With experts at the Association for Healthcare Resource & Materials Management (AHRMM) projecting medical supplies to “surpass labor as the biggest expense for hospitals and health systems by 2020” and the inevitable shift over to patient-outcome centric compensation models, hospitals are increasingly seeking innovative ways to improve their bottom line. One promising avenue is the integration of clinical systems into supply chain processes.

In older hospital models that do not integrate supply chain within their clinical practices, purchasing decisions are largely divorced from the physicians using them. Physicians for the most part communicate with their supply chain function exclusively via product requests (product defined as medical supplies or medical technologies). Once these requests are fulfilled however, these products “disappear.” No data regarding how these products are used or how effective these products are is collected, data that could potentially inform business decisions.  With no data analytics pipeline connecting hospitals’ supply chain and physicians, hospitals’ stand to miss out on substantial cost savings and potential patient outcome improvements, both of which only magnify with hospital system size.

What does it mean for your hospital system?

A lack of physician involvement in the product purchasing process can result in the stockpiling of and over-utilization of certain medical products. A survey conducted on 503 participating surgeons across major hospital systems found that only 20% of physicians were knowledgeable on the costs of the devices they were implanting, an alarming statistic that illustrates just how detached physicians are from the actual purchasing process. This lack of awareness then results in product stockpiling. The purchase of additional unnecessary medical supplies and technologies then not only diverts limited hospital funds away from valuable internal improvement projects but also potentially results in additional spend as products with limited shelf lives must be disposed of and replenished.

Interestingly, while stockpiling stems from underutilization, 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 these products excessively even in scenarios where additional usage does not translate to improved patient outcomes. While a lack of standardization around product utilization is a substantial drain on hospitals’ bottom lines, it does pose as a large area of improvement, something some hospital systems have already seen success with.

How does this support the value-based care evolution?

On the regulatory front, with the Center for Medicaid Service’s (CMS) Value-Based Care initiatives reaching maturity, hospitals will need to place greater emphasis on improving patient outcomes or face penalties. Not leveraging on the ground clinician insights around the effectiveness or safety of certain products can result in the purchasing of faulty or ineffective medical products which could then potentially result in higher readmissions rates among other negative downstream effects. Medicare Access CHIP Reauthorization Act (MACRA) qualifying hospital systems could potentially be penalized up to 9% depending on their performance and stand to miss out on substantial bonuses. Involving clinicians at the beginning of the process is integral to ensuring alignment between both supply chain and clinical functions around costs and patient outcomes.

How leading health systems are evolving their supply chains

Luckily, hospitals have seen substantial improvements in their bottom line by utilizing data analytics and integrating their supply chain within their clinical practices. According to an article published by the Healthcare Financial Management Association (HFMA), Main Line Health has leveraged data analytics to connect their supply chain function with their clinical practices. As a result, they were able to reduce the utilization of certain supplies by 80% while maintaining equivalent patient outcomes. John’s Hopkins Health System, another adopter of the clinical supply chain integration movement, noted in a public statement that they were able to generate $50 million of cost savings, something CFO Ron Werthman credits to “supply chain’s integral relationship with Johns Hopkins’ numerous clinical communities.” Most illuminating however is how John’s Hopkins was able to drive these cost savings. Ron notes, “without the involvement of clinicians, we can only influence about 20% of the cost.” With clinician involvement in standardization and utilization, something facilitated in large part through cloud-based technologies, Ron adds that “we can generate substantially greater savings.” 

How you can easily transition clinical integration into your supply chain

By utilizing a centralized cloud-based technology to manage your entire process, you can immediately center your supply chain business units and clinical systems around agreed upon financial and clinical objectives. By doing so, you can make data-driven decisions around purchasing, align key stakeholders in real-time, and drive standardization, all of which will substantially improve your bottom line.

If you would like to see how GreenLight’s cloud-based platform has aligned supply chain needs with clinical objectives at similar health systems, you may request more information here.