Cost is king: 5 thoughts on the hospital supply chain from an expert who's seen both sides of the business

In the realm of the hospital supply chain, cost dictates all.

And cost is more relevant than ever in healthcare right now, said John Cunningham, chief solutions officer at Procured Health. "Almost every organization I've worked with has given their supply chain department a specific savings target to help maintain costs."

Mr. Cunningham joined Procured Health — a Chicago-based technology startup focused on reducing hospitals' wasteful spending — in July. Previously, he served as the director of supply chain at Stanford (Calif.) Health Care, which implemented Procured Health's software in 2015.

Mr. Cunningham shared his dynamic perspective on the widespread role cost plays in the hospital supply chain with Becker's Hospital Review.

Note: Responses have been lightly edited for length and clarity.

Question: What is the biggest supply chain challenge you see health systems dealing with?

John Cunningham: Almost every organization I've worked with has given their supply chain departments a specific spend savings target to help maintain costs. It's pretty general for all health systems. The biggest challenge is really around cost structure and how supply chain must support a clinical enterprise, while also lowering its spend — both for improved profitability, but also for improved reinvestment.

In every other industry, the supply chain is viewed as a significant contributor to the operating margin and is therefore invested in proportion to its spend. In health systems, we entrust hundreds of millions of dollars in addressable spend to the supply chain and then hold back investments in technology and human capital to improve processes.

Q: How can health systems engage physicians in efforts to boost efficiency and reduce supply chain costs?

JC: It starts with having a physician alignment strategy that is a win-win for the organization and physician. Supply chain leaders must consider what is most important to the medical staff. Oftentimes, it's productivity indicators like capacity and input. If a health system can create capacity in operations by improving efficiency, physicians will often respond with a willingness to assist with cost reduction. Supply chain leaders can never approach a physician with a cost-reduction strategy — they would lose all credibility with the clinician. Instead, supply chain data and evidence should be used to see what opportunities exist within the clinical enterprise to help make clinicians more productive. Physicians do care about costs, but they need information and data to make informed decisions when choosing products. Otherwise, they depend solely on what the vendor tells them and only get one biased perspective.

Q: How does supply chain affect patient care? What supply chain practices allow for better quality care?

JC: Supply chain very much plays a role in patient care. It's really important for supply chain employees to understand the importance of the role they play. You need supplies to care for patients. If the supply chain is not highly reliable at the most basic level — having the right product, at the right place, at the right time — patient care suffers.

While suppliers are required to notify health systems regarding product recalls, they have no obligation to ensure the notification is received and acted upon by the product's purchasers. This creates an environment where products can be kept in use, even with significant history of adverse events, because the supply chain is not aware of the events. Most people wouldn't buy an electronic device for their home without doing research, but most health system supply chains buy hundreds of thousands of items every day with little to no insight into product's performances and shortcomings.

Supply chain also has a significant impact on the satisfaction of clinical staff. If they don't have what they need to treat their patients, they can grow frustrated, which becomes apparent to a patient already in a vulnerable state.

Q: What kinds of technology do you find most effective for managing inventory and why?

JC: Inventory is a basic fundamental function of the supply chain. The healthcare supply chain could benefit from looking at inventory in other industries. While RFID technologies and weighted shelf technologies can be very effective methods to manage inventory, the most important aspect of managing inventory is not always technology, but the signal that alerts you when you need to replenish products on the shelves. Whether this signal comes from technology or people is a matter of cost.

Most health systems lack the consistent application of technology-based signaling systems and predictive analytics to manage the supply asset. Even the lowest cost, effective technology can be considered too expensive when competing with clinically based investments for funding. Health systems purchase shiny new objects only to place them on wire shelves that front-line workers or clinicians periodically look at in lieu of their primary care duties.

Q: Are there any regulatory changes regarding supply chain practices that you hope to see in the future?

JC: Yeah, I think transparency around unique device identification is really important. When we look at drugs at Procured, the national drug codes allow us to compare drugs based on therapeutic equivalents. Since medical devices don't have this labeling method, it's hard to compare two devices, and clinicians oftentimes have to make their own judgments on which to use. The UDI regulatory requirement for medical devices will make their job easier and help hospitals boost savings. For example, at one hospital, we found one therapeutically equivalent device that two peripheral vascular surgeons and two specialized surgeons could both use, which greatly cut down on costs since the hospital didn't have to buy several different devices.

 More articles on supply chain:

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