By Pete Mercer
March 2024 – The Journal of Healthcare Contracting
New advances in technology make more things possible than ever before, but we are living in a world that is still feeling the impact of COVID-19 – especially in health care. The health care supply chain was hit hard, putting an enormous amount of pressure on an already fragile system. While the industry is making incredible strides in the aftermath of the pandemic, there’s still so much to learn from that experience.
The Journal of Healthcare Contracting recently spoke to Dr. Eugene Schneller about the second edition of his book, Strategic Management of the Health Care Supply Chain, co-edited with Yousef Abdulsalam, Karen Conway and Jim Eckler. The first edition was released in 2007, and there have been a lot of changes in the world of health care, necessitating a second look at how to strategically manage the health care supply chain.
JHC: Tell us a little about this second edition. What was the inspiration?
Dr. Schneller: The number of medical devices and other hospital-related products has proliferated, as has recognition of their clinical impact. Hospitals have continued to consolidate into systems, reimbursement schemes that align hospitals and clinicians have evolved, and there has been an explosion of new technologies to support patient care.
Demanded was a reconsideration of the health sector supply chain – with consideration of these insights for current and future leaders. This led to the bringing together of a very diverse and powerful team of collaborators. Co-author Karen Conway has been at the forefront of technological change. Her work with major systems, around issues such as standardization/Unique Device Identification, health disparities and the CQO movement provided a perspective not contained in the initial volume. Co-author Jim Eckler had spent years as a consultant and then as CEO of the consolidated service center for British Columbia in Canada. His insights into strategy, especially around distribution and procurement, assured that the new edition would be grounded in the best thinking about practice. And co-author Yousef Abdulsalam’s research, scrutinizing cost of supplies and hospital clinician relationships, assured that readers would have a new appreciation of clinicians and collaborators in advancing excellence in bringing the best of products to patients. Notably, the idea of a fully integrated supply chain organization (FISCO) as forged by me and our team at ASU, served as a frame for the entire rewriting project. Our team was very well suited to provide a multi-faceted understanding of management, strategy and, in the face of new challenges, risk.
JHC: How has risk management changed for supply chains in a post-pandemic marketplace?
Dr. Schneller: Well, it is how it’s changed and also perhaps how it hasn’t changed. One of our observations has been that many of the innovations that took place during COVID are not staying in place, which is concerning. A healthcare CEO survey reported in Becker’s recently revealed that provider CEOs saw their biggest issue as system expansion. Way down at the bottom of their list of concerns was disruptions – which of course is key to supply chain, clinical risk, and organizational resilience. When the pressure’s off, you don’t pay as much attention to those as you did in the past. Notably, we still don’t have provider systems that have resilience in their mission statements or as part of their governance processes.
Without a doubt, the risks associated with having offshored medical supplies is beyond the scope of most hospitals and systems. Fortunately, intermediaries (GPOs, distributors and suppliers) have a transformed recognition of their responsibility for managing supply disruption risk. But it is clear that intermediaries, alone, cannot “have the back” of every entity across the health provider ecosystem. We have been very interested in how large systems, themselves and in concert with the communities in which they reside, have organized to manage disruption associated risks. Strategies include developing their own pools/stockpiles or even supporting stand-by manufacturing capacity. Resilience, of course, comes at a cost. As disruptions impact communities, not just individual provider organizations, a good deal of risk needs to be managed at the local or regional level, by communities of providers and key stakeholders.
The way in which we buffer ourselves from the risks of fires is an excellent example. We pay for the fire department to be there. They are on standby most of the time. They don’t have a lot to do. Hopefully houses aren’t on fire, but we pay for that kind of risk in standby. Indeed, we all pay, knowingly, for their readiness. Yet we’ve not achieved a clear understanding of how to finance and manage health sector standby to be able to assure that when the next disruption occurs, whether it’s from a pandemic or something else, that healthcare provider organizations are able to respond.
JHC: What are the biggest issues facing the supply chain today?
Dr. Schneller: Undoubtedly, cost is still an issue for supply chain. It hasn’t gone away, and I don’t believe it will quickly go away. In the face of the many mergers and acquisitions across the healthcare systems, costs have continued to escalate. Hospital management continues to look at the growing costs for supplies as a major opportunity for savings. Interestingly, cost and risk are closely associated. Notably several states have mandated “just-in-case” inventory levels. How to best manage these inventories and their costs is a challenge.
I do believe that value-based purchasing for products, which is in its infancy, has potential for cost reduction. In supply intensive episodes of care, such as orthopedics, spine and cardiology, we have a proliferation of products and cost – accompanied by scant evidence of new product contribution to either outcome of cost.
Supply chain management talent continues to be an issue – especially at the higher levels. You see more provider systems recruiting supply chain leadership from outside of healthcare. Unfortunately, I do not see university programs as the solution for building the human resources for supply chain talent for provider organizations. ASU has a very large supply chain program, and very few of our graduates aspire to careers in provider organizations. Rather they are successfully recruited by distributors, GPOs, suppliers or consulting firms. Yes, part of the problem is relatively low salaries at the entry and intermediate levels. In short, as much as supply chain has advanced within the hospitals at an executive level, the doors at the entry level haven’t significantly increased. There need to be more internship opportunities for both undergraduate and graduate students.
JHC: What are some of the biggest opportunities?
Dr. Schneller: The healthcare supply chain is data rich and analytically challenged. The employment of business analytics and technologies such as blockchain and artificial intelligence are the foundations for taming, managing and, perhaps most important, learning from data. We have already seen the advances from digitalization and automation in the area of logistics. And the ability to gather data at the point of use, for example using biosensors within the hospital room to gather data on utilization and the need for replenishment, will solidify the link between supply chain practice and patient service improvement.
The movement of patient care outside of the hospital, “bringing care to where the patient is,” is an area of opportunity for supply chain practice. Suddenly, the supply chain manager is not just concerned with sending the patient home with needed products. Innovations in delivery models such as ICU at home pose huge opportunities for the supply chain to be able to really contribute to care, access, outcomes and cost in important ways.
JHC: What are some keys to successful partnerships between suppliers and providers?
Dr. Schneller: Good contracts seem to work out a lot of problems upfront. In this evidence-based environment, it’s important to consider contracting for outcomes. Our research has demonstrated the important link between good contracts and high levels of trust. Suppliers have a key role in selling in this new environment by supporting supply chain executives. It’s critical to understand the language of value-based-purchasing.
Also important for partnerships is the provision of transparency in information – especially sharing information regarding pending disruptions and risk mitigation strategies. Much sharing of data happened during COVID. When the crisis goes away, how do we sustain collaboration? Putting governance structures in place to assure access to and equitable allocation of critical products is important. Resilience is important. Providers knowing how suppliers are managing their upstream risk is critical to great partnerships.
JHC: How are GPOs changing in the marketplace?
Dr. Schneller: The short answer is significantly. A lot of their income continues to come from administrative fees. But the major GPOs have tried to rebrand themselves as consulting companies and health information companies. They now compete with the big consulting firms. That’s sort of interesting, and my impression is they’ve done quite well. GPOs have realized that they need to be much more involved in creating value for the system and supporting their provider customers in their quest for value-based-purchasing by contracting for value.
COVID led to many systems enhancing their strategic sourcing and contracting capabilities, frequently aligned with the evolution of consolidated service centers. Hybrid purchasing models are evolving, with national GPOs having a significant supporting role.
Notably, during COVID, the GPOs were very much involved in helping members to find products and working closely with government to meet the demands of the pandemic. But they had the same problems as others as supply sources dwindled. A number of GPOs are making important investments in nearshoring and manufacturing. Of course, I get concerned with the longevity of those commitments. Again, standby is not free. Making those investments requires resolve – especially on the part of trustees and, in some cases, stockholders.
A huge challenge is how to pay for preparedness. Public health only seems to raise its head when there’s a crisis. How do you keep doing that? And the next disruption for supplies will come. What we need to see is much stronger collaboration between federal, state, local, and regional pieces. The deficient strategic national stockpile provided hospitals and distributors with products not fit for use. It wasn’t well managed, and they didn’t always have the right products. If you have more standardization, it’s easier to share products. We need to closely watch the SNS – its changing role – and recognize that much needs to be done at the regional and local levels.
JHC: How is the role of supply chain shifting as the healthcare industry continues to evolve?
Dr. Schneller: While our interviews with several large systems reveals a return to a focus on supply cost, this is accompanied by acceptance of the opportunities for a clinically driven supply chain, one that is much more demanding for high-quality products, for high quality outcomes is also on the minds of supply chain leaders. We need to continue to work on the identification, standardization, and the proliferation of the best product, not just expanding. So that’s number one. The evolving role of supply chain is to engage clinicians in a value analysis process that reflects their scientific training and is aligned with their notion of autonomy. And if CEOs are to support this transformation, hospital trustees need to be a part of this discussion. They need to endorse the value that supply chain is bringing to their organizations and be prepared to approve investments.
It’s really important for intermediaries to realize that across the ecosystem of care, everyone is in the same boat. Disruptions don’t obey organizational boundaries. Several years ago, I was in China with an executive of a GPO who had just come back from inspecting a factory with which he believed he had an exclusive commitment. To his surprise, his branded products were going out one door and products for a competitor were going out the other door. We really need a better understanding of global markets and the companies upon which we depend.
Notably, in the new volume we describe Supply Chain 2.0 as a clinically focused, partnership heavy, evidence-based set of practices, aligned with value chains, and, finally, with a strong emphasis on resilience. Perhaps it is time to move beyond the triple aim of Cost, Quality and Outcomes (CQO) to a quadruple aim that incorporates resilience – CQO+R.