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Analysis

Health Systems Scour the Globe for Low-Cost Supplies

By Christopher Cheney  
   May 23, 2016

Supplies are second only to labor among the highest costs for most healthcare providers. As health systems look for ways to increase value in the delivery of services, global sourcing of supplies is becoming an increasingly attractive option.

Supply chain executives at some of the country's largest health systems are searching worldwide for manufacturers that can help them cut costs while maintaining quality.

Particularly for high-volume supplies such as clinical gloves and gowns, global sourcing is emerging as a significant driver of boosting value at healthcare providers, says Marc Prisament, director of product development and global sourcing at the Manhattan-based NewYork-Presbyterian health system.

"This gives you another option. It's a great extra tool. It shows significant savings on a percentage basis, and it shows dollar savings," Prisament says.

Over the past three years, New York-Presbyterian's global sourcing program has grown from a dozen stock keeping units (SKUs) to more than 80, with an average cost savings of 25% to 30%, he says.

Sourcing high-volume supplies such as plastic basins, slipper-socks and tourniquets from low-cost manufacturers around the world including China has cut annual supply chain spending at New York-Presbyterian by about $1 million, Prisament says. "That's $1 million we wouldn't have otherwise."

NewYork-Presbyterian health system is organized in four divisions:

  • NewYork-Presbyterian Hospital has six campuses: two academic medical centers, two acute care hospitals, one children's hospital and one behavioral health hospital
  • NewYork-Presbyterian Regional Hospital Network features acute care hospitals in Bronxville, Cortlandt Manor and Flushing
  • NewYork-Presbyterian Physician Services features primary care and specialty care physician practices
  • NewYork-Presbyterian Community and Population Health includes NewYork Quality Care, an accountable care organization  

For the year ending Dec. 31, 2014, NewYork-Presbyterian Hospital posted total revenue at $4.5 billion.

St. Louis-based Mercy Health has been pushing its global sourcing efforts aggressively for the past four years, says Joshua Sandler, director of business development at Resource Optimization & Innovation (ROi). Mercy incorporated ROi in 2002.

"Mercy created ROi. We are essentially their supply-chain arm," Sandler says.

Through global sourcing, ROi is projecting to save Mercy $2 million on high-volume supplies this year and $4 million next year, he says. "We typically see no less than a 15% cost savings for any [SKU] category. Health systems won't switch out [an SKU] for 5%."

Mercy operates 45 acute care and specialty hospitals in Arkansas, Kansas, Missouri and Oklahoma. For the year ending Dec. 31, 2015, Mercy posted patient service revenue at $4.3 billion.

The health system owns 90% of ROi. Baton Rouge, LA-based Franciscan Missionaries of Our Lady Health System owns the remaining 10% stake.

Keys for Achieving Global Sourcing Success

The primary guiding principles of global sourcing are relatively simple, Prisament says. "Global means going directly in the world marketplace to the manufacturers who make the product at the lowest cost without sacrificing quality."

For healthcare providers, picking which products to source on a global basis and getting those products to medical facilities is relatively complicated, he says. "You have to find items that can be readily sourced without sacrificing quality… It is as much an art as it is a science."

Both NewYork-Presbyterian and ROi have focused their global sourcing activity on low-cost, high-volume products. "Most of these products often get very little attention," Prisament says.

Volume is a key consideration when changing the source of low-cost products, Sandler says. "You're talking maybe a dollar of savings on a product; but when you're spending $2 million on a product such as a health system, you have significant opportunities for cost savings."

Engaging clinical end-users at the beginning of a sourcing change process is critically important. "You need to have clinical input. You don't want to bring in items and not be able to push them out to the clinical end users," Sandler says.

Christopher Cheney is the senior clinical care​ editor at HealthLeaders.

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