SMI’s Hughes reflects on 40 years of healthcare supply chain progress

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Four decades ago marked two memorable incidents for a young Tom Hughes, Executive Director of Strategic Marketplace Initiative (SMI).

After nine years serving at Boston’s Beth Israel Hospital, Hughes left as Distribution Manager and landed his first job with the title of Director of Materials Management at Waterbury (CT) Hospital. Subsequently, Tom was director of materials management at Tufts New England Medical Center and then president of his own company, Concepts in Healthcare, that he sold in 1998 to BD. Meanwhile, nearly 900 miles to the west in northwest suburban Chicago, Healthcare Purchasing News debuted as Purchasing Administration, which he would use to help him develop and grow as a supply chain leader during the ensuing decades.

Hughes reflected on the healthcare supply chain industry’s progress and muse about where the industry may be heading.

HPN: Will you share some of your earliest memories of working in the healthcare supply chain?

Tom Hughes

HUGHES: I was working the evening shift at Beth Israel Hospital in Boston, stocking exchange carts while attending graduate school. I’ve talked with many people in healthcare supply chain that started out in similar ways.

What are some of the most significant developments you have seen over the past 40 years?

The 1970s saw the introduction of DRGs and the emergence of national GPOs, real game changers for supply chain. Automation and technology changes have been huge over the years. I also think the Unique Device Identifier (UDI) regulation for suppliers was monumental. But the biggest single change I see is that supply chain is now almost universally recognized as a strategic component by healthcare executives. The profession has been elevated, attracting new talent and compensation. While supply chain was maturing and improving, the model to provide care also changed. There used to be over 5,000 individual hospitals nationwide, but today we have about 600 networks and systems. Because of this shift, the Network of Networks — an organization of providers — was formed in the late 1990s. We soon realized the suppliers should be involved, leading to the formation of SMI over 12 years ago, but change continues, as now we see in some cases the commercialization of supply chain operations as they transform from cost centers to revenue generators.

Will you share more about two of those developments — the emergence of national GPOs back in the 1970s and the recent commercialization by provider supply chain operations?

I believe the first GPO was the Hospital Bureau back in 1910, according to HPN’s cover story back in March of this year. Then the 1970s saw large national GPOs like VHA, Premier and Amerinet to name just a few, and they were exactly what the supply chain industry needed at the time because they leveraged volume and talent to lower prices, allowing hospitals to focus on total cost containment. The commercialization of provider supply chains is a relatively new trend. Some progressive health systems that recognized the power of supply chain have realized they now have the volume, capacity and expertise to do functions more effectively. So we see for-profit spin-offs and LLCs providing supply chain services and generating revenue.

How do you foresee those “for-profit spin-offs and LLCs changing supply chain services going forward?

Because provider investment is usually required, these emerging companies are hard evidence of supply chain’s recognition as a strategic component of healthcare.  Since these new companies’ finances are now separate from the health systems, they no longer compete with other clinical departments for scarce capital dollars. Rather, they can now re-invest their excess revenue in technology and other improvements in order to remain competitive. Their future success in the competitive marketplace will also rely on their ability to recruit and retain talent and their abilities to collaborate with other supply chain stakeholders.

Tom, you’ve met thousands of supply chain leaders during your 52-year career. Who do you think has left a considerable imprint and made an impact on the profession and industry?

There have been so many talented people who influenced supply chain over the years. But I think, in particular, the people who created Bellwether League and all of their Hall of Famers, those are the people we owe our gratitude for making supply chain what it is today.

You are a Bellwether League honoree (Bellwether Class of 2012) and you have also received the George R. Gossett Leadership Award from AHRMM (in 1994) so I know that both professional organizations are very special to you. How do you see these organizations, along with SMI, impacting the healthcare supply chain?

These organizations have had an immense impact on me and on our industry. Bellwether League helps promote greatness in our industry, and AHRMM’s education and networking has been invaluable. SMI’s thought leader members continue to set the vision and the pace for the industry, while also creating tools and solutions to help the industry make progress. It is important that these organizations continue to collaborate for the common good of the industry.

Will you tell us a little bit about SMI membership and how it has changed over the past few years?

We started SMI with just a handful of organizations, but as we’ve grown we have stayed balanced between providers and suppliers, all committed to shaping the future of the supply chain. We’ve seen an increase in the number of women in leadership, so this year we are hosting a special session titled, “Women in Supply Chain” for SMI members to exchange career development information and to recognize SMI’s female leaders and their accomplishments. SMI is also seeing many “new faces of healthcare.” These are companies that are traditionally outside of healthcare that are now bringing innovation and positive disruption to the industry.

Why does SMI emphasize collaboration and trust as important factors for buyers and sellers?

Having trustful, productive trading relationships has been a proven value in other industries. I’ll paraphrase a supplier relationship expert that SMI is working with, who recently shared, “Adversarial cost reduction approaches are like hitting your dog when you want it to do something — you get an instant response, but it isn’t the way to get good long-term results. Sustainable supplier contributions to an organization’s profits will occur only from strong supplier relations.” That sums it all up quite well.

Looking ahead, will you tell us what you think the healthcare supply chain will look like within the next decade?

The real game changer that I see is providers using UDI and bar-codes. Provider adoption of UDI will not only enable continued logistical improvements, it will improve patient safety while finally helping supply chain join the emerging world of healthcare data analytics. When SMI leadership met with the Medicare leaders several years ago to advocate for UDI, I informed them that local variety stores likely had more powerful supply chain systems than in healthcare simply because the variety store used the bar codes to enable the data-driven chain. We think that story got their attention. UDI and barcodes are already positively impacting healthcare supply chain.

Editor’s Note: For more on Hughes and SMI, read “SMI marks decade of process improvement,” August 2014 Healthcare Purchasing News, http://www.hpnonline.com/inside/2014-08/1408-PnP.html.

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