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Why Healthcare Needs Value-Based Supply Chain Management
The ongoing shift away from fee-for-service into the value-based reimbursement realm should intensify healthcare providers’ focus on supply chain management.
Healthcare supply chain — the holistic flow of relationships between suppliers and customers — is about efficiently delivering low cost care as goods and supplies, such as a pair of doctor’s gloves, move from point of purchase to point of use.
A reported one-third of hospital decision makers believe their hospital supply chain is functioning at maximum efficiency, but the other two-thirds are finding themselves stuck with one foot in fee-for-service and the other in value-based reimbursement.
Many of these hospitals are not implementing the appropriate supply chain management strategies, even as budgets get gobbled up and mergers and acquisitions increase.
Healthcare providers have a weak sense of what products they need. Expensive inventory is being ordered excessively, said the authors of a 2013 article in Perspectives in Health Information Management.
Pacemakers, defibrillators, and catheters are merely collecting dust instead of being put to good use in an operating room.
Visibility and collaboration may help cut costs and ensure more products are consumed before their shelf life ends. But time is of the essence. As health premiums creep upwards, so do supply chain costs — which total $5 billion.
A large value stream with a lot of moving parts is bound to have some snags, and greater cost pressures are forcing healthcare executives to recognize that the supply chain status quo must be changed.
Some of the most common supply chain costs — clinician hoarding, upgrades and repairs, drug diversion, nonstandard ordering methods, and unnecessary product stockpiling — are ones nearly every hospital employee can relate to.
But the supply chain is not only about products. It is also about the people who buy, move, and use them.
The human supply chain links — such as physicians, providers, manufacturers, and distributors — are failing to communicate cohesively and productively.
Hospital executives need to be less focused on product price reduction and inventory streamlining and more attuned to the much larger supply chain picture.
Fee-for-service is driving hospitals to change their ways
Pricing accuracy, greater levels of transparency and communication, the dissemination of actionable data, and more revenue cycle accountability will all put some much needed discipline back into what is now a relatively shaky supply chain picture.
“Risk sharing, value-based reimbursement, exchanges, and consumers with new insurance are driving hospitals to be conservative with cash, to go after every opportunity to free capital, and to look at cash philosophy in a way they’ve never looked at it before. It’s a game changing time now,” said Ruby Raley, Associate Vice President of Product Strategy at Edifecs.
“Hospitals have capital and human financial tied up in all kinds of software and regulatory initiatives. They have the rising cost of pharmaceuticals eroding margins. They have the rise of consumerism,” she explained.
Hospitals are managing a higher volume of cash cycle issues, write offs, write downs, and payment plans than before. They are also struggling to remain fiscally conservative within an evolving consumer-driven payment landscape.
“All of the new consumers joining the exchange are great for hospitals. It's really going to help many of them stay solvent and continue forward,” Raley stated.
But perhaps the greatest supply chain opportunities revolve around establishing creative partnerships with revenue cycle management staff to cut down on productivity waste.
“If you’re a university hospital network, check to see if you have a colleague that’s running a logistics program or an industrial engineering program and see if grad students and senior students can come in and do the efficiency studies for you,” she suggested.
“Hospitals have capital and human financial tied up in all kinds of software and regulatory initiatives. They have the rising cost of pharmaceuticals eroding margins. They have the rise of consumerism."
This may potentially help cut down some of the most common supply chain costs — especially clinician hoarding and unnecessary product stockpiling.
“Inventory gets squirreled away in department cabinets across the hospital,” she maintained. “But when I don’t even track it at all, because I think it doesn’t matter and price is so low, then what I have is a lot of stockpiling.”
“We had shortages of Warfarin for a while and there were huge amounts of hoarding, because that’s a lifesaving drug if there’s potential for clotting,” she said. “No one can blame the nurses for making sure their patients got that.”
In order to ensure that clinicians can access the supplies they need without resorting to hiding away hospital supplies, “the people in revenue cycle management need to stay close to the computer screen and work the transactions, the numbers, and the issues,” Raley advised, allowing nurses and physicians to reallocate their valuable time to taking care of their patients.
Bringing Automation Into Supply Chain Management
Implementing data analytics and automation tools may make supply chain management much easier.
Automation allows clinicians to spend more time delivering high quality care and less time squirreling away their favorite products just to ensure they are available when required.
“It allows multiple different value propositions, but really allows the ability to capture data at every point in the supply chain and share that data all the way back to the key constituents,” said Tony Vahedian, Cardinal Health’s General Manager of Medical Services and Solutions.
Technologies like radio-frequency identification (RFID) are helping to close the charge capture gap, especially when it comes to high-value products like implants.
RFID is a wireless system that collects tracking data through radio-frequency electromagnetic fields. Products are fitted with a scannable tag similar to the barcode found on groceries or library books. The tags can provide information about the item’s contents, whereabouts, manufacture date, expiration information, and shipping data, allowing providers to track the object throughout its lifecycle.
"Data and analytics can transform the healthcare supply chain into a strategic business asset, but solutions need to connect technology to everyday processes and make data visible.”
“[RFID] really closes the loop in a big way between charge capture and the patient's actual event that they're having at the hospital,” said Vahedian.
"Data and analytics can transform the healthcare supply chain into a strategic business asset, but solutions need to connect technology to everyday processes and make data visible,” he explained.
The healthcare industry is still struggling to streamline its supply chain management strategies because so many different people, organizations, and touch points are involved in the process, Vahedian said.
“It starts all the way back at the manufacturer, and it plays itself out from manufacturer to sales rep to warehouse to the trunk of a sales rep, to the inventory location inside the hospital, to a room inside the hospital, and finally, potentially into a patient,” he explained.
“The dollars that are trapped in the system are significant. The only way to really solve it is to create a platform and provide the data and analytics for everyone that has a piece of the puzzle.”
Data-driven platforms allow information to be shared so that the industry can solve some of its greatest cost problems.
“This is becoming a consumer-driven healthcare space where we, the consumers, feel the cost,” he said. “There’s no reason some of costs in healthcare are where they should be.”
“Whether it's to take cost out, whether it's improved quality of care, whether it’s to support the expansion of many of these large integrated delivery networks; whether it's standardized products or workflows, supply chain is becoming more and more relevant,” he added, and it “will continue to become more and more relevant as the entire healthcare system goes through the changes that are ahead, in particular, with reimbursements and pressure on the cost side.”
It all starts with good information
Tracking and monitoring products in a transitional reimbursement landscape means focusing on the greater importance of big data.
“There cannot be this notion of, ‘Well, we’ll just build as much as we can build and whatever sells is great and whatever doesn’t sell, we’ll just dump,’” said Gary Meyers, CEO of FusionOps.
“It all starts with good information. They have to know what they have. They have to know when it’s going to expire. They have to know all that information and be able to make decisions. Before, the volume of data was just massive and they couldn’t manage it all.”
A product approaching its expiration date with a week left of “useful life” becomes pretty much unsellable, Meyers said. Traditionally, pharmaceutical manufacturers trashed this type of product and took it as a write-off.
“But now they are starting to use new tools and new technologies to really understand not only what inventory [they] have, but what the demand is [for] the expiry date of all these products,” he added.
“It all starts with good information. They have to know what they have. They have to know when it’s going to expire. They have to know all that information and be able to make decisions."
With more accurate data on hand, pharmaceutical manufacturers can cut their own costs by considering taking advantage of discounted markets or even donating a product. Theoretically, these savings could be passed down the line and reduce wasted spending for the healthcare system as a whole.
As big data becomes more accessible, information gets actionable, Meyers added.
“If you have all this data and it’s telling you all kinds of information, you should be able to predict what the next patient is likely to experience and thereby have a better outcome,” he said.
“Every company is looking at how to leverage big data to help in any one of these areas: patient outcomes, improving and reducing the cycle time for manufacturing, ensuring they don’t have excess inventory that they have to write off,” Meyers stated.
RFID technology, as well as the growing number of sensors, monitors and connected devices that bring vast volumes of data into the process of revenue cycle and supply chain management, are playing a key role in this transformation.
“All of those kinds of improvements and efficiencies result in the ability to have lower priced product in an era where previously companies were charging whatever they wanted and didn’t have to worry about a cost structure,” he said.
“When you talk volume to value, what’s going to be very important in this whole movement is really being able to determine efficacy of various treatments and also to predict treatments and predict outcomes. This is an area where having information and being able to access the very latest technology and data will make a huge difference.”
Are competing data standards holding the industry back?
The sticker price — and coinciding sticker shock — of goods and services matters even more when healthcare organizations are operating within tightening financial margins.
Providers who crack the code of big data analytics may find themselves in a better position for success as fee-for-service reimbursements fade into history, said Steve Kiewiet, Vice President of Supply Chain Operations at BJC HealthCare.
“Supply chain is being viewed as a much more strategic enabler of health system objectives then in the past,” he said. “A lot of that's of course driven by the economics of health care changing.”
The industry needs to turn an overwhelmingly messy collection of big data into actionable information, but poor data integrity and a lack of standardization is preventing providers from leveraging many of the resources at their disposal.
“From the non-pharmaceutical product side of the world, a lack of data standards [creates] an immense amount of labor to just clean up the data in a way for systems to pull that together in some meaningful way,” explained Kiewiet.
"We waste millions of dollars and hours in managing data accuracy and data integrity and price legacy. All of that has a downstream implication."
When products arrive in daily with six different barcodes on them, all in different formats, figuring out how to read them becomes an arduous task, which often involves the use of different scanners.
This convoluted approach puts unnecessary cost right back into the system.
“It's this battle of standards,” Kiewiet claimed. “That hurts us and it eliminates a lot of our opportunity to do even greater work in managing our data and trading our data to use valuable information.”
Regulators and other stakeholders have recognized that these issues must be addressed, and have volunteered a variety of suggestions that may help solve the problem. Discussions about the use of unique device identification (UDI) regulations, GS1 standards, and the importance of more mainstreamed medical device identification have been on the rise.
A 2013 rule released by the FDA, for instance, established a common, worldwide product identification system for all nationwide medical devices on the market.
“But the adoption and limitation of that is slow,” Kiewiet pointed out. “It is time to see the value for that down the road is large. It's worth the effort. There is just not enough push either from a regulatory standpoint or from the healthcare providers coming together and demanding that of our suppliers.”
“We're confident and trust that the price is the price. We waste millions of dollars and hours in managing data accuracy and data integrity and price legacy. All of that has a downstream implication,” he continued.
The solution may lie in properly assessing supply and demand. Understanding what products to order — or not order — next according to patient need for a given population results in more accurate spending.
It is this new and improved supply chain approach that will result in improved materials management and much more advantageous patient outcomes in the long run.
The supply chain future is about mending broken links
A healthcare system that delivers the right product at the right place at the right time can become reality.
But providers must work diligently to develop the core competencies required to make accurate estimations about inventory and prevent spending increases that occur with little to no justification.
Continued investment in automation and data analytics, as well as a push towards greater data transparency and reliance on more streamlined standards, may help to mend broken supply chain links.
Provider organizations are beginning to recognize that greater alignment of revenue cycle and clinical data systems may help deliver high quality, low cost care. A joint revenue cycle and supply chain approach may increase claims management and reimbursement accuracy and make cost-to-charge data capture more seamless than before.
As providers tentatively put more and more of their revenue cycles at risk through value-based contracting, they must redefine their supply chain management priorities to ensure that they can leverage new technologies to cut extraneous costs.
In order to succeed in this new era of healthcare reform, organizational leaders should evaluate their supply chain management activities, consider the acquisition of analytics tools, and prepare for a future in which every dollar - and every box of gloves - can be tracked, managed, and used effectively.
