Rethinking Purchasing Possibilities and Benefits

Maintaining contract compliance within the hospital or group while allowing access to products that are often not daily-use items is a unique and challenging aspect of hospital supply chain management.

Too much freedom or too much structure can both be equally inefficient. While standardization is a worthy goal when it comes to saving money and preventing waste, it cannot address the variables and unpredictable nature of health care delivery. Lack of standardization leads to waste, increased expenses, and diminished quality control. Juggling these two opposed objectives is imperative to a supply chain system’s ability to support the needs of both their medical providers and communities.

Supporting patient care requires supply chain to be flexible and adaptive. Consider how many patient types there are – men, women, babies, elderly, tall, short – all of which factor into the care the patient will need. Further, no two patients are going to have the same needs even if they arrive at your organization with the same diagnosis. Your providers, who are using the supplies that you provide, come from very different backgrounds and training and may be familiar with different supply solutions than you offer through your contract. The tools the provider is most comfortable working with are often going to achieve the best outcomes for the patient. Compound this with the number of new drugs and devices that enter the marketplace, and it becomes clear that it is impossible to have all of them available through your current contracting. These examples illustrate the clear need for a flexible system.

Additionally, the number of machines, beds, carts, monitors and other supplies that are needed to support a patient from the time they enter your facility until they are discharged is staggering. To support their health system, supply chain management must keep enough supplies on hand not only to treat patients who come in, but also to have backups in case something goes wrong. At the same time, they cannot have so much of something on hand that it expires and must be thrown away. Tracking the expiration dates of the different drugs and devices, tracking back orders and recalls and keeping PARS current is a never-ending battle. These are just some of the quality requirements of the hospital supply chain that makes standardization so appealing. So how do you build your system so that you can standardize to maintain quality and control cost while at the same time allowing the flexibility your medical staff needs to care for patients?

There are a variety of options you could employ. You could use a purchasing system that aggregates many vendors onto one platform. An example of this approach in the retail space is Amazon. This approach has allowed them to dominate their market space. While there are profound differences between retail and healthcare, the idea of a single platform, a one-stop shop that allows flexibility and control is an idea to be considered.

There are many benefits to such a system. It would streamline ordering, shipping, billing, logistics, and data management of all the vendors and their products needed to support your organization’s care delivery. DSCSA and GS-1 requirements could be woven into product tracking data and even blockchain, extending the safety and reliability of products from manufacturer to delivery or transfer. Now, what if that single-source marketplace could be implemented at all group facilities with the accounting, reporting, data visualization tools, and product tracking available for regional managers and corporate headquarters? What if you could establish a consistent purchasing platform that gave you useable analysis on purchases, sales, exchanges, department usage, short-dated products, inventory across multiple departments and more? The benefit of that type of system would provide positive outcomes and enable higher levels of efficiency, visibility, and opportunity. It promotes less waste, greater security, and control for multiple stakeholders while at the same time maintaining the flexibility needed to support the ever-changing landscape of healthcare. This approach would meet the needs of organizations both large and small.

Smaller hospitals struggle with higher prices due to lower volume usage and access to multiple vendors to promote a competitive environment. For smaller hospitals and surgery centers, access to an aggregated source for products would provide significant opportunities to multiple vendors without the cost and expense of huge software capital output. Additionally, a new platform may provide some flexibility on minimum order requirements, which often create wasted products, reducing operating margins and ultimately jeopardizing survival.

For larger hospitals who have a significant number of vendors, the ability to aggregate those vendors (on- or off-contract) into a single universal system would be a huge benefit. When a new product is approved for purchase at a hospital, the OEM and product(s) must be added as a vendor in the purchasing software system. Large hospitals typically work with purchase orders which can add a significant amount of work to gather each vendor’s information for purchase, shipping, billing, and returns if needed. Additionally, many of the larger hospital groups and systems are often saddled with legacy software both for purchasing and inventory management. At some facilities, as many as seven different variations of the same category of software are used, so there is no visibility into existing sister hospitals’ purchases or quantities until the data is manually configured for analysis. With hundreds of vendors and the constantly changing product needs for a large patient population, adding and subtracting items and OEMs in the current software system is time-consuming and inefficient. A single source would provide a much-improved resource for both processes and allow for standardization across the system. So why doesn’t this solution exist? The answer to that is very complicated.

It is estimated that approximately 760 billion dollars are wasted annually in healthcare, partly because of the way we manage supply chain (“The Best Care: The Path to Continuously Learning Health Care in America,” National Academy of Medicine). This staggering number is also driven primarily by three factors. The first is lack of motivation that the drug and device industries have to change their ways. The second is legacy supply chain management systems. The third is lack of innovation of supply chain systems and processes.

Like any other company, drug and device companies are motivated by profit. While they are developing the next great product to improve people’s lives, they are taking on risk. To mitigate the risk involved with growth, they rely on a primarily not-for-profit system with some of the most antiquated and inefficient purchasing and inventory management systems for a steady supply of revenue. Over time, these companies have come to view waste as a benefit. This is short-sighted as medical device and drug companies should also welcome a one-stop shop with robust capabilities. All purchase orders, logistics, accounting, and data visualization is recorded and tracked for sales efforts in such a system. Having this information available in real-time on usage, whether you are on a national or local contract, sales by hospital, system, and region is very valuable.

Additionally, exposure on the platform and direct purchases without vendor set up at aggregated facilities would be a significant benefit for driving sales opportunities. These benefits far outweigh counting on healthcare organizations to order more than they need in order to drive the volumes needed to maintain profitability. The habit of ordering more than they need is enabled by legacy software systems.

For many of the large legacy software systems used currently in hospitals, the effort and expense to develop technology like the one we have described is either cost prohibitive or the solutions developed are so complex to the end user, they become frustrated and revert to traditional solutions like spreadsheets. The reason these systems remain competitive in the marketplace and not supplanted by a startup is relatively simple. Most healthcare delivery systems operate on a fixed income, and technology investment has been very expensive with questionable ROI. This makes organizations change averse. To many, the security of knowing that a product has been around for a long time, despite its flaws, prevents looking for alternative solutions. This makes it very difficult for new players such as startups, to get access and gain a foothold to take market share from those legacy systems, and so billions of dollars in operating costs continue to be wasted.

Why haven’t healthcare organizations innovated to address these issues? Like device and drug makers, like legacy systems, there has been no incentive to innovate. In a fee-for-service world,

the solution to every problem is to run more tests and see more patients. It doesn’t matter how much it costs to deliver care as long as volumes are high. Those days are now behind us, and quality and value are the words of the day. Because of this, for the first time, organizations are looking to innovation to help them manage the balance between flexibility and standardization for their supply chain management.Reimbursement models are forcing (or inspiring) innovative solutions to enter the healthcare market space. The explosion of B-to-C and B-to-B software over the last few years has provided new tools and opportunities for developing platforms that are designed with the end user in mind, cost effective and easier for the health care systems to integrate. Standard features of these new systems include:

Purchase orders, logistics, data visualization, and accounting

Simplified process and user efficiency

Support via cloud or software collaboration and communication (single warehouse, self-distribution) to share, purchase or sell within custom groupings

Consistency for all users across departments or facilities, regardless of size or location

Key information and metrics for users, managers, and administration

Contract or OEM purchase justification data

Scalability and flexibility to adapt for future changes

An instant catalog of OEM products providing flexibility and direct access to purchasing options

These tools put the power back in the hands of the healthcare system to implement a supply chain solution that best meets their needs. This is how flexible yet standardized solutions, like the one we have described, are now possible solutions for you to adopt in your organization.

Supply chain is the second largest expense for healthcare systems. The average margin for a healthcare organization in the United States is 2.1 percent and trending down. Reducing $25,000 of cost now equals $1,200,000 in new patient revenue. These numbers mean that maintaining the status quo will not put your facility in the best position to succeed. The time is now to look at new ways to purchase inventory. As the B-to-C and B-to-B cloud or software business is now becoming a dominant format for purchasing products, the familiarity and ease of use of this format will become a new way for hospital purchasing professionals to manage their supply chain needs. A one-stop shop platform that will provide the best of both worlds will prove to be the next transformative technology for healthcare in the U.S. and globally.