As hospitals begin transforming to adapt to new healthcare initiatives, they are easing the pain by restructuring and streamlining supply chain operations. Learn how MD Buyline helps hospitals save money on purchased services and consumables in this feature, then visit www.mdbuyline.com for more information.

1. Streamlining the Hospital
Supply Chain: Just What the
Doctor Ordered
InboundLogisticsinterviewedMDBuyline’sLuisMartinez,
directorof memberservices,forfeature storyshowcasing
hospital supplychainlogistics.
As hospitalsbegintransformingto adaptto new healthcare
initiatives,theyare easingthe painbyrestructuringand
streamliningsupplychainoperations.
The hospital supplychainisina transformative phase,asthe Affordable Care Act(ACA) drives
opportunityforcostsavingsandbetter collaborationtodeliverqualitypatientcare.Opportunitiesto
restructure operationsabound,andmajorchallengesare underway.Whilethe ACA isintendedtodrive
downpatienthealthcare costs,supplychainanalystsandassociationleadersare adamantthathospitals
needa betterbalancingactwhenitcomesto streamliningtheirprocesses.
Withmarginsdecliningalongthe healthcare supplychain,providersare reevaluatingoperationmodels
and bestpracticesbyintegratingtechnologiesrangingfromRFIDs tobar coding,and workingwith
managementfirmstorefocusstaffingstructures.While the ACA hashada deepimpactonthe structure
of supplychainoperations,itisonlyone elementof the overall transformation.
In 2013, the HealthIndustryDistributor’sAssociation(HIDA)collaboratedwithglobal management
consultingfirmMcKinsey&Companytopublishthe ThoughtLeaders:Healthcare SupplyChain2015
report.Healthcare providersandexecutivesacrossmedical supplycompaniesreflectedondramatic
changesintheiroperationsandefforts,due inpartto the ACA and otherkeyfactors,includingan
impendingnationwidephysicianshortage andincreasingadoptionof informationtechnology.
Overall,the providerssurveyedindicatedthattheyplantoleanon manufacturersanddistributorsfor
partnershipstohelpthembufferkeyissuesacrosstheirsupplychain.
One such issue isgradual andsteephospital margindeclinesdue tolowerreimbursements.Drawing
fromdozensof interviews,HIDA revealedprovidersexpectoperatingmargindeclinesof upto30
percentbetween2011 to 2015, withone supplychainvice presidentnoting,“Ourentire marginis
expectedtoevaporate startingin2014 because of the lowerreimbursement.”

2. Priorto the ACA,hospitalswere reimbursedbasedonvolume,whenpatientintake,material
consumption,andservicesdeterminedpayout.Now,hospital reimbursementsare incentive-and
performance-based.A keydriverbehindthismodel shiftisthe ACA’sHospital Value-BasedPurchasing
Program, knownas the CentersforMedicare and Medicaidservices(CMS),whichrewardsacute care
hospitalsbasedonthe qualityof care providedtoMedicare patients.CMSalsorewardshospitalsbased
on howcloselytheyfollowbestclinical practices,andhow well eachhospital enhancespatientstays.
Despite this,medical device costsare rising,albeitslowly.In2010, medical device spendingtotaled
$156.3 billionorsix percentof total national healthexpenditures,accordingtothe AdvancedMedical
TechnologyAssociation.Overthe course of 22 years,from1989 to 2010, national medical device
spendinghasgrownslightlyasapercentage of National HealthExpenditures,from5.3 to six percent.
But Gartner Researchunderscoressome goodnewsamidthe risingcosts alongthe supplychain.Its
studiesreveal thatproviderscansave five to15 percentbyimplementingbetterstrategiestoanalyze
and control goodsand servicespurchases.Forsupplychainexecutives,suchstatisticsandstudies
illustrate the needtomove fasttostructure theirorganizationsforbetteraccessto—andunderstanding
of—medical devicesandothersuppliesamonghospitalstaff,notjustamongphysicians.
If you leave purchasinguptothe clinical staff,theywill overstocktoavoidnothaving aproduct to
provide patientcare,”saysLuisMartinez,whorepresentsMDBuyline,ahealthcare andhospital supply
chainmanagementsolutionscompany.“Whilethat’sunderstandable,the supplychainmanager’sjobis
to have enoughstockto avoidanysupply issues.
One challenge isforthose physicianstoacceptthe ideaorthe conceptof change in learningnew supply
chainmethods.Anotherchallenge isthe generalcollaborationfromsuppliers.
They’re typicallyall forprofit,sokeepingpriceshighandvolumeupisimportanttothem,”Martinez
emphasizes.“Lookingtocollaborate strategicallywithhospitalsandsupplychaindepartments,however,
isan ongoingchallenge.
Otherfactors,includinghealthcare procedures,canalsopose a challenge tobettercollaboration.
There’sone majormarketshareholderinthe traumaimplantsspace,”saysMartinez.“Because itowns
the market,and helditforso long,itdoesn’tmove,change price,orconsign.Inthat case,it’shard to
convince physicianstouse somethingdifferent.Andit’shardtoconvince the suppliertocollaborate
more strategicallybecause itholdsthe leverageinnegotiations.
To keepinventorylowfromanefficiencystandpoint,hospitalsare integratingtechnologiestohelp
aggregate crucial supplychaindata.
Inventorymanagementhasgrownmore sophisticated,”Martinezexplains.“Technologiessuchasbar
codingbecome a biggerplayerwithinhospitalsbecause dataiscapturedelectronically.Whenitcomes
to loweringcosts,usingtechnologyhelpscollectdata,butbetterplanningissimpler.