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As published in Becker’s Hospital Review
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.
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.
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.
Leaders cited several major issues when discussing the difficulty of incorporating non-acute care sites into their supply chains.
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 on the East Coast. “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 in the Midwest. “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 in the South. Her health system recently purchased 16 urgent care groups, and she says managing supply contracts for new affiliates is confusing for both the hospital 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.
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 2016 Premier 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 in the South. She says the medical practice recently partnered with a hospital 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 on the East Coast.
“You’re standardizing everything from time and attendance to the supply chain, so it’s going to take time,” she says.
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. 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 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 in the Midwest 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 units, 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.”
Most leaders agree: It’s a challenge to standardize and track products across care sites. Fortunately, they shared in detail three fundamental elements for efficient non-acute supply chains.
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 in the Midwest, the logistics department handles purchasing for its hospitals and several hundred affiliated medical groups. This centralized logistics format is ideal and 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 in the South 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.
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. These figures are hospital-specific. When you multiply or add to these numbers as the non-acute care network expands, 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 or enlisting the help of other caregivers to find supplies, whether these efforts are successful or not.
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 in the Midwest 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-surge alone,” she says. “For us, standardization represents 80 percent of products from one vendor across all hospitals.”
To assist with SKU management in the non-acute supply chain, the Midwestern health system deployed a new tool that offers an Amazon-like buying experience for clinics, she says. The tool nudges buyers toward the most cost-effective product on a formulary. Users also have to work harder to add a new product to the purchasing platform, which has really helped reduce SKUs, she says.
The senior executive director of supply chain management for a 20-hospital system in the Great Plains region 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.
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.
The senior vice president of a nonprofit health system in the Northeast — and president of one of its 11 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 in the Midwest. “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.