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Analysis

Unnecessary Hospital Supply Chain Spending Reaches $25.7B

By Jack O'Brien  
   November 13, 2019

The potential savings opportunity for hospitals has increased by nearly 12% since 2017.

Hospitals and health systems unnecessarily spent $25.7 billion on supply chain operations in 2018, according to a Navigant study released Wednesday morning.

Wasteful spending on supply chain by provider organizations has increased by nearly 12% since 2017, with the average annual supply expense reduction opportunity rising 22.6% over the same period.

According to the study, the most significant challenge facing hospitals and health systems is a disconnect between supply chain administrators, the organization's leadership, and physicians, resulting in higher amounts of unnecessary spending.

Related: Annual Supply Chain Savings Missed by Hospitals Total $25.4 Billion in 2017

Rob Austin, director at Navigant, told HealthLeaders that "things are getting worse" for hospital supply chain operations.

"Despite 10% to 15% of healthcare supply chains doing a good job and making strides in terms of utilizing data analytics, strong contracting processes, and integrating with clinicians, they're widening the gap between the top performers and everyone else who is falling further behind," Austin said.

Austin said incorporating physicians in the supply selection process is what the most successful organizations have done to spend more efficiently on operations. He added that health system supply chain operations also suffer from under-resourcing, even though the segment accounts for the second largest spend at hospitals behind labor expenses. 

"In a time when everyone [is dealing with] compressed margins across the industry, people are cutting overhead which does make sense," Austin said. "But in this case, investing in someone who's strong in supply chain will return their salary five or six-fold."

Related: Physicians Can Improve Your Supply Chain: 3 Reasons

Austin said that systems with better control of item master data as well as spend and pricing data, have an easier time dealing with suppliers. The study encourages health systems and hospitals to collaborate with key suppliers in order to "conduct joint product development" and foster friendly relations going forward. 

The study also found that savings opportunities are low for high performers in both the Medicare Hospital Value-Based Purchasing Program and Hospital-Acquired Condition Reduction Program. 

Chuck Peck, MD, former CEO of Piedmont Athens Regional Medical Center, told HealthLeaders that he has witnessed several critical shortages of surgical medical supplies in recent years which have driven up pricing for hospitals due to scarcity. 

However, high performing organizations maintain contacts in the supplier community, Peck said, which allow health systems to avoid medical supply shortages that negatively impact the bottom line. He also stressed the need for hospital leaders to solicit input from the clinical staff in the decision-making process around supplies.

"Getting [doctors] information and getting them involved in the choice as opposed to being told, [since] most doctors like to be part of the conversation up front, they'll make the right decision," Peck said. "They're not interested in bankrupting the place that they're able to do their surgery more than anyone else, they just don't have the information."

Related: How to Limit Waste in Hospital Supply Chains

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


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