With healthcare costs rising across the board, it's critical for hospitals to examine every area in which overspending may occur and evaluate these areas for ways to save money. According to a Navigant study, the highest costs incurred by hospitals across the country are labor and supply chains.
Supply chains account for an astounding 30% of a hospital's outgoing cash flow, exceeded only by the cost of staffing. Within the hospital supply chain, the largest cost is pharmaceuticals and represents up to a third of supply chain spending.
Hospitals that find themselves coming over budget quarter after quarter should examine their supply chain for efficiency and make changes where appropriate to reduce supply chain spending. In fact, an in-depth analysis found that hospitals could save up to $9.9M every year by simply streamlining their supply chain processes.
Savings to Look For
When analyzing supply chain processes, there are a few key things that personnel should look for.
Eliminating Human Error by Automating Manual Processes
Errors in ordering, data collection, and other supply chain processes can result in a rise in costs. Hospitals looking to reduce supply chain expenses should explore ways to automate manual processes and eliminate the potential for human error.
E-commerce solutions are growing and there are many expense management software solutions available. This software can help capture data at the beginning of the supply chain accurately and manage data throughout the process easily.
In many industries, the simpler the process, the more efficient and cost-effective it is. This is particularly true for standardizing inventory in a hospital supply chain. For example, deciding to purchase a certain type of gauze across the board can save thousands of dollars because you're buying more from one supplier, which generally qualifies for a hefty discount.
In contrast, ordering different types of gauze from different suppliers results in smaller orders and less cost savings. Apply that same principle to all products and hospitals can slash costs by simply deciding to use standard items.
Reducing Hospital Waste
Poor supply chain management can result in wasted supplies, which drives up spending. A good supply management process allows for product use and supply levels to be tracked —often in real time—so supplies are ordered when they are needed. This means that there's less likelihood of expired supplies turning up due to a lack of inventory visibility.
Gartner research suggests that hospitals can reduce supply chain expenses by up to 15% by just analyzing, planning, and controlling the purchase and use of supplies in the facility. Hospitals can enjoy up to a 7% increase in profit margin with this strategy.
Implement Accurate Data Capture
An integral part of supply chain management in a hospital setting is accurate data capture. Hospitals should be aware of all medical devices and products that are being used not only on a facility level but down to what is used during each patient procedure. This data can then be used to anticipate supply needs and costs using monthly averages, as well as enabling the use of the same data in other locations, including electronic health records. Accurate data capture can also provide the foundation for determining how and where costs can be lowered, such as identifying items that are purchased off-contract and integrating those items into orders from existing contracted suppliers.
Joining Group Purchasing Organizations (GPOs)
A group purchasing organization can be a powerful way to save on supply costs. Former FTC chairman Jon Leibowitz suggests that GPOs can generate a cost savings of up to 18% for healthcare supply chains. Essentially what a GPO does is it gives a healthcare organization, or multiple healthcare organizations, more buying power. These organizations can negotiate lower costs much in the same way that discounts are often applied to bulk orders of products. GPOs also provide facilities with more options for purchasing supplies and create healthy competition in the healthcare supply marketplace, which also helps to keep costs low.
There's little doubt that increasing the efficiency and effectiveness of a hospital supply chain can drastically reduce costs for hospitals, thereby increasing profit margins. In an economic climate where insurance companies are paying bottom dollar and hospitals are having to write more off than they are getting paid for procedures, it's important to devote time and effort to discovering savings wherever possible.
Although streamlining a hospital supply chain can be difficult, especially for large facilities who are acquiring new practices at breakneck speed, there's a great deal of value in working with individual providers to help them understand the benefits of being cost-effective within their practices. Hospitals can help providers get on board with practices like standardizing inventory by crunching the numbers and illustrating to them the cost savings and how this translates to their own bottom-line.
About Michael Wilson
Michael Wilson is AFFLINK'S Vice President of Marketing and Communications. He has been with the organization since 2005 and provides strategic leadership for the entire supply chain team. In his free time, Michael enjoys working with the Wounded Warrior Project, fishing, and improving his cooking skills.