From fall 2020 to the present, the costs for some of the most critical elements (e.g., resins, cotton and metals) in the medical supplies and devices that hospitals and health systems use daily all soared in excess of 30 percent, in parallel with rising foundational costs like shipping freight and energy. Healthcare organizations’ drug expenses spiked, too, until by the end of last year they were 28 percent higher than pre-pandemic levels.
As a result, health systems are racing to find innovative ways to improve their bottom lines, and the stakes couldn’t be higher amid the backdrop of clinician shortages and looming changes in reimbursement. One promising avenue for significant cost savings: The integration of clinical systems into supply chain processes.
The role of physician engagement in spend has been top-of-mind for value analysis teams in particular as recent sourcing and margin crises have accelerated the need for cross-functional collaboration. However, the scope of physician involvement has often been limited to a single physician champion during a product review, rather than an integrated clinical approach.
1. A lack of data impedes decision making
In operational models that don’t integrate supply chain management within hospital clinical practices, buying decisions are largely divorced from the physicians, nurses, and other providers and staff who use them. For example, within these structures, physicians typically communicate with their supply chain function exclusively via product requests, with “product” defined as medical supplies or technologies.
Once the product requests are fulfilled, however, there is a void of data. No information is collected about how, when, and why the products are used or how effective they are. This is a loss of key information necessary to inform business decisions. Specifically, a lack of data analytics that connects a health system’s supply chain with the providers and staff who use the products means hospitals are missing opportunities for substantial cost savings and patient outcomes improvements.
2. Clinicians/staff stockpile and overuse medical products
A lack of physician involvement in product purchasing can result in stockpiling and/or overutilization of certain medical products. A systematic review gauging physician awareness of medical device costs showed that only between 9 percent and 35 percent of physicians accurately estimated medical device costs — and 92 percent of physicians reported that they felt their knowledge of medical device costs was inadequate, with most participants in every study in the review (66 to 100 percent) stating that knowledge of medical device costs is at least moderately important. Such surprising statistics illustrate how detached many physicians are from the purchasing process and what a detrimental effect this disconnection can have.
3. Medical product spending increases
The purchase of more unnecessary medical supplies and technologies not only diverts limited hospital funds away from valuable internal improvement projects but also potentially results in added spend because products with limited shelf lives must be disposed of and replenished.
Although stockpiling results from the underuse of products, a lack of physician involvement and clinical integration can also result in overutilization. Physicians, unaware of the financial implications of purchasing certain medical products, might then use the products excessively, even in situations where the use doesn’t translate to improved patient outcomes. As a result, a lack of standardization around product utilization is a substantial drain on hospitals’ bottom lines and is a large area of improvement for some health systems.
According to Definitive Healthcare, physician-preferred items (PPIs) make up 40 to 60 percent of a hospital’s supply costs. However, through standardization and cross-collaboration, health systems have the potential to mitigate the excessive costs that stem from PPIs.
4. A lack of clinical advocacy negatively affects outcomes
Evidence-based decision making relies on the clinical merits of a product. In addition to the cost and operational arguments, having physicians provide clinical reasoning up front keeps stakeholders on the same page and creates clinician ownership of new product requests. Similarly, ensuring data democratization across stakeholders is a key mechanism for prioritizing clinical outcomes and physician buy-in from the start. And because physicians often are not easily swayed by industry product information, health systems must operate with a set of objective clinical evidence.
Health systems operating with clinical advocacy baked into supply chain decisions typically have structured, collaborative, evidence-driven value analysis processes in place. Whenever possible, they develop guidance documents and automated frameworks that help supply structure around which circumstances, indications and patient populations a particular medical technology or procedure will be used. And the primary metric is no longer cost (though that is still a crucial factor) but improvements in patient care. By aligning their vision with clinical service lines, value analysis teams help deliver the measurable improvements in outcome that achieve this goal.
5. Value-based care becomes harder to achieve
On the regulatory front, CMS’ value-based care initiatives are reaching maturity. Hospitals now must place greater emphasis on improving patient outcomes, or face penalties. Failure to use clinicians’ insights into the effectiveness or safety of certain products can result in the purchase of faulty or ineffective medical products. This, in turn, could result in higher readmissions rates and other negative downstream effects.
In addition, under the Medicare Access CHIP Reauthorization Act, hospitals could be penalized up to 9 percent depending on their performance. Further, they stand to miss substantial bonuses built into MACRA. But by involving clinicians at the beginning of the supply chain management process, health systems can better align the administrative and clinical functions to achieve spend management and patient outcomes goals.
6. Physician dissatisfaction
In supply chain models that don’t integrate supply chain management within their clinical practices, physicians are left out of buying decisions or make their own based on peer advice or input from industry reps. These decisions are made in isolation, outside of an integrated, data-driven approach. In other cases, physicians are excluded from conversations about healthcare supplies and may even be forced into using certain medical devices and supplies without consultation. This approach breeds physician frustration and resentment. A recent healthcare industry survey found that 77 percent of clinicians want to play a bigger role in supply chain decisions. Research by Young, Nyaga, and Zepeda showed a positive association between hospital-physician employment and supply chain performance.
Finally, another long-established supply chain strategy to lower cost — switching vendors —has been shown to be a contributor to clinician burnout. Switching products may save on costs but has been shown to burden front-line physicians and other providers because it causes changes in processes and/or practices. Researchers found that such change is “often perceived as unnecessary, is unwelcome and erodes the joy in care delivery.” There is also a learning curve inherent in new product introductions, which increases the chances of medical mistakes and patient harm.
How leading health systems evolve their supply chains
Many health systems have seen substantial improvements in their bottom line by using data analytics and integrating the supply chain with clinical practices — and specifically by involving physicians early and often in the process.
According to an article published by the Healthcare Financial Management Association, Main Line Health used data analytics to connect its supply chain function with its clinical practices. As a result, the organization reduced the use of certain supplies by 80 percent while maintaining equivalent patient outcomes.
As another example, Baltimore-based Johns Hopkins Medicine adopted the “clinical supply chain integration movement” and achieved $50 million in cost savings. Most illuminating is how the health system drove the savings. Johns Hopkins’ CFO Ron Werthman said, “Without the involvement of clinicians, we can only influence about 20 percent of the cost.” He added that with clinician involvement in standardization and utilization, something facilitated in large part through cloud-based technologies, “[we] can generate substantially greater savings.”
How to incorporate clinical integration into your supply chain
By using a centralized cloud-based technology to manage your entire process, health system leaders can immediately center supply chain business units and clinical systems around agreed-upon financial and clinical objectives. That structure enables organizations to:
- Make data-driven purchasing decisions
- Align key stakeholders in real-time
- Drive standardization
Collectively, these achievements combine to substantially improve your bottom line. symplr can help healthcare organizations involve the right people, at the right time and in the right capacity to approach supply chain decision making within a digital framework.