Why supply chain is a healthcare leader's most strategic asset

Healthcare's movement toward value-based care is not only underscoring the importance of an efficient healthcare supply chain, but also redefining the supply chain leader role.

Once a very transactional process, the supply chain is now considered a core competency for hospitals to reduce waste and lower costs, while supporting patient care initiatives. More and more, supply chain leaders are also taking a seat in C-suite discussions to help executives mitigate potential financial penalties and make more informed decisions under the ever-changing value-based care programs.

To ensure they're using devices and medical supplies in the most efficient ways possible, hospitals must turn to data, according to Peter Mallow, PhD, program director of health economics, market access and reimbursement for Dublin, Ohio-based Cardinal Health.

Dr. Mallow and Steve Thompson, director of strategic solutions for Cardinal Health, recently spoke with Becker's Hospital Review about the evolving role of supply chain leaders and shared strategies for using data to better inform patient care and reduce supply chain inefficiencies.

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

Question: How has the role of the supply chain leader evolved over the past decade? What factors have driven this evolution?

Steve Thompson: Over the last four to five years, an increasing amount of consolidation has given the supply chain leader a different set of problems and opportunities. It's not uncommon to see 12 hospitals operating independently — even though they're in the same health system — and not taking advantage of aggregating and scaling their supply chain.

Imagine if supply chain leaders were able to aggregate demand for devices and products into a single location and then deliver it to the measured point of care, as needed. We've been doing this with a number of different hospital systems. It allows us to reduce excess inventory to nearly zero, which is a huge differentiator for behavior. When you take that thinking and expand it across the rest of the supply chain leaders' responsibilities, it gives them the ability to lead differently than they've done so historically.

Dr. Peter Mallow: Capitated payments, episodic payments and new value-based programs all have a common theme of shifting the financial risk to hospitals and making them responsible for the patient's success. To deal with declining payments and the additional risk hospitals are taking on, supply chain leaders are evolving into stakeholders who are more worried about the patient experience than they have been in the past. This change requires supply chain leaders to break out of the mold of just moving products, devices and implantables from point A to point B. Now, supply chain leaders must focus on how those devices affect patient outcomes and ensure they're not adding any complexity for the clinicians.

Q: How can supply chain leaders transition from simply recommending cost-saving initiatives to leading them for the whole organization?

ST: Historically, value analysis teams primarily worked with supply chain and purchasing staff to evaluate products. Now, we're seeing a shift where more and more clinicians are getting involved and working alongside supply chain leaders. Value analysis teams are not just looking at the cost of products, but at their efficacy and associated outcomes. They're making decisions based on price and practice.

PM: It really boils down to first convincing the clinician that the supply chain leader is on the same team. Clinicians, who are first and foremost focused on the patient, may be fearful of any product or process changes. After all, they have spent years honing their skills and learning what devices and techniques achieve the best outcomes for their patients. Supply chain leaders must be able to bring patient outcome data and clinical data into the discussion, in addition to costs, when discussing change. It must be transparent.

If supply chain leaders can engage in this broader conversation with the clinicians, the team can operate more efficiently to lower costs, improve outcomes and enhance the patient experience, satisfying the Triple Aim we talk about so much. Once they've done that, supply chain leaders can talk about standardizing products and processes. Simply standardizing devices and implantables can have a huge — almost instantaneous — impact on cost and efficiency. But you need relevant data to make that conversation happen.

Q: What lessons can we learn from other industries in terms of improving efficiency and lowering costs in healthcare?

ST: One huge difference between our industry and the consumer goods industry is the consumer goods industry has UPC codes. They can use a single data source across their entire network simultaneously. Everyone can read that data from the UPC code, whether it's the end user, sales point, importer or wholesaler. Healthcare supply chain doesn't have these capabilities, often referred to as the consumer-driven supply network.

We've been working on flipping our entire model from a traditional forecast and push system to pull systems based on actual demand information. The trick is getting the demand information at point of care and then using a mechanism to share that source information across the entire value chain. Instead of transferring data through the supply chain in a linear fashion, we are able to it share broadly at the same time. We're calling it the patient-driven supply network.

PM: In the last decade, big-box retailers have incorporated vast amounts of socioeconomic data and customer-centric data from loyalty cards to develop robust predictive analytics of consumer demand. In this consumer world, multiple disparate sources of data are combined to provide timely and reliable insights on exactly what items should be stocked and where, as well as what coupons have the greatest appeal.

The supply chain director is uniquely positioned to make a similar leap in the healthcare world by incorporating socioeconomic and demographic information of their patients or catchment area into their EHR and inventory systems. They could use this data to predict patient demand all the way down to individual supplies and help to predict patient outcomes. We are talking about a patient-driven demand system powered by the same types of analytics commonly used in the consumer world. The technology exists, but our own bureaucracy and rules hold us back.

Q: What is the first step an organization should take when looking to improve efficiency within its supply chain?

ST: People get excited about implementing a new piece of equipment, software or platform. However, hospitals need to completely understand their current state before jumping to the next. From there, they need to build consensus with all stakeholders relative to the goal they're trying to accomplish. If there are six different stakeholders involved in making something happen and one of them doesn't agree, the hospital's not going to get there. I like to articulate the U.S.A. method: understand it, simplify it, automate it.

PM: Benchmark. Understand where you are today and where your peers are. This step is often forgotten or ignored as it takes time. Organizations need to understand the root problem they're trying to solve — and ensure there is a shared understanding of the problem — before being able to move forward as a cohesive team. When devices and implantables account for a large portion of index hospitalization costs, a one- or two-point change can magnify almost immediately into tens of thousands of dollars in savings or more. When antiquated scheduling processes cause operators to work with a different nurse and technical staff on a daily basis, team-based scheduling can reap rewards in decreased time and cost per case instantaneously. Instead of chasing every loose end, hospitals should tackle two or three items that can have a big impact through small, incremental improvements.

Q: How can organizations harness supply chain data and clinical data to not only lower costs, but support patient care initiatives?

PM: In a recent survey, we found clinicians spend nearly 20 percent of their time or more on supply chain tasks. They weren't hired to do that nor did they go to school for that purpose. Instead of focusing on the Triple Aim, supply chain leaders should strive for the Quadruple Aim, which elevates provider satisfaction to the same level as improved outcomes, cost savings and the patient experience. Supply chain leaders need to show how a new technology or improvement system will help patients and improve clinicians' lives, rather than justifying the implementation based on expected cost savings alone. The Quadruple Aim approach will achieve much quicker buy-in from clinicians and other stakeholders by showing them the supply chain leader is on the same page and focused on solutions to support patient care.

Clinicians and supply chain leaders are often looking at the same data, but coming up with two wildly different interpretations of it. When we break down those interpretations, we realize there is a whole lot more commonality than originally thought — they're just speaking different languages. Supply chain leaders must take the time to really understand the spoken and often unspoken language of clinicians.

ST: We interact with a lot of clinicians, especially nurses, and there are so many points of frustration for them. There isn't a nurse out there who remembers taking a class in nursing school called hunting and looking for supplies. We know there is a correlation between time spent at patient bedside and likelihood for readmission.

The supply chain leader is in a unique position to free up clinicians' time by harnessing the data they're readily sitting on. By using the data to identify areas of waste and implementing more efficient processes, supply chain leaders allow clinicians to provide better care, be at the patient's bedside when necessary and make more informed care decisions as a team. Everyone in healthcare has the same mission, regardless of what cog we are in the wheel. At the end of every transaction is a patient. If we frame our thinking around patient care, then everything we do needs to come back to that critical point.

More articles on supply chain:

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10 most-read supply chain stories in Apri
CIPS launches supply chain risk-assessment tool

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