Hospital executives say that better supply chain management can increase margins by more than 1% and the return on investment for supply chain analytics is clear, according to a new survey.
At the same time, most hospital leaders are not investing in supply chain operations as their top priority and are using outdated processes, the survey found.
While the focus on revenue has taken top billing for the past several years, hospital leaders have started to turn their attention to cost control and management, according to a report from Sage Growth Partners, based on a survey of 100 healthcare C-suite executives and supply chain executives.
SGP conducted the survey on behalf of vendor Syft (formerly Management Health Solutions).
Supplies are an increasingly large component of healthcare spending, and the Association for Health Care Resource & Materials Management predicts that supply costs will exceed labor as hospitals’ greatest expense by 2020.
In a report last year, consulting firm Navigant found that hospitals could save up to 18%, or $11 million a year per hospital, by reworking supply chain. That's the equivalent of 160 registered nurses, 42 primary care doctors or the cost of building two outpatient surgery centers, the firm said.
Most hospital and health system executives perceive supply chain management to be a priority and believe that it can positively impact costs and quality; 52% say it can increase margins by at least 1% to 3%, according to the Sage Growth Partners survey. And 35% believe it can increase margins over 3%.
To put this in perspective, a hospital with $900 million in revenues and a 1% margin could gain between $9 million and $27 million by improving its supply chain performance, the report said.
Almost all the executives (98%) said supply chain management is a medium (33%) or high (65%) work priority, but only 13% call it their highest priority for operational investment.
Executives’ top operational investment priorities for 2019 were identified as patient throughput (24%), process improvement (21%), perioperative environment (15%), and staffing turnover, retention and management (15%).
Hospitals are under pressure to cut waste and reduce costs, and 66% of executives cited this as a driver to change supply chain management practices. Other pressure points include the movement toward value-based care payment models like bundled payments (14%), demands from surgeons, OR staff and clinical staff to improve supply-related processes (12%) and regulatory requirements, such as The Joint Commission requirements for implants and tracking of expired products (5%).
And about two-thirds of executives say there is a clear ROI for supply chain analytics, especially to reduce costs. Sixty percent think applying analytics to the supply chain can positively impact quality as well as success with value-based care payment models.
The Navigant report also found that data analytics is key, as high-performing supply chain departments invest in getting actionable data to help tie costs to patient outcomes.
Yet many hospitals are not using supply chain data analytics to define areas for improvement, the survey found. Other organizations are using manual and low-tech approaches to managing the supply chain; for example, 37% of supply chain departments use Excel or Microsoft tools to track margins per case. Currently, hospitals are using different approaches to manage the supply chain: 39% use an in-house solution, 16% use their electronic health record, 19% use a third-party solution and 18% don’t analyze their supply chain at all.
When analytics are used, it’s typically for basic analytic functions such as tracking inventory (76%) or consolidating suppliers (71%).
Only half of the executives surveyed said they are using more advanced analytics functions such as obtaining cost per case or by surgeon or to anticipate supply expiration dates.
Executives cited lack of the right technology as a key barrier to reducing supply chain waste in the OR, along with surgeon allegiances to vendors, clinical staff lacking the time to consider supplies pre- or post-procedures and staff resistance to change.