Transforming the supply chain: Why automation is the key to waste reduction

 The need to increase efficiency and reduce waste is not a new realization for hospitals and health systems. However, a new approach to reimbursement has accelerated the urgency with which health systems must find opportunities to save money and prevent unnecessary spending, according to Heather O'Sullivan, vice president of clinical operations for Cardinal Health™ Inventory Management Solutions.

In January 2015, HHS stated goals that would overhaul the Medicare reimbursement system by moving toward paying providers based on the quality of care they provide rather than quantity of services.

In announcing the policy initiative, HHS Secretary Sylvia Mathews Burwell said it is the common interest of patients, providers, employers, health plans and taxpayers to build a healthcare system that delivers better care and spends dollars more wisely.

The specific reimbursement changes outlined indeed mean providers can no longer spend dollars as they have in years past. The growing emphasis on value-based care has four main implications for providers, according to Ms. O'Sullivan.

  • Greater pressure to reduce spending while improving the quality of outcomes
  • A shift of financial risk and costs from payer to provider
  • Greater pressure for providers to demonstrate differentiated outcomes
  • Increased need for better care coordination and patient care

"Labor used to be the first place targeted for savings," Ms. O'Sullivan, said during an Oct. 1 webinar hosted by Becker's Hospital Review. "Now we must look beyond labor for new savings."

Supply costs are often first identified as an opportunity for savings, as materials represent 35 percent of hospital expenses — a figure that's growing, according to Ms. O'Sullivan. While there is tremendous pressure to reduce the cost of materials as reimbursement declines, "we are at the point where there is little wiggle room to lower prices any further," she said.

This leaves the supply chain as a new source of savings. Inefficiencies and errors in the supply chain result in a total of $5 billion in waste lost each year— $5 billion that could be put toward patient care and quality improvements, Ms. O'Sullivan added.

To find out how to improve efficiency in the supply chain, hospitals and health systems must first identify the root causes of waste. According to Ms. O'Sullivan, the following are the primary culprits:

  • Excess time spent searching for inventory
  • The impact on patient safety due to recalled or expired products
  • Regulatory noncompliance to standards set by the Joint Commission and other bodies
  • Overlapping roles and responsibilities with key stakeholders, including supply chain managers, business managers, directors and clinicians

Addressing these factors is not easy. Supply chain managers are tasked with manually managing multiple inventory systems that operate in silos and don't talk to each other effectively. There are barriers to sharing data and inefficient product stocking practices remain in place. On top of all of this, the cost of products is rising.

There is a way to solve all of these issues: automated inventory management.

Other industries have mastered this. Steve Thompson, vice president of supply chain innovation at Cardinal Health, discussed the automated supply chain in retail. For this, think about a disposable razor.

When you buy a razor at the supermarket, purchasing the item at the checkout counter begins an upstream of information on the razor that flows from the supermarket to the distributor to the manufacturer. Specific information on the demographics of the consumer and personal purchasing habits may also be incorporated in this stream of data.

"Now the manufacturer has an advanced set of data to truly understand consumer needs," said Mr. Thompson. "This makes demand planning efficient. The manufacturer will make the right amount of razors to meet demand — no more and no less. There is far less waste and no need to hoard products."

Healthcare has a more difficult time managing inventory, largely because medical devices — such as a hip prosthesis — are much more expensive, demand is harder to predict and we don't have a clear picture of what happens to it after "checkout."

However, automation in the healthcare supply chain can help address the many barriers to effectively managing inventory, such as physician preference, difficulty with cost and charge capture, diversity of procedures and service lines, expired inventory, consignment, duplications and multiple supply categories.

Importantly, an automated supply chain system eliminates many of the time-consuming steps involved in manual processes, which can take up to 25 percent of the clinicians' time. Instead of spending minutes manually entering items into the system, nurses can use a barcode scanner to automatically enter item information in just seconds. The automated system saves clinicians time that can be instead spent with patients and also reduces the chance of manual errors. In a manual system, caregivers can spend up to 15 minutes identifying and correcting a single error, according to Mr. Thompson.

"While it might seem impossible to transform the supply chain at your hospital so dramatically, it is possible and it is being done," said Mr. Thompson. "The trick is knowing the right steps to take."

The steps, Mr. Thompson outlined, are as follows:

  • Recognize there is a problem
  • Agree on the vision
  • Build alignment with key stakeholders
  • Assess the current state
  • Understand automation options and impact on key areas, including point of use

"The first step is often missed during improvement initiatives, which is why many well-intentioned efforts fail," Mr. Thompson said.

Mr. Thompson recognized that expenses, charge capture, physician preference items and culture all stand as obstacles to transforming the supply chain from a manual system to an automated one. That is why it is essential to get all of the key stakeholders — including clinicians, medical staff, the executive team, IT department and finance department — on board early on in the process.

The ideal inventory management solution must address the scope and complexity of supplies the hospital uses, and it must have the right inventory tools and products.

"The right inventory management system is built on a foundation of complex science, such as lean and Six Sigma," said Mr. Thompson. "The right system is both proactive and reactive, and importantly, it frees up clinicians' time to spend with patients."

Cardinal Health™Inventory Management Solutions is scalable from end to end. It automatically collects actionable data about product utilization by physicians to optimize spend, and conducts deep analysis to reveal new opportunities to support standardization, reduce variability and increase efficiency. With the advanced analytics, hospitals can combine technologies to meet unique needs and address the most important inventory and workflow challenges in the operating room, cath lab, EP and nursing floor.

"We created a solution to meet the challenges we are all facing — to overcome the greatest cost pressures we've ever faced," said Mr. Thompson. "With our solution, we are shifting inventory responsibility from the clinical to the supply chain, replace manual and inefficient processes with leading-edge automation and provide a wealth of data analytics that reveals what actually happens at the point of care."

To view the webinar on YouTube, click here.

To view the webinar as a PDF, click here.

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