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Analysis

Changes to Supply Chain Can Boost Margins by 3%

By Jack O'Brien  
   March 07, 2019

A survey by Sage Growth Partners commissioned from Syft found that optimizing the supply chain could bolster the bottom line for healthcare organizations.

Opportunities to counter the rapidly declining margins that health systems face may lie in optimizing supply chain management operations, according to a Syft survey from Sage Growth Partners released Thursday morning.

Just over 50% of respondents stated that changes to their supply chain management could result in margin improvements between 1% to 3%, with more than a third of respondents expecting growth beyond 3%.

Nearly two-thirds of respondents added that there is a clear return on investment (ROI) related to supply chain analytics.

Related: Want to Save Money on Supply Chain? Use Physician-led Councils

And yet, despite seeing the financial value in revising the supply chain, organizations have not adequately invested in this priority, with only 13% saying it deserves the highest operational investment. This was well behind other areas affecting the enterprise's bottom line, including patient throughput, process improvement, and perioperative environment.

Todd Plesko, CEO of Syft, told HealthLeaders in an interview that understanding the role of supply chain is crucial before any actionable items can be put into place.

"I think the biggest takeaway is that the numbers themselves have fidelity more so than in the past, [given] that there are systems in place now and a proven run rate to show that supply chain can truly move the needle," Plesko said. "This is as opposed to the past when it felt a bit more hypothetical. The tools exist out there to prove it and show definitively that you can drive down costs with supply chain."

Where will changes to supply chain impact the organization?

  • 97% - Cost 
  • 67% - Value-based care
  • 60% - Quality
  • 45% - Staff satisfaction and retention
  • 43% - Patient outcomes
  • 37% - Regulatory adherence

Plesko added that most systems are recognizing the potential to slash costs through revamping supply chain management as other trends or solutions have fallen flat in recent years. He compared the trend of leaders coming around on the concept of supply chain analytics to the IT boom in healthcare during the late 1990s and early 2000s.

Related: Physicians Empowered to Help With Supply Chain

What is the current approach to supply chain?

  • 39% - In-house solutions
  • 19% - Third-party solutions
  • 19% - No analysis
  • 16% - EHR
  • 7% - Outside consultants 

Even among those who are using supply chain analytics, it's primarily for basic services like tracking inventory or consolidating suppliers. Still, 95% of respondents stated that they are satisfied with their supply chain management. 

Related: Physicians Can Improve Your Supply Chain: 3 Reasons

    As the shift towards value-based care continues and the healthcare industry generally gravitates towards standardization, in procedures as well as what equipment or devices doctors with varying cost points use, Plesko said he sees supply chain playing a key role.

    "In my opinion, the intersection of initiatives that may seem somewhat unrelated like BPCI, value-based care, and truly understanding case cost and what it truly takes to complete a surgery or procedure, that's where those things intersect," Plesko said. "This is in favor of the industry, which is starting to understand what the real costs are and what the real variance is, which ultimately, whether we like it or not, drives us more towards standardization."

    Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


    KEY TAKEAWAYS

    According to Syft, a hospital with $900 million in revenues and a 1% margin could expect growth between 1% to 3%.

    Sixty-six percent of respondents said they manage their supply chain operations "very or extremely well," though the survey calls for a more critical self-assessment.

    CEO Todd Plesko says that understanding the role of supply chain is crucial before any actionable items can be put into place.


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