TO: CHIEF SUPPLY OFFICERFROM: CHIEF EXECUTIVE OFFICERRE: FIND MORE SUPPLY SAVINGSThere are two big numbers on the cost side at this hospital. Labor is first and supply chain is second. We're cutting some soft costs out of the labor side, but since supply is taking up more than 20 percent of the cost side, I'd like to chisel out more savings than we have planned for FY 2007.
What is our upside risk with the inflation of supplies?Cost growth for the supply side has actually been somewhat modest based on supply cost for adjusted discharge, says David McCombs, vice president of supply chain operations for Bon Secours Health System in Marriottsville, Md. McCombs says his system monitors 22 DRGs most responsible for driving up device costs, and in fiscal year 2006 the cost went up a relatively modest 13 percent, based on price inflation and product mix. But many supply chain leaders agree that the real risk comes from the misalignment of incentives for physicians and staff to keep device costs down.
Can I get the doctors to go with less expensive supplies?That's a risk that you, the CEO, will have to take. CEOs may be reluctant to take an aggressive stance on supplies with high admitters for fear of driving away their business. David Gilfillan, vice president of materials management for Iasis Healthcare in Franklin, Tenn., says one key is to tie supply chain utilization to evidence-based medicine. Doctors understand data, and they're open to discussions about changing their preference items if the additional expense is not justified by the clinical outcome.
Can you help the IT team look into the cost side?Not only are leaders of materials management playing a significant role in any IT buy, but the entire chain of supplies and materials must mesh with IT. "More of our supply products have to fit in an EMR model even in nomenclature," says Scott Young, director of facility-based operations for HCA's eastern group. "They have to fit into the IT strategy. As clinical information systems become more widespread, the supply chain effort has to become more aligned."
Are we out of ideas for supply chain savings?Of course not. But the supply side of healthcare is not unlike the rest of the industry-averse to change. Strategic supply chain leaders are looking to other industries for new ideas, and some are leveraging knowledge from partnerships with existing vendors to maximize value. And within the hospital industry itself are areas of opportunity that no one might have considered in the past. "Nontraditional areas are being looked at, like drug distribution," says Dan McDow, chief operating officer for Iowa Health System Contracting Services LLC. McDow, McCombs, Gilfillan and Young are members of the Franklin, Tenn.-based Council of Supply Chain Executives.
Should supply chain leaders be members of the strategic team?These leaders are not just the folks in the basement supply room anymore. Many supply side initiatives-especially those dealing with physicians-will require top-level endorsement. "Up until five years ago I would not have had the level of discussion I've had with CEOs and boards," says McDow.
-Philip Betbeze and Jim Molpus
Magazine
