Most Hospitals Miss Out on Millions in Supply Chain Management Savings

March 28, 2019

The mistakes hospitals are making-and what they can do.

Hospitals can’t afford to overlook cost-savings opportunities, yet many are failing to make supply chain management improvements that could save them millions.

That’s according to a recent survey of 100 healthcare executives and supply chain leaders by Sage Growth Partners, a healthcare strategy, research, and consulting firm. The survey was conducted for our company, Syft, which offers the most advanced clinical supply chain platform for hospitals and health systems.

Most survey respondents agree that improved supply chain management can reduce healthcare costs and improve quality. In fact, more than half of respondents say it can increase margins by 1 to 3%, and nearly one-third say it can increase margins by more than 3%.

For most hospitals, even a 1% margin increase could make a big difference. Take, for instance, a hospital with an average total revenue of $900 million. That hospital could gain between $9 million and $27 million by improving supply chain performance.

While hospital executives recognize the value of containing supply chain costs, the survey indicates that not all of them are taking the steps necessary to optimize supply chain management. Here are three mistakes hospitals are making, and how they can turn things around:

1. Failing to invest in supply chain management

Most survey respondents (98%) said supply chain management is a high or medium priority at their hospital, but only 13% said it’s a top investment priority for hospital operations in 2019.

In fact, when asked about their top operations investment priorities, supply chain management received the lowest response rate of all choices, which included:

  • Patient throughput/flow: 24%

  • Process improvement: 21%

  • Perioperative environment: 15%

  • Staffing turnover, retention, management: 15%

While all of these areas deserve investment attention, supply chain management should be higher on the priority list. The supply chain is one of the biggest areas in which hospitals can reap cost savings, so investments have big payoffs.

Sage Growth Partners’ survey is not the only one to find that investing in supply chain management is a smart move. An October 2018 report from Navigant consulting firm found that tightening control over and identifying waste in the supply chain management can help reduce expenses by an average of 17.7%-or $11 million annually-per hospital.

Related: The Perks of Asking Hospital Physicians to Go In-Network

Another reason investing in supply chain management should be a top priority: Supply costs will grow significantly over the next few years. The Association for Healthcare Resource & Materials Management projects that they willsurpass labor costs by 2020.

2. Underestimating the value of analytics

Hospitals have several options when it comes to supply chain management tools, but the survey indicates many aren’t using solutions that lead to the greatest cost savings.

Nearly one-fifth of hospitals don’t analyze their supply chain at all, according to the survey, and many are performing only basic functions for supply chain management, such as tracking inventory. This means they are missing out on sophisticated data analytics capabilities that can reveal important trends related to cost savings.

Take the operating room as an example. This is one of the highest cost areas of a hospital when it comes to the supply chain, but more than half of survey respondents said their hospital uses manual or spreadsheet processes to track supply chain information in the operating room.

Without more sophisticated data tools, hospitals can’t identify important trends related to surgeries, such as how different surgical supplies correlate with patient outcomes.

For example, a hospital might find that some surgeons are using a much costlier supply or device for the same procedure than other surgeons. With analytics tools, that hospital could then run a utilization and cost report along with a patient outcomes report to analyze with the surgeons performing that procedure for clinical/operational decision making. The opportunity offers significant cost savings while supporting quality patient outcomes.

3. Relying on data snapshots, rather than the bigger picture

As hospitals participate in more value-based payment models (such as bundled payments) they’ll need to find cost-savings across full episodes of patient care (such as all the services and supplies associated with a hip or knee replacement).

For that level of insight, they’ll need supply chain management solutions that provide an enterprise-wide look at usage and costs. The broader look enables hospitals to assess the best opportunities for cost savings system wide, and it can help align clinical and business optimization goals across the entire system.

More and more hospitals are recognizing the need for supply chain analytics tools and enterprise-wide systems, according to the survey. Nearly two-thirds of respondents said supply chain analytics can positively impact success with value-based payment models, and more than 40% said a single platform with an intuitive dashboard and analytics suite has the most potential to positively impact business operations.

To be actionable, analytics need to be delivered daily and in real-time. Syft has built its clinical supply chain automation platform to provide analytics on activity as it’s happening, allowing operators to make real-time decisions which can impact performance before the week, month or quarter is over. 

In the next few years, leading hospitals will move beyond this recognition to action. They will invest in more sophisticated supply chain management tools, prioritize their usage, and reap the rewards.

Todd Plesko is CEO at Syft, a leading national provider of inventory control and end-to-end supply chain cost management software and services.