5 Ways to Improve Healthcare Supply Chain Management

In this age of payment reform, it’s vital for healthcare supply chain management to be effective if healthcare executives want to reduce costs and improve quality. An efficient supply chain has the ability to improve the delivery of healthcare services. However, managing complex supply chains is not a simple task. Many supply chains are characteristically fragmented.

In this article, RevCycleIntelligence.com breaks down five ways that providers can improve their healthcare supply chain management to make it more efficient.

Manage contracts carefully

For many providers, it’s easy to let supply chain contracts fall through the cracks once they hand the contracting processes over to group purchasing organizations (GPO). Most hospitals use GPOs to take care of contracts, according to the Healthcare Supply Chain Association.

GPOs are able to leverage contracts based on members' purchasing ability to negotiate contracts. They are also able to help providers save costs on products and services. Although GPOs handle aspects of contracts, providers still need to pay attention to their contracts by examining pricing.

In a market-based healthcare system, the rates set by competitors and the amounts paid under health plan contracts significantly impact the prices set for services. These market forces should be addressed in the hospital’s pricing structure. If providers don’t pay attention to contracts and market forces, they may be overcharged for products or their contracts could expire.

Providers should also check their purchasing contracts carefully so they are aware when vendors include “strict confidentiality clauses” regarding negotiated prices, Health Financial Management Association (HFMA) explained in a study.

Develop effective inventory management

Many times, manufacturers struggle with moving inventory through their supply chains in a timely fashion. When products expire as a result of not being used appropriately, revenue is lost and profit margins are hurt. This is why it is so important to manage the inventory process effectively. Healthcare executives should use a quality equipment management system to help them manage inventory levels.

“The lack of a good capital equipment management system can add significant costs—causing underutilization of existing equipment, or over ordering,” said James Spann, Practice Leader of Supply Chain and Logistics at Simpler Healthcare.

When managing inventory levels, executives should also examine the individuals in their organization and their supply partners. They should figure out how to create synergy among these groups, while also maximum productivity.

Collaboration is an important part of inventory management. Inventory levels can remain at a healthy level if both suppliers and providers are working together to ensure that medical products are used before they expire. When collaboration is achieved during inventory management, there is the potential for costs to be reduced.

Use technology and analytics to make operations run smoother

To successfully make improvements to a supply chain, healthcare executive should also use effective technologies, which also need to be supported by strong analytics. Implementing data analytics and automation tools can help make supply chain management a less difficult process.

"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,” said Tony Vahedian, Cardinal Health’s General Manager of Medical Services and Solutions.

When healthcare executives focus more on technology and automation, they can help prevent financial waste while also supporting more transparent, data-driven choices.

Have an effective pricing system in place

In order to have an effective pricing system in place, providers need to understand costs. To achieve this, they can use cost-accounting systems to “run detailed information related to actual and incremental costs of each service,” HFMA said. Many organizations are also using accounting methods to help their pricing systems run smoothly. These methods include ratio of cost to charges and Medicare cost allocation.

Pricing systems also need pricing strategy. Providers should capture, track and manage information on supplies, labor and other expenses.

“Hospitals need to know the relationship of cost to charge at the procedure level,” HFMA said. Overall, it’s in a provider’s best interest to make investments in tools that will help them gain insights on pricing, how to reduce costs and how to create more value.

Additionally, it’s a good practice for providers to compare pricing from their systems with those of their competitors. They can do this by reviewing commercially or publically available databases, HFMA said. Also, some states provide data sets that allow hospitals to “benchmark with competitors individually or by region.”

Improve order accuracy and order cycle times to lower costs

Healthcare providers sometimes struggle with a large error rate associated with ordering processes. When the wrong products are ordered, revenue is lost and sometimes facilities don’t have the products they need to deliver services. Ordering errors can also lead to medication errors. This can lead to poor health outcomes.

According to the Agency for Healthcare Research and Quality (AHRQ), most inpatient medication errors happened at either the ordering or transcribing stage. As a result, it’s vital for providers to try to improve their ordering accuracy.

If providers are able to order the products they need accurately, less time is wasted on trying to reorder the correct product. Providers should strive to have order controls in place that help them improve supply chain efficiencies. One way they can do this is through a computerized provider order entry (CPOE) system. This system can significantly help providers with their ordering processes. CPOE leads to more efficiency by decreasing turnaround times in the ordering process for care.

“A CPOE system, at a minimum, ensures standardized, legible, and complete orders and thus has the potential to greatly reduce errors at the ordering and transcribing stages,” AHRQ stated.

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