Hospitals that streamline, optimize their supply chains see billions in cost savings, study finds

Hospitals could save billions each year if they streamline and optimize their supply chains, according to a new study.

Consulting firm Navigant examined public data from Definitive Healthcare that was recorded between 2015 and 2017 and included more than 2,300 U.S. hospitals, and found that the hospitals that performed best in supply chain management spent $23 billion less than the others on supply chain costs, an average of 17.8% in expense reductions. The remaining hospitals in the study, about 76% of those studied, could see similar savings if they took steps to improve their own supply chain management, saving as much as $9.9 million per hospital. 

And the hospitals that performed the best on supply chain savings in the study didn’t sacrifice care quality to achieve cost reductions, particularly because these facilities reduce the clinical variation that comes with less streamlined purchasing, Rob Austin, associate director for Navigant Healthcare, told FierceHealthcare. 

“It actually creates a safer, higher quality environment,” Austin said.

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This finding remained consistent in aggregate across both large, urban medical centers and smaller rural facilities, Austin said, which the researchers found surprising. Rural hospitals, by nature of their size, have less buying power than larger teaching hospitals, but savings from optimization were generally found across the board, he said.

The top performers were consistent in several areas that suggest methods other hospitals should consider when optimizing their supply chains, Austin said:

  • Engage clinicians in supply chain management.
  • Gather and analyze data effectively.
  • Include supply chain in major strategic planning.

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For these higher performers, it “becomes more of a strategic competitive advantage,” Austin said. Engaging clinicians is especially key, he said, as doctors often “don’t like to be told what to do,” so bringing them to the table as partners in discussion is far more effective at getting them to participate in initiatives to streamline the supply chain.

Data are tools that can allow providers to better reduce the number of vendors and contractors for similar products and optimize the type and frequency of purchases based on patient needs. They can also be used to automate purchasing systems to avoid documentation errors.

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They key takeaway for executives is that investment in supply chain management pays off, Austin said. He said the study suggests that hospitals make $3 to $4 for every $1 invested in the supply chain. Despite the perks, though, he estimated that the vast majority of hospitals (between 85% and 90%) aren’t putting enough of a focus on supply chain management.

“If you are not fully investing in your supply chain you’re not optimizing the operations and the financial potential of your health system,” Austin said.