Changing market dynamics drive need for greater operational efficiency, visibility and control in supply management beyond the four walls of the hospital
While healthcare supply chain professionals have successfully tackled supply challenges in acute-care environments, driving product standardization and contract compliance, and harnessing data and analytics for strategic decision-making, the non-acute care space in many ways remains largely up-tapped. This dynamic and diverse collection of care settings – from physician offices to long-term care facilities – have traditionally managed supplies independently through manual processes and disparate systems that restrict visibility and control.
Today, as healthcare organizations increasingly bring non-acute facilities under their corporate umbrellas, they expect their supply chain teams to assume responsibility over this space. But supply chain professionals are quickly realizing that the best practices, processes and technologies they have successfully used within the four walls of hospitals do not apply to the vastly different world of non-acute care. From a change management perspective, they are also finding that non-acute care clinicians are often unwilling to relinquish control over supply management in fear they will no longer have the supplies they need when they need them.
This culture clash is leading supply chain professionals to question how they can possibly meet the expectation of system-wide supply management, and achieve efficiency and cost savings goals, when they are unable to successfully marry these two vastly different worlds.
These were the central themes that emerged during two Supply Chain Leadership Forums that McKesson hosted at the 2019 Spring IDN Summit. Healthcare supply chain leaders from across the U.S. discussed their non-acute care strategies, the challenges they face and ideas for successful supply management throughout the continuum of care.
Changing market dynamics
According to a recent survey conducted by the Health Industry Distributors Association, 71 percent of health systems plan to increase their community footprint by acquiring non-hospital facilities.1 Along with that comes the need for more sophisticated supply chain processes to address the non-acute space. But in many cases, supply chain is engaged too late in the merger and acquisition (M&A) process:
“One of our biggest challenges is being ahead of the growth,” said an executive director of supply chain for a health system in the Northwestern U.S. “We have 300 non-acute care facilities and quite a few of those are small. Our health system goes out, buys these practices and then expects us to figure out how to make them into a business. Often we are on the backend and have to get caught up on how we can integrate physicians in these groups.”
Culture and change management
Acute and non-acute care supply channels have grown up alongside each other over the years with very little overlap, resulting in vastly different cultures among stakeholders – and diverse views of supply management. Those non-acute clinicians that have built their own practices and have managed every aspect of them, including supply management, can be resistant to allowing their acquirer’s supply chain team to intervene.
“The greatest challenge is culture change,” said the system vice president for a health system in the Southeastern U.S. “They (physicians) are unwilling to let go because they are used to doing their own thing.”
Greg Colizzi, vice president of health systems marketing, McKesson, who led the forums, presented a magazine article from 1968 on the rising cost of healthcare, and the desire to push care outside of the hospital and into non-acute settings. The article, published 51 years ago, addressed many of the same issues health systems are still facing today, including the need to disengage clinicians from day-to-day clerical activities. Colizzi addressed the forum participants saying:
“Culture is a part of your responsibility that many people overlook but it can have a tremendous impact on your ability to get things done. In the non-acute space, you need to develop a value proposition, so clinicians understand how they will benefit from supply chain involvement.”
Greatest waste is not supply cost, it’s time
Forum participants discussed how the opportunities for improvements and savings on the non-acute side have less to do with product cost, and more about driving greater operational efficiency and staff productivity. The responsibility for supply management outside of the hospital has fallen on clinicians who have no formal supply chain training. When supply chain professionals assume responsibility for supply management in the non-acute space, it frees up clinicians’ time to focus on patients. It also opens the door for supply chain to drive cost-savings initiatives around contracting and standardization.
Those in the forum added that supply standardization in the non-acute space presents the opportunity to not only cut costs but also support patient care. The vice president of supply chain for a health system in the Mid-Atlantic region with 150 non-acute facilities, including five nursing homes, explained how product choices on the non-acute side can financially impact the overall health system when patients are readmitted to the hospital for unreimbursed conditions. He stated:
“The biggest challenge we are facing on the non-acute side is managing the total cost of care. We have been picking up a lot of physician practices that are using different products and technologies, which can often cause problems for the acute care facilities, such as rates of readmissions.”
The challenge of contracting
As supply chain peels back the layers of the non-acute care facilities their organizations have acquired, they typically discover that contracting arrangements – both group purchasing organization (GPO) and local contracts – are quite different from those in the acute space. Forum participants spoke of the challenges of different pricing for the same products based on class of trade, and the opportunity to generate organization-wide savings by negotiating a single price for a product regardless of care setting.
They have also found contract compliance is far lower on the non-acute sides of their businesses. While 80+ percent compliance is typical among hospitals, in non-acute care the average is between 40-50 percent. This too represents an area where supply chain professionals can make a significant impact, if they can overcome long-held beliefs, practices and processes in the non-acute space. One supply chain leader stated:
“We have embarked on a journey to determine how we can ensure the pricing we negotiate is getting all the way through to non-acute. Each time we acquire a new facility, we bring in their bad habits and they are not excited about changing. We are having a tough time just getting the non-acute care organizations to even understand why we track their utilization of anything.”
The need for technology and data
Those supply chain leaders in attendance acknowledged that in order for them to help improve operational, clinical and financial outcomes in the non-acute care environment, they need the level of sophistication, visibility and control they currently have in the acute care space.
This cannot be achieved through the manual processes, disconnected information technology (IT) systems and disparate data that supply chain professionals today encounter outside of the hospital. The only way for health systems to align the supply chains of their non-acute acquisitions with their broader operations is to utilize technology designed specifically for the needs of each care setting, automates processes, generates data for advanced analytics and data-driven decision-making, and integrates with the health systems ERP.
“When managing 200+ non-acute sites the savings opportunity isn’t related to the ‘price at the pump’ but rather in how we use the products,” said one forum participant. “What we need is a program that enables us to aggregate all of those sites so we can look at products, how we use them and establish a best practice model for savings.”
Colizzi pointed out that while the non-acute environment can benefit from some of the best practices applied in the acute space, such as process automation and standardization, it is not so simple as extending supply chain practices out from the hospital, stating:
“While supply chain encounters some variation among departments within a hospital, the differences vary widely from one non-acute facility to another, even within the same category of facility. You need to figure out the right model for each individual non-acute care setting because they all have unique requirements. There is no one size fits all approach.”
Each year McKesson hosts a number of Supply Chain Leadership Forums to help leaders connect with others who are either building or in the process of implementing their non-acute strategy. If you are interested in participating in a future Forum, please provide your contract information to the McKesson health systems marketing team at firstname.lastname@example.org.
- The Quest for Price Parity: How to Align Hospital and Non-Hospital Location’s Cost Containment Strategies, Decision Resources Group, https://www.healthcarebusinessinsights.com/blog/supply-chain/quest-price-parity-align-hospital-non-hospital-locations-cost-containment-strategies/
There is no “one size fits all” solution for non-acute
If the management of supplies within the four walls of a hospital seems challenging, with the wide range of clinical departments and stakeholders, then assuming control over the non-acute supply chain, where each standalone facility has its own teams, processes, formularies and contracts, appears impossible.
Yet successful supply chain management in the non-acute space is achievable and can yield significant savings in terms of greater process efficiency and standardization. Before a supply chain team can implement a strategy, it must first understand the unique needs of each facility. Below are some general guidelines on challenges in supply management for five categories of non-acute care.
Ambulatory Surgery Centers
- High supply volume
- Limited storage space
- Predictable utilization
- Low unit of measure
- Frequent deliveries
- Need for consignment inventory management
- Low supply volume
- Small units of measure (UOM)
- Low supply spend but high labor costs
- Variety of specialty products (e.g. Med/Surg, lab, Rx, office supplies)
- Wide breadth of services (from routine care to emergencies)
- Broad spectrum of supplies (from bandages to imaging equipment)
- Unpredictable utilization and volumes
- Involved in 70% of medical decisions
- Unique needs such as sequestration, cold chain
- Fragmented distribution
Home and Long-Term Care
- Wide reach – all the way through to a patient’s home
- Complex inventory tracking requirements
- Clinicians heavily involved in supply management
- High hospital readmission rates
- Revenue leakage from low product/charge capture
- Tremendous opportunity for supply chain as more care is delivered in the community
*The Impact of Diagnostics on Healthcare Outcomes, Health Industry Distributors Association.