FEATURE: Driving Out Costs through Health Care Supply Chain Transformation

It’s well known that the U.S. health care system is in crisis mode. U.S. hospitals and health systems are facing declining revenues due in large part to health care reform measures, with provider organizations being pushed to achieve certain patient care quality metrics or risk cuts in Medicare reimbursements.

Some in the industry are embracing major changes to control costs and increase business efficiencies – both paramount to the future of health care. And they are using their supply chains to help drive that transformation. By making their supply chains a strategic asset, forward-thinking organizations are finding new ways to meet operational, clinical and financial imperatives.

Challenges to Transformative Change

Health care as an industry has been slow to embrace change in the supply chain. While many leading organizations view their supply chains as strategic assets and have taken steps to automate processes, improve data quality and increase access to information on which to base business decisions, others are still plagued by inefficient manual processes, inaccurate data, lack of visibility and poor business intelligence and reporting.

Key challenges to transformative change in the health care supply chain include:

• Number of industry players: Unlike other industries in which there are just a few big players, in the U.S. alone there are nearly 5,300 acute-care hospitals, each of which has hundreds – and sometimes thousands – of vendors.
• Vast amounts of ever-changing data: The health care supply chain must deal with a tremendous amount of data, such as contract information, that changes frequently. Every year, on average, changes are made to one-third of the 30 million plus medical-surgical products on the market in the U.S., and each GPO is estimated to make as many as 30,000 changes to contract data each month.
• Disparate IT systems and lack of data standards: Disparate IT systems that don’t share infor­mation, and the difficulty of incorporating global data standards for unique organization, location and product identification into procurement processes, add to the complexity.

Turning Challenges into Opportunities

Despite the obstacles, many health care organizations, confronted by compel­ling reasons to change, are beginning to break down the barriers and build the supply chain of the future.

That supply chain will be lean, quick to respond to opportunities and challenges, and viewed as a strategic imperative for the financial health of the entire organiza­tion. And perhaps more importantly, it will be sustainable.

As the largest business community in health care, GHX connects hospital supply chain, finance and clinical professionals with their suppliers and partners, providing services and solutions that enable them to improve operational efficiency and drive down costs. The company does this by automating supply chain processes, increasing visibility into information and providing business intelligence tools that enable providers and suppliers to make more informed decisions.

GHX has identified seven steps to health care supply chain transformation. By following these steps, hospitals and health systems can turn the weaknesses in their supply chains into strengths, creating viable solutions for the long-term success of their organizations.

1. It All Begins at the Top

Because supply chain touches a broad range of functions within a health care organization – operations, clinical departments, finance, value analysis, and so forth – true transformation requires a clear mission set forth by upper management. Significant improvements in business processes, technologies and data require the C-suite to serve as champions for this change and build support within the organization.  

2. Start with a Goal and a Vision

Health care organizations that have successfully cut costs and improved efficiency through their supply chains all began with a vision that was aligned with organizational objectives. In today’s health care environment of cost-pressures and sweeping reforms, most hospitals and health networks have established organization-wide goals for cutting costs while maintaining the quality of patient care.

Health care executives are increasingly turning to their supply chain departments to play a pivotal role in these efforts. Supply chain leaders need to be bold and demonstrate to the C-suite how they can have a positive impact on their organization’s bottom line.

3. Break out of the Silos

Traditionally, the various departments within health care organizations have functioned in separate silos, as they do in many other indus­tries. Finance, procurement, accounts payable, physicians, clinicians, and IT develop tight-knit groups and become isolated in their work. Breaking down the silos by putting people with different backgrounds and perspec­tives together and enabling them to understand each other’s issues is a critical component of supply chain transformation.

4. Technology as an Enabler

Health care providers traditionally have invested less in information technology. The money they do invest primarily goes for clinical IT systems. Despite a federal government requirement that encourages this trend, a recent study by Oracle Healthcare Insight makes an argument for greater investment in back-office automation and process improvement, stating that organizations can realize operating cost ratios that are 2–4 percent better than those of their peers.

Through its work with hospitals and the suppliers, GHX has found that the following technologies are necessary for successful supply chain transformation:

• Purchasing automation
• Contract and price management
• Content management
• Requisitioning workflow and price control/ contract compliance
• Invoice and payment automation
• Business intelligence and reporting across all levels of the organization

While technology can be a powerful enabler, it’s also recognized that technology is only as good as the data that feeds it. Data plays a key role in providing the foundation on which health care supply chain management technol­ogy is built. Without great content (right item, right description, right price), the focus of a technology solution shifts from process automa­tion to workflow enablement as more players must participate to ensure that the right data goes to the supplier when a product is ordered.

5. Doing Business a Different Way

Too often, organizations make isolated tech­nology decisions rather than focusing on a plan to implement an entire solution. Leading organizations, however, look at things more pragmatically, focusing on the implications of supply chain transformation for the entire organization. More importantly, they recognize that the benefits of technology can only be fully achieved by incorporating process changes into the transformation.

6. Align to Win

Successful supply chain transformation requires strict alignment of resources throughout an organization to ensure proper execution. This includes alignment with IT, clinicians, administration and other key stakeholders to ensure new supply chain initiatives integrate seamlessly with existing technologies and processes.

7. Change Management is Imperative

A key component for the success of any supply chain transformation initiative is gaining buy-in from everyone involved. The most successful organizations invest in communicating the value, testing the solution, creating the right initial experience for users, and sustaining the change. This requires a robust change management and communication effort. A detailed plan that addresses concerns about how the new system will alleviate current issues and how it will affect job tasks while providing a clear long-term strategy that can be understood and embraced by everyone is imperative.

Change is happening everywhere in health ­care. Organizations that don’t embrace the change and reengineer their business processes accordingly run the risk of failing to achieve their mission – pro­viding high-quality patient care. But true transformative change is not easy. It requires time and a commitment to sustaining the change, even when leadership of an organiza­tion changes.

The health care supply chain is evolving to address the challenges facing the industry. Now, more than ever, supply chain leaders have an opportunity to play a strategic role in their organizations by providing greater spend visibility and identifying effective ways to cut costs.

Through process automation, tech­nology improvements and greater resource alignment, health care organizations can build the supply chain of the future, one that will be leaner, more efficient and able to withstand the challenges ahead.