hermann team” said Chris Toomes, Regional Director of Operations, Memorial Hermann Healthcare System. “We now digitally track the use of medical devices from the time the order is placed until they time they are used on a specific patient. We integrate the data usage and product disposition information into other systems and processes to increase accuracy and create new efficiencies. By using medical device consumption data to drive clinical and supply chain decisions, Memorial Hermann has been able to substantially reduce costs, the number of suppliers used and our business operations.”

Perfecting physician preference cards

As the cost of labor and medical products increases, facilities must find proven ways to bolster productivity and savings in all departments, including the central sterile/sterile processing department where outdated physician preference cards are filled, causing a lot of wasted time and money.

“The key to doing this effectively is streamlining process and the supplies and equipment used during a procedure; if hospitals are not documenting that information, they may be picking and sterilizing extra items that are rarely used,” said Suzanne Alexander-Vaughn, Senior Product Manager, Omnicell. “This causes unnecessary activity in purchasing, central sterile supply, case pick operations, operating room setup, and room turnover times. Reducing these inefficiencies also allows the organization to refocus clinical staff time to patient care instead of administrative tasks.”


The article in it’s entirety may be found at: Keeping Track Pays You Back

Not Even The Mattress Pads Were Spared: An Inside Look At A Top Hospital’s Struggle To Cut Costs

In only 18 months on the job, the chief operating officer of Brigham and Women’s Hospital had weathered relentless and unforeseen events that battered the elite Harvard-affiliated medical center.

A record snowfall had paralyzed Boston and stanched admissions for a month. Installation of a $400 million electronic health record system had obscured a fall-off in patient volume. And the hospital had lost $24 million preparing for a threatened nurses strike.

But by July 2016, with the hospital’s finances improving, Dr. Ron Walls was upbeat. “I had this moment,” he recalled, “when I said, they can’t possibly throw anything more at me now.”

The moment didn’t last.

The hospital’s new chief financial officer poked his head in Walls’s office. “Got a quick minute?” he asked.

He was there to sound an alarm: In the 2017 fiscal year that was about to start, he told Walls, operating income wouldn’t cover the hospital’s expenses; 2018 would be in the red as well.

“Chris, how do the numbers come back up?” Walls said he asked. The CFO, Christopher Dunleavy, was ready with a solution: Cut $50 million from the hospital’s $2.6 billion in annual spending.

That conversation set in motion an unprecedented cost-cutting drive that would affect the jobs of hundreds of the hospital’s 18,000 employees and reach into every corner of the institution — even overriding nurses’ choice of mattress pads. It also led to an aggressive push to boost revenues 4 percent a year.

Over the past three months, the Brigham provided STAT unusual access to meetings of its top management and internal deliberations and documents. This inside look shows how one of the nation’s leading hospitals is confronting the daunting financial and marketplace forces buffeting academic medical centers across the U.S.

“This wasn’t about ordinary cost-cutting,” Walls said. “It was very clear we had to become a much leaner, more efficient organization.”

The heart of the Brigham’s austerity plan was a buyout offered this past June to more than 1,000 senior employees, including more than 400 veteran nurses. Some 800 workers decided to retire, including 7 percent of the nursing staff — a remarkably high acceptance rate. Many of them are leaving this week.

While hundreds of new nurses are being hired at substantially lower entry-level pay, the large exodus underscores a critical challenge for the Brigham’s leadership: how to cut costs without harming patient care.

One of the departing nurses, Hallie Greenberg, called the buyout generous but worried that the hospital will miss their collective experience and knowledge. “The senior folks teach the junior folks,” she said. “There is so much about every profession that is unwritten law.”

Academic medical centers are expensive to run: They deploy an army of specialists and sophisticated technology to treat the sickest patients. They’re the backbone of the nation’s biomedical research enterprise. And they train new doctors.

But they’re now caught in a vise.

Private and government insurers are tightening reimbursements as the cost of drugs and other essential elements of care are on the rise. An aging population with chronic diseases is seeking more complex, and costly, care, while routine and often more profitable cases — delivering babies or replacing knees — are increasingly shifting to community hospitals.

And in Washington, uncertainty over research funding for the National Institutes of Health and the futures of Medicaid and the Affordable Care Act clouds the reliability of key hospital revenue streams.

“This is a pivotal moment for academic medicine,” said Dr. Betsy Nabel, president of the Brigham. “The nation needs academic medical centers to train the next generation of physicians and scientists and drive discovery and innovation in medicine.”


After the Brigham launched its push to slash spending, it got more bad news from its parent company, Partners HealthCare, the big integrated health system that includes Massachusetts General Hospital. After years of criticism that it charges higher prices than most of its competitors, Partners announced a plan to cut about $500 million over the next three years. The Brigham’s share is about $150 million, meaning its own 2018 effort is just a start.

The Brigham isn’t calling any of this a crisis. Some of the financial pinch reflects payments for major capital projects, including the medical record installation and the recently opened $600 million Building for Transformative Medicine, a combined outpatient care and research facility from which the hospital expects a return.

For all the cost-cutting now, the hospital has long been a powerful economic engine, racking up $2.7 billion in revenue last year while operating in the black. On average, 94 percent of its beds are occupied and patients are routinely backed up in the emergency room or in recovery after surgery, awaiting an open bed.

Still, Walls knew that a cash-flow crunch is a worrisome financial indicator, potentially affecting the hospital’s ability to borrow money to invest in the technology and facilities required to maintain its top standing.

Dunleavy’s warning would have been more disconcerting, however, if Walls hadn’t immersed himself in the nitty-gritty required to pull the hospital out of its tailspin the previous year. He figured his team could handle anything after mastering the arcane world of operating room scheduling.

Surgeons are a key power center of a hospital, and their operating room schedules are considered sacrosanct — so essential to their jobs that the days and times are often set out in a hiring letter.

“Surgeons own that time,” Walls said. “You don’t mess with a surgeon’s block time just like you don’t mess with a person’s payroll.”

But Walls and his team messed with it anyway.

Just two months into the 2016 fiscal year, they discovered that the hospital’s operating margins were already running $27 million under the budgeted amount. They had relied on faulty estimates of their 2015 patient volume — thanks to data lost during the transition to the new Epic electronic records system — and set targets for 2016 that were too optimistic.

Walls wondered whether he had “steered the ship off the rocks onto an iceberg.”

He concluded that the Brigham, like many hospitals, wasn’t vigilant enough in ensuring that assets such as operating rooms and MRI scanners were being used efficiently. So he directed his senior VPs to create and actively monitor a set of “vital signs” of hospital performance — everything from the number of surgeries to how many patients walk out of the emergency room before getting treatment.

They ran an analysis of OR occupancy each hour of the day and plotted the results on a graph. It resembled a wedding cake, with a red line, representing the number of ORs with patients in them, cutting through it.

The “cake,” as Walls began calling it, starkly showed how many ORs were staffed and available at any given hour but idle because no cases were scheduled — and why OR use was running in the low 70 percent range.

Brigham surgeons are assigned OR rooms in four-hour blocks. The practice was that if a surgeon hadn’t booked a slot 10 days in advance, it would be allocated to other surgeons in his or her division. The division could hold on to the times until 48 hours in advance before releasing them to other surgical specialties. That left little time to book a new case.

The main reason surgeons hang onto their blocks, Walls said, was fear of not having a room available for a last-minute case. So armed with the cake analysis, Walls, with the support of Dr. Gerard Doherty, the Brigham’s chair of surgery, devised a new plan: The surgeons and their divisions would release any unbooked slots 10 days in advance to the entire surgical community. In return, they were guaranteed an OR if they needed one at the last minute.

“My guys are going to kill me,” one surgeon told Walls, “but I think this might work.”

Doherty helped sell it. “We had to ask for a little trust in the beginning,” he said. The hypothesis was, it would make more times available for surgeons. “If Dr. Smith has a Tuesday slot blocked, nobody else can get in there,” he said.

The plan was implemented at the beginning of 2016. At the meeting each Wednesday, Walls and his colleagues eagerly checked the data. Just two months later, the red line was crawling along the top of the cake: The ORs were running at about 85 percent of capacity.

“It lifted the mood of the whole room,” Walls said.

It also lifted surgery volume. By May, partly due to this success, the hospital had fully recovered from the $27 million shortfall.

That experience helped prepare Walls for this year’s round of cuts, when he again messed with the Brigham’s traditional ways of doing business.

The saga of the mattress pads:

Of all that Walls had to worry about, mattress pads may have seemed the least obvious.

But the subject arose at a meeting this past June, called to wring $10 million in savings from the hospital’s huge medical supplies budget. A Partners executive had come up with only a $3 million trim, exasperating Walls.

Have we turned over every stone, he asked the executive. Surely a company the size of Partners could leverage its purchasing power to come up with more savings.

When the executive responded with “mattress pads,” Walls had no idea what she was talking about.

She explained that a few years earlier, Partners hospitals had collaborated on a test of several rival pads to determine whether they could agree on one and negotiate a volume discount. The best pads are highly absorbent and resist wrinkling underneath patients, which can increase the risk of bed ulcers.

That choice, the executive added, cost the hospital an extra $400,000 a year.

For a moment, the room was silent. “Are you serious?” Walls finally asked.

If every other hospital in the system thinks the new pad is OK, it should be OK with the Brigham, he said, turning to the hospital’s head nurse. Without compelling evidence that it would affect patient care, he told her, the decision would have to be reversed.

The issue was kicked to the hospital’s new products committee, where Dorothy Bradley, program director for nursing simulation, ran a quick absorbency test. Spreading the two pads on the floor, she poured water on them and concluded there wasn’t an important difference. She also called a Mass. General wound care nurse, who told her they hadn’t seen any increase in pressure ulcers with the winner from the earlier trial.

With that information, the committee quickly acquiesced in shifting to the Partners pad, which was one-third the price.

“People always like the one they’re used to,” Bradley said as a way of explaining the initial decision. “I don’t believe we knew we were the only outliers.”

In Walls’s view, the original decision “was about allowing an individual part of the system the autonomy to opt out just because it wanted to.” The hospital no longer can tolerate that approach, he said: “Those are the kinds of things we have tightened down.”


Original Link: Not even the mattress pads were spared: An inside look at a top hospital’s struggle to cut costs

Over 50{3d48c2ffeac5b3f3ac54732d49a0b0ca9fd7cec0f4630955c0e7b180206e5d78} of Orgs Lack Adequate Healthcare Cost Reduction Goals

An overwhelming majority of healthcare executives (96 percent) stated that cost transformation is a significant need for their hospital or health system. Yet, over one-half of organizations either do not have a healthcare cost reduction goal or have a small goal that will not transform cost structures, a recent Kaufman Hall survey showed.

One-quarter of over 150 senior executives in hospitals and health systems stated that their organization has no target for decreasing costs.

Single hospitals were most likely to have no healthcare cost reduction goal, with over 40 percent stating that this was the case.

The survey also found that about 26 percent of respondents said their hospital or system has a cost reduction goal between 1 and 5 percent and another 29 percent have a target between 6 and 10 percent.

Researchers noted that these modest goals will not be enough to “lower cost in an organized and deliberate way.” The cost decreases also will not keep pace with annual inflation.

“Financial realities demand a new way of providing care,” stated Walter Morrissey, MD, Kaufman Hall Managing Director. “This is not business as usual, involving incremental change. To meet community needs under healthcare’s new business imperatives, and to participate as a provider of choice in narrow networks developing nationwide, organizations must have a strong value proposition and a cost position that is significantly lower than competitors.”

Despite a lack of adequate goals, executives agreed that lowering healthcare costs within their organization is imperative as the industry shifts to value-based reimbursement. Almost 80 percent of participants said that their organization needs to refine its cost structure for the transition away from fee-for-service.

Other popular motivators for lowering healthcare costs included:

• The need to close the chasm between the organization’s financial plan and current operating performance with 68 percent of respondents

• To remain competitive with 61 percent of respondents

• To generate capital to fund strategic growth initiatives with 51 percent

While lowering healthcare costs topped executive priority lists, most organizations are not seeing their cost transformation strategies producing positive results. Three-quarters of executives reported that their cost transformation success was average to below average.

Single hospitals and small health systems were particularly skeptical about their cost transformation success, with 82 percent and 92 percent respectively saying their results were average to below average.

Conversely, health systems of 10 or more hospitals stated that their cost transformation success was better than average to very successful. Larger system executives also perceived their organization as successful across a range of targets, even in the over 20 percent cost reduction range.

Hospitals and health systems may not be realizing significant cost savings because their leaders are primarily focusing on traditional priorities that just scratch the surface, researchers pointed out.

Between 60 and 70 percent of executives said that their organizations see labor costs and productivity, supply chain and other non-labor costs, and revenue cycle optimization as key areas for lowering costs.

“Progress is slow because traditional areas will not yield the magnitude of cost reduction required to transform an organization’s cost structure,” stated researchers. “Business and service initiatives and clinical and workforce redesign actions are required.”

Original link: Over 50{3d48c2ffeac5b3f3ac54732d49a0b0ca9fd7cec0f4630955c0e7b180206e5d78} of Orgs Lack Adequate Healthcare Cost Reduction Goals

Healthcare Supply Chain Management Market to Reach $2.3B by 2022

The pressure to improve operational efficiency under value-based care and the demand for cloud-based solutions will drive the healthcare supply chain management market.

 – Growing at a compound annual growth rate (CAGR) of 8.4 percent, researchers projected the global healthcare supply chain management market to reach $2.31 billion by 2022, a recent Markets and Markets report showed.

The value of the healthcare supply chain management market is up from an estimated $1.55 billion in 2017. But researchers noted that the global healthcare supply chain management market is still somewhat restricted because of the costs of implementing and maintaining a solution.

However, the North American market is strong. The market is slated to hold the largest share of the healthcare supply chain management market, and it will also experience the highest CAGR during the forecast period, researchers predicted.

Hospital consolidation, regulatory requirements, increasing chronic disease burden, and patient financial responsibility growth will boost the US market, while healthcare supply chain optimization efforts will drive Canadian providers to seek solutions.

Researchers attributed the global market’s growth to provider organizations facing increasing pressure to improve operational efficiency and profitability, especially as value-based reimbursement models tie payment to quality and cost performance and payers reduce claims reimbursement rates under fee-for-service systems.

The development of cloud-based healthcare supply chain management solutions also contributed to the projected market’s growth, the report stated.

Healthcare supply chain management solutions are categorized as on-premise or cloud-based delivery modes. Researchers projected the on-premise healthcare supply chain management mode to hold the largest share of the global market in 2017.

Provider organizations have favored on-premise solutions because of their usability. On-premise solutions also have a lower risk of healthcare data breaches.

But provider organizations will start to consider more cloud-based options by 2022. Cloud-based modes will see the highest rate of growth during the forecast period, the report added.

“Growth in the cloud-based segment can largely be attributed to the several advantages offered by the cloud-based delivery mode over the on-premise delivery mode,” researchers wrote. “Cloud-based solutions are less costly to install and maintain than on-premise solutions which contribute to the high growth and popularity of the cloud-based mode.”

Additionally, the report showed that provider organizations are selecting healthcare supply chain management software products versus hardware solutions.

Researchers predicted the software segment to acquire the largest share of the global market in 2017. Healthcare supply chain management software solutions offer provider organizations increased efficiency and business intelligence services at a lower cost, the report stated.

More providers will be seeking healthcare supply chain management solutions by 2022, researchers explained. Manufacturers are set to command the largest share of the global market, but the provider segment should see the highest CAGR from 2017 to 2022.

In the current healthcare landscape, providers are looking for systems that can support high-quality patient care while also improving profitability. As reimbursements become linked to care quality and cost performance, provider organizations are finding that their revenue is shifting and earning the maximum amount for services delivered will not be as easy as performing a test or procedure.

Ensuring that practices and hospitals implement effective inventory management practices will be key to increasing profitability and improving care delivery efficiency, researchers stated.

Healthcare supply chain management solutions will also gain popularity among hospital and health system users as healthcare merger and acquisition activity increases. Under a hospital consolidation project, leaders and providers tend to centralize business processes and a comprehensive system is critical to tracking inventory across several facilities.

The leading healthcare supply chain management vendors are SAP (Germany), Oracle (US), Infor (US), McKesson (US), TECSYS (Canada). The report also listed GHX (US), Manhattan Associates (US), JDA Software (US), Jump Technologies (US), and LogiTag (Israel) as key players in the global market.


Original Link: Healthcare Supply Chain Management Market to Reach $2.3B by 2022