March 28, 2016 Ask Owen

4 Healthcare Supply Chain Management Tips for Revenue Success

In a healthcare organization, keeping tabs on the ebb and flow of medical supplies is an incredibly important yet often overlooked task. 

From syringes and gauze to drugs, disinfectant, and paper gowns, understanding supply chain management from start to finish is vital for ensuring that providers have the tools and equipment they need to provide optimal patient care.

But with dozens – or even hundreds – of different vendors, a dizzying array of contracts or agreements, and constantly fluctuating needs, supply chain management is one of the most complex aspects of the revenue cycle.

Healthcare organizations must turn a critical eye to their supply chain management techniques if they are to eliminate waste and develop a highly efficient purchasing cycle, says James Spann, Practice Leader of Supply Chain and Logistics at Simpler Healthcare.

Here are his four top tips for maximizing revenue and cutting inefficiencies to create a strong and streamlined supply chain.

Focus on the hidden costs

“The first order of business is to recognize that current initiatives may only be scratching the surface,” Spann told  “In addition to focusing on product costs, focus on distribution and invisible costs as well.”medical-expenses-300x256

When it comes to purchasing products and services, providers need to look beyond the basic value analysis approach.

“Ask yourself these questions,” Spann suggested.  “How much do I pay at time of transaction? And what are my total landed costs of supplies, devices and drugs that contribute to the cost per case?  Taking an activity based cost approach might be appropriate.  Some key areas to focus on are: product standards, purchase price variance, expired products, excess supplies—all will yield additional cost savings.”

“How much do the way I manage and move supplies cost?  Understanding the costs behind utilization, internal distribution, special deliveries, and inventory holding will not only yield savings, but will improve clinician and patient satisfaction,” he added.

The invisible costs of supply chain management are just as important, and often have to do with bad habits developed by clinicians who don’t necessarily trust the organizational approach to stocking their most-needed items.

“In most cases, clinicians just want the products when they need them,” Spann explained.  “But to ensure that happens they oftentimes hoard or opt manage their own supplies.  This can contribute to cost variance and off contract spending which are hard to uncover.  One more invisible cost that is often overlooked is the time spend looking for supplies or waiting for someone to deliver what they need.”

Understand areas of financial waste

Once the organization has identified the right questions to ask, the next step is to pinpoint waste and eliminate it.

“Every hospital is facing the challenge of how to reduce the expense and waste of supplies and drugs,” said Spann. “Many are successful in managing price, and to some extent standardization, but they experience excessive waste in managing the utilization of their supplies.”

“Executives are now looking at their supply chain to contribute to the bottom-line.  Executives need their supply chains to achieve savings on supply/device/drug expense and physician-preferred items, reduce inventory levels, and better manage purchased services — all while realizing resource productivity gains.”

One of the most common areas of preventable waste is in physician preference items, said Spann.  If healthcare organizations try to meet the particular requests of every provider on the team, they may end up purchasing items that are more expensive than necessary, or bulk supplies that are only used by a few clinicians.  If these preferences do not actively contribute to patient outcomes or quality care, they may not be in the best interest of the organization as a whole.

By consolidating and standardizing the types of items available to providers, organizational leaders may be able to better ensure that the stockrooms are filled with cost-effective supplies that will not go to waste.

“Better procurement practices, physician and clinician engagement through strong leadership, and communications programs can help hospitals achieve rapid supply cost reductions of 20 percent or more and keep future cost escalations under control,” Spann pointed out.

“Just reaching the clinical-preference phase can enable a hospital to obtain overall supply cost reductions of 10 percent to 20 percent.  Physicians should be engaged early and often to ensure that products are aligned with clinical outcomes.”

Develop better inventory management

Not only do organizations have to focus on what makes sense to order, but they must be able to determine what happens to the items once they enter the building – and how quickly they leave again.

“The lack of a good capital equipment management system can add significant costs—causing underutilization of existing equipment, or over ordering,” says Spann.

“The lack of a true inventory management in the inventory stock locations will lead to excess and expired inventory.  Supply chains should implement technology to assist in gaining pipeline visibility and information to better manage inventory, and to make data driven decisions related to supply chain performance.”

These technologies may include QR codes or RFID tagging and more sophisticated data analytics techniques that help to track and manage the movement of supplies.

Organizations should keep in mind that supply chain management isn’t just an issue of dollars and cents.  “The supply chain touches every department within the hospital,” Spann reminds providers.  “You must look at the people in the organization, supply partners, and determine how you can get synergy and maximum productivity out of your clinical and supply chain staffers to achieve your supply chain goals.”

Healthcare systems are acquiring hospitals and physician organizations at a rapid rate as they seek to build their financial defenses against value-based reimbursement, and that process can present meaningful opportunities to consolidate purchasing processes, slash the amount of duplicated effort, and standardize inventory management techniques.

Promote clinical education and engagement

In order to achieve a streamlined supply chain that meets the needs of all members of the organization, healthcare leaders must engage their clinical staff and help them to understand why some of their favorite items may no longer be available.

“A focus on clinical integration is critical,” Spann says.  “Clinicians should be engaged early and often” to establish good habits, discourage unnecessary hoarding, and educate team members on the importance of using supplies wisely.

Financial executives should reach out to their Chief Medical Officers and Chief Nursing Officers to develop educational programs for clinical staff, and to generate buy-in from those who have the greatest stake in successful supply chain management.

Creating a physician leadership program may also help to spread awareness and help clinicians understand their role in the financial health of the organization at large, especially during a time of transition to value-based payments and risk-based contracting.

“Today, health systems must be willing to take risks,” Spann says.  “They have to be willing to hand over the keys and allow physicians to co-lead these strategies. Physicians will engage when they understand the issues, and it is very important to let them help craft a solution that they can stick to.”

This article originally appeared here.

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