3 obstacles to managing the non-acute supply chain — and 3 ways to overcome them

Standalone hospitals are increasingly rare in today's healthcare landscape. Health systems must manage a much broader portfolio of non-acute sites than ever before, with care settings ranging from physician offices and ambulatory service centers to urgent and long-term care.

This content is sponsored by McKesson Medical-Surgical based on content collected and compiled by Becker's. The statements quoted in this article are separate and apart from any conclusions herein and such conclusions should not be attributed to the speakers themselves.

While 80 to 90 percent of healthcare spend occurs in the hospital, 85 percent of patient visits happen in the non-acute space, based on 2015 data from the CDC's National Center for Health Statistics. With such a large portion of patients seeking care in non-acute settings, it's crucial for health systems to implement efficient supply chains at these sites to rein in costs and support optimal patient care.

Compared to the acute space, the non-acute supply chain can be complicated, says Greg Colizzi, vice president of health systems marketing with Richmond, Va.-based McKesson Medical-Surgical. While hospital settings have mature supply chains where standardization is managed through one technology platform and cost containment is well documented, this is not usually the case outside the hospital's four walls. Several factors contribute to this — the diversity of various specialties, recent acquisitions, disparate operating systems and small facilities spread over a broad geography all complicate non-acute supply chain management.

This April, during the Becker's Hospital Review 8th Annual Meeting, more than 25 supply chain, financial, IT and clinical leaders from healthcare organizations across the country gathered in Chicago to discuss the unique set of challenges associated with the non-acute supply chain and shared management strategies that have proven successful at their own organizations.

Here is a recap of the leaders' discussion from the workshop session, which McKesson Medical-Surgical hosted.

Challenges of the growing non-acute supply chain

Leaders cited several major issues when discussing the difficulty of incorporating non-acute care sites into their supply chains.

  1. The struggle to keep up with acquisitions and consolidation

Health systems continue grow more diverse. The healthcare industry saw 112 health system transactions in 2015, including mergers, acquisitions, joint operating companies and other models. This marked an 18 percent increase from 2014, according to a Kaufman, Hall & Associates analysis.

What's worth noting is that hospital-hospital acquisitions are projected to slow in the next few years, while vertical consolidation is expected to ramp up as health systems continue to diversify by integrating physician groups, urgent care centers, home health service, rehabilitation centers and other non-acute or post-acute care settings. According to consulting firm Accenture, the share of non-acute acquisitions as a portion of total provider acquisition volume increased from 64 percent in 2006-2010 to 74 percent in 2011-2014, while horizontal acquisitions decreased from 32 percent to 21 percent in the same timeframes.

Accenture predicts that acquisitions of non-acute providers will reach 84 percent of the total provider acquisition volume by 2018. Several executives noted how their own organizations have expanded non-acute services in the past few years. "We continue to purchase physician practices on a routine basis," said the senior vice president and chief public relations officer for a 21-hospital system with 450 outpatient facilities. "We plan to add 1,000 physicians next year. We have about six ASCs right now and our goal is to open 30 within the next two and a half years."

For health systems, expanding the non-acute network across a larger geographic footprint means a more complicated supply chain. Several executives are experiencing the challenges of multi-site inventory management firsthand. "It's like wrestling an octopus," said the COO of a large academic hospital. "You think you have one tentacle down, but then something else comes up."

As health systems continue to include more care settings, more physicians and more locations, supply chain leaders often struggle to standardize newly integrated facilities' materials management and purchasing systems to those of the overall health system's.

"It's very difficult — sometimes my own folks don't even know who's affiliated and who's not," said the vice president of pharmacy for a large nonprofit health system. Her health system recently purchased 16 urgent care groups, and she says managing supply contracts for new affiliates is confusing for both the health systems and suppliers. In an attempt to simplify matters, the urgent care groups went to the health system's provider-based group — which manages all of its clinics — to discuss ordering, but the provider-based group isn't even in charge of supplying to them, she says.  

  1. Difficulty standardizing products

Product variation hinders both operational and clinical efficiency by driving up inventory costs and complicating workflows for clinicians. Since quality and utilization processes differ by product, greater variation creates more opportunity for human and clinical error, which threatens patient safety.

Product standardization poses a challenge for supply chain leaders in the non-acute environment since physician offices and other non-acute providers are often accustomed to specific products, or physician preference items. Ninety-eight percent of C-suite leaders cite standardizing physician preference items as a major concern they expect to address in the near future, according to a Premier's Fall 2016 C-Suite Survey.

"It's a struggle to get physicians who've been independently owned for 17 years to change how they think and what they do," said the COO of a small physician-owned primary care medical practice. She says the medical practice recently partnered with a health system working to reduce physician preference items. "They've always done it their own way and don't see any reason why they should change," she says.

Physician preferences are not the only impediment to standardization. Sometimes, the pure scope and scale of a health system's supply chain makes it difficult to regulate the types of products used from site to site, says the vice president of quality management at a 245-bed hospital affiliated with a 21-hospital system managing more than 550 outpatient clinics.

"You're standardizing everything from time and attendance to the supply chain, so it's going to take time," she says.

  1. A lack of inventory visibility

The healthcare industry wastes billions of dollars each year on unused or expired medical products due to lack of visibility or having too much inventory on hand, according to a 2011 PNC Healthcare, GHX study. To better illustrate how this billion-dollar figure trickles down to individual health systems, consider the numbers out of University of California, San Francisco Medical Center. There, researchers recently estimated that the academic medical center discarded $2.9 million worth of unused neurosurgical supplies in one year. That figure represents the cost of wasted supplies in one department.

With dozens to hundreds of sites to manage, health systems often struggle to track the products and devices used across the entire care continuum. Poor product visibility not only makes it more difficult for clinicians to find necessary supplies, but also poses a risk to patient safety if the right product is not available at the right time.

The senior vice president of hospital-based specialties at a nonprofit integrated health system says poor visibility fuels misunderstandings among the clinical care team. For instance, there is often a disconnect between what's on the shelves and what clinicians believe is on the shelves.

"I've witnessed frontline staff members who think we're ordering a product and it's stocked in their facilities, but then I talk to logistics and we don't even order it," she says. "I told the clinicians to take a picture and show it to me, if they think it really exists."

The building blocks for success

Most leaders agree: It's a challenge to standardize and track products across care sites. Fortunately, workshop attendees highlighted three fundamental elements for creating efficient non-acute supply chains.

  1. Purchasing structure

A health system's purchasing structure is not a one size fits all mechanism. The best designed purchasing structures complement the system's operational and organizational framework. These structures differ based on the geography and needs of a health system's non-acute network. During the discussion in Chicago, leaders described the various purchasing structures in place at their respective organizations.

For instance, at a nonprofit integrated health system, the logistics department handles purchasing for its hospitals and several hundred owned medical groups. This centralized purchasing allows the system to compare its own statistics to national benchmarks, said the health system's senior vice president of hospital-based specialties.

"When looking at data for a recent item, we discovered we were able to purchase it for lower than benchmark cost," she says. "As a result, we were also able to leverage another item to get additional benefits."

In contrast, a large academic health system organizes contracting based on site license. If a newly acquired facility or physician group is licensed as a provider-based site — whether outpatient or inpatient — its drugs and supplies are standardized with those of the hospital, according to the system's vice president of pharmacy.

"When we license a site as a clinic office, urgent care or standalone ASC, their products are not fully standardized with our hospitals," she says. Instead, the non-acute sites leverage desired services from the health system, such as purchasing, billing or EMR capabilities.

  1. SKU management

The average hospital has roughly 6,000 to 8,000 stock keeping units on-site, and can carry up to 35,000 SKUs at any given time, according to an April 2010 article published in Materials Management in Health Care. These figures are hospital-specific. When you factor in the complexity and number of specialties in the non-acute care network, the number of SKUs expands significantly. For every 100 physicians within a health system's non-acute network, there are likely 425 product stocking locations, from storage closets and patient exam rooms to the lab, with most locations often managed by clinical resources, based on McKesson's experience. With so many stocking locations to manage, it is apparent why health systems' SKU reduction and product standardization work is so critically important.  

SKU reduction simplifies product application and accelerates workflow efficiency, which allows clinicians to spend more time with patients instead of tasks related to the supply chain. Clinicians today cannot afford to spend time looking for supplies.

Before standardizing SKUs, leaders stressed the need to understand how many items are in their inventory to arrive at an apples to apples understanding of what standardization looks like. For example, the director of supply chain for a six-hospital system says her health system first took time to develop its own definition of "standardization" before working to reduce SKUs.

"We have 600,000 items on contract and 115,000 items on formulary for med-surg alone," she says. "For us, standardization represents 80 percent of products from one vendor across all locations."

The senior executive director of supply chain management for a 40-hospital system with 225 clinic locations says SKU standardization also comes down to right-sizing decision-making. He says it is helpful to rein in ordering processes so they are enacted by a small but fully informed and decisive group.

"Staff members often order products they don't need or just can't find," he says.

To overcome organizational inertia associated with product standardization, McKesson recommends including clinicians in the process and showing them the data. Allow some flexibility for lower-cost physician preference items — think of it as an investment for getting buy-in. Establish limited product catalog formularies that allow for quick searching and rapid ordering. Distributors should be able to provide the analyses and system functionality to make this happen.

  1. Data analytics

Health systems have increasingly recognized the value of data analytics to drive financial and operational improvements over the last decade. Yet few health systems use data to drive their purchasing strategy, since it's difficult to collect, organize and store the immense amount of inventory, cost and utilization information on a centralized platform for a system's network.

This data is critical, however. Aggregated purchasing data offers supply chain leaders heightened visibility into spend and utilization habits, all of which inform purchasing decisions and standardize products. When your facilities are not all on the same systems, sophisticated solutions are available to aggregate purchase history, technology utilization, contract compliance and cost saving analysis across all non-acute facilities into a single dashboard for measuring overall performance.

The senior vice president of a nonprofit health system with more than 120 affiliated entities — and president of one of its 10 member hospitals — says this data also helps physicians make more cost-effective care decisions. As one physician at the health system told him: "Don't think we wake up every morning and try to spend as much of the health system's money as we can. Give us the data, and let us come to you with what we think is the right answer."

The executive's system places a portion of the cost-reduction responsibilities onto physicians, and found they are very passionate about the cause. The system also uses its own health plan to look at the total cost of care and identify areas to lower spending in non-acute settings, he says.

Health systems must look at their data to gauge their progress and success in transforming the supply chain, according to the COO of a large academic hospital. "It all relates to reducing waste, making sure we have the best value for what we're spending and achieving the right clinical outcomes," she says.

©2017 McKesson Medical-Surgical Inc.

More articles on supply chain:

Patterson Companies fires CEO in wake of second straight annual profit drop
7 must-reads for supply chain leaders this week
C-suites containing supply chain leaders have better operational performance: 7 survey insights

Copyright © 2022 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars