Much of the concentration and focus on supply chain operations in non-acute care settings centers on class-of-trade complaints, ranging from contract pricing to distribution costs to effective but efficient inventory management.
Many participants in supply chain operations recognize and understand (even if they don’t agree with it) the argument behind suppliers charging more for the same products delivered to acute care facilities because they’re generally distributing product in small quantities to geographically dispersed and far-flung facilities. Economically, it makes some logical sense that it costs more to deliver a case of widgets to a remote ambulatory surgery center 100 miles away from a prominent city than a pallet of widgets to a suburban hospital. The service simply costs more.
A number of provider organizations have fought against the pricing and cost differentials by forming integrated delivery networks (IDNs) and launching a centralized warehouse or consolidated service center, assuming the responsibility for remote deliveries as a way to demand and cost-justify unified unit pricing regardless of location.
But these types of ventures as well as sound inventory management per facility type require data that streams from materials management information systems (MMIS) or enterprise resource planning (ERP) systems on the hospital side, fortified by data analytics and supply data standards. As today’s healthcare organizations adopt and adapt to a continuum-of-care mindset, coupled with population health concerns, they are migrating more patient care processes — and responsibilities — to the ASCs and outpatient facilities/departments. Consequently, these sites must have a better handle on their supply chain capabilities.
Clearly, hospital and IDN-based Supply Chain leaders increasingly are assuming responsibility for managing product and service flow through non-acute care facilities, as demonstrated in two separate industry surveys by Strategic Marketplace Initiative (SMI) and Healthcare Purchasing News.
As part of a provider survey of supply chain across the continuum of care in 2016, SMI learned that nearly 95 percent of supply chain executive respondents were servicing non-acute care sites in their provider systems with about 75 percent of that group having done it for at least five years and up as part of their departmental duties. Moreover, nearly half have dedicated a manager or director to oversee the non-acute care program, the survey showed.
ASCs, clinics, urgent care centers and physician offices dominated the list of sites served by Supply Chain, with about 53 percent listing on average up to 100 locations being served, but few involve direct-to-home delivery post discharge, according to the survey.
Nearly 84 percent indicated their non-acute care supply chain program used a common information system that allowed customers to order products and services and manage other related tasks.
Meanwhile, HPN found that supply chain managers directly manage the purchasing and distribution of products and services to nearly 9 non-acute care facilities on average, according to its 2016 Supply Chain Management Compensation Survey, with nearly 37 percent overseeing outpatient surgery centers and nearly 31 percent citing clinical offices.
Last year’s Supply Chain Management Compensation Survey results showed the number of facilities remained on par, but outpatient surgery centers grew to nearly 41 percent and clinical offices nearly 32 percent.
For this year’s survey, preliminary results indicate continued reach into the outpatient realm with the number of facilities holding firm for the third year at almost 9, according to the 2018 survey results, with nearly 42 percent servicing ambulatory/outpatient surgery centers. HPN also replaced “clinical offices” as a survey response selection with “physician practices” and “retail/urgent care clinics” for the first time. Nearly 25 percent of survey respondents noted that they provide supply chain services to physician practices and nearly 16 percent provided supply chain services to retail/urgent care clinics. HPN will publish complete results from the 2018 Supply Chain Management Compensation Survey in the June 2018 edition.
How should ASCs and other outpatient facilities/departments pay attention to supply chain operations, specifically in the area of IT and data management?
HPN reached out to a number of supply chain executives with deep ties to the non-acute care segment, asking them to list and explain some of the obvious and obscure supply chain challenges that may be unique to the non-acute or outpatient segment.
Ben Winfield, Vice President, Non-Acute and National Accounts, Intalere
“If supplies are generally in the area of one-third of the overhead costs in running an ASC or clinic, it would stand to reason, that supplies would be a focus area in terms of reducing or controlling costs. But in many cases surgery centers and smaller facilities cannot be as strategic regarding supply chain because of resource constraints — that could be anything from manpower, education, training, time, etc. Just keeping up with the day-to-day functions, because many employees are wearing several hats and purchasing may be dispersed, makes it difficult to bring more strategy around that area. Many centers use their nursing staff or administrator for this duty, and many times, multiple people. This leads to no time to explore best price options, off-contract purchasing, no formulary and “rogue” ordering. They recognize the need and they want to be proactive, but they are too busy putting out fires to engage proactively.
“In the case of a group of facilities, or multiple sites, the issue seems to multiply. Each center does their own ordering and there is no easy way to pull data to aggregate their spend and drive savings by tier level or contracting as a service.
“Following from these points is the difficulty in thinking beyond just price for products and services. Because they lack resources, data, etc., there can be a lack of understanding in cost vs. quality concerns, the value of standardization and the actual total cost of ownership.”
Jeff Lawrence, Vice President, Business Development, Inventory Optimization Solutions (IOS)
“Many ASCs share the persistent supply chain challenges of disconnected systems, process gaps, highly manual tasks, and disparate data sets. For these organizations in particular, too much paper and too many manual processes make it very difficult for managers to perform even foundational tasks well. For example, it’s hard to know if they’re getting the best price on purchased products. Limited reporting and analytic capabilities make it difficult to run their multi-facility business efficiently. And often, using paper-based processes means there’s no way to run an integrated supply chain throughout the continuum of care.”
John Cunningham, D.Sc., Chief Client Officer, Lumere
“Data ordering/management systems: Supply Chain needs meaningful system-level insights to make the best purchasing decisions. However, when disparate software systems aren’t integrated across facilities, collecting and aggregating the right data can be extremely difficult. A lot of ASCs use multiple methods outside of the materials management information system (MMIS) — when one exists — to acquire products. For example, they may call in for overnight delivery or same-day trunk stock from sales reps. This can lead to unnecessary shipping and freight costs as well as higher, off-contract pricing. I’ve seen many outpatient facilities that track products ordered over the phone and using a pen and legal pad. Clearly, that kind of analogue tracking is a roadblock to effectively analyzing order history and product need.
“Inconsistent or nonexistent item masters/formularies: As we see healthcare systems increasingly shift toward value-based care, widespread, unwarranted clinical care variation makes it impossible to effectively control costs and provide consistent care. However, without the right focused initiatives, sustainable product standardization can be difficult to achieve, regardless of location. Outpatient facilities often don’t have visibility into what products are on contract and or on formulary. This inevitably leads to greater variation, especially when physicians are accustomed to having access to a range of products from multiple vendors.
“Inventory management: In some inventory processes, outpatient facilities have to wait longer to receive supplies. This can lead to ‘just-in-case’ ordering and stocking — meaning that clinicians will order products whether the need currently exists or not, unintentionally causing excess or duplicate inventory. Because supplies are usually housed in multiple locations and infrequently audited, you end up with a large carried expense and the potential for expired stock.”
Michael DeLuca, Executive Vice President, Operations, Prodigo Solutions Inc.
“Large IDNs — with some exceptions — that have huge non-acute care business units are using visualization technologies like Tableau or Business Intelligence solutions like IBM Cognos to report out. But what are these providers doing with the data? How are they effectuating change in their organizations? I still believe that some basic blocking and tackling is missing in the healthcare supply chain. Average contract utilization is still 57 percent, and only a handful of IDNs are using demand planning and thinking about forecasting demand to lower the cost curve, and an average of 30 percent of spend is not tied to a purchase order. These are the basics and represent the first inefficiencies and cost savings initiatives that should be used from the data being gathered. And these basics should absolutely apply to the non-acute continuum. Non-acute care operations should not be immune from the same contract compliance, procure-to-pay efficiencies, and cost savings goals as their acute care counterparts.”
Scott Jackson, General Manager, Healthcare Services, Henry Schein Inc.
“Twenty-five percent to 30 percent of an ASC’s budget is consumed by supplies. This compares to just 10 percent to 15 percent in the hospital setting, and 3 percent to 5 percent in a clinic setting. An ASC’s overall financial performance is significantly impacted by how well they manage their supply chain.”
Winfield: “Something we are hearing more often from members is lack of systems’ interoperability. Those who are maybe ahead of the curve and have initiated some sort of automation or technology solution are finding, in some cases, that systems are not able to communicate with each other, causing new challenges they had not anticipated. So in automating and hoping to take steps forward in becoming more strategic about supply chain, they have actually been faced with new challenges.”
Lawrence: “Many of the Supply Chain managers I talk with will say their supply chain processes aren’t particularly good. But the hard part is defining what ‘good’ — or especially best-in-class — might look like. Among ASCs, there aren’t easy ways to obtain and share best practices. In my role, I work across many organizations, and have found I can offer industry perspective to help determine specific supply chain objectives, then compare those to best practices. Once an organization has objectives clearly defined, a roadmap can be developed, and the work to improve supply chain efficiencies by implementing new technology and business processes can begin.
“The key to ensuring success is getting executive support as objectives are defined, systems are evaluated, and finally, new technology is selected. Through executive leadership, effective communication to the entire organization can take place, letting team members know of the strategic decision to more effectively manage supply chain. In many organizations, it helps to leverage leadership to present the value to the organization, the value to the individual, and to reinforce the need for regular reviews for compliance and success. Having top-to-bottom organization alignment of this key initiative drives toward a stronger supply chain.
Cunningham: “To optimally drive efficiency and manage variation, Supply Chain must have focused conversations with physicians that are driven by patient outcomes, not cost. Historically, physicians and Supply Chain have at times struggled to align on these issues, and Supply Chain is often hesitant to leverage the work they are doing with acute care clinicians to make positive changes in the ASC space. Overcoming this mindset can be a huge cultural shift.
“Depending on the size of a system’s outpatient facility presence, supply spend and utilization data can have a significant impact on system-wide decisions. However, outpatient facilities typically are not stakeholders in the strategic sourcing process and aren’t involved in decision-making. Additionally, the data that they use when considering product contracting or conversion are often incomplete, resulting in unmet needs.
“Freight and shipping costs often only appear on invoices and are notoriously difficult to manage and mitigate when data are lacking or inaccessible. For ASCs receiving high-dollar implants and devices, these costs add up quickly. Supply Chain regularly addresses these costs in the acute setting; however, outpatient facilities frequently have products arriving via multiple avenues, which means that Supply Chain must ensure no fees are paid that unless they were previously negotiated.”
DeLuca: “The distribution network typically used by IDNs to service their non-acute care operations drives toward a low-volume distribution provider. The network is typically not served by a Consolidated Service Center. However, the control and compliance goals are the same. Providers must use the same rigor around formulary management with their non-acute business as they use with their acute care business. This ensures committed volume to their distributor of choice (e.g., Amazon, McKesson, Seneca, etc.). However, a challenge does present itself in the non-acute care arena — switching costs — which are often times as low as a new distributor walking in the front door and asking, ‘What are your top 15 items by volume? I’ll lower the price by X percent, and you can buy directly off my eCommerce site.’ The progressive [Supply Chain leader] understands this challenge, and uses the economies of scale provided by their ERP system and online marketplace to thwart it and add control and compliance. The footprint of items in a physician’s office should look the same in office 1 as it does in office 400. Drive formulary control across the non-acute care setting to achieve further savings.”
Jackson: “ASC staff members are not trained on how to effectively manage a large and complex supply chain. Hospitals have Materials Management departments, staffed by trained Materials Managers. An ASC likely has a nurse who has been given the responsibility to manage supplies, but was trained to be a nurse, not a materials manager.
“ASCs also may have limited use and or adoption of available supply chain technology. Effective supply chain technology platforms are available for ASCs, yet there has been a limited rate of adoption by ASCs to either fully utilize their existing operating system supply chain functionality, and/or utilize existing bolt-on materials management systems, which can interface with their current operating systems. Adoption rates are low due to the perception that the extra technology costs do not outweigh the benefits, or just lack awareness that they are available
“ASCs transact with multiple layers of vendors, which creates challenges related to effective price management, [purchase order] management and invoice reconciliation. This is exacerbated by limited adoption of supply chain technology. ASCs also tend to have very limited stocking and storage space, which creates a demand for just-in-time inventory replenishment, which leads to stockouts and expedited shipping rates.”
See also: Tips, tools for managing ambulatory/outpatient facility supply chain