Empowering the lab’s supply chain

Sept. 28, 2020
Where and to whom should the lab turn for expert help?

Due to financial and operational disruption brought on by the pandemic, the hospital’s C-suite executives call for enormous budget slashing across the board in order for the organization to survive and continue providing patient care service to the community.

Supply Chain faces this scenario routinely. But professionals in the Laboratory feel they’re taking it on the chin (instead of one for the team) by being ordered to cut $5 million in expenses without sacrificing essential services. Naturally, labor, products and equipment and purchased services remain prime targets.

Empathetic, Supply Chain offers to help the Laboratory meet this mandatory goal.

Is such assistance warranted? Wanted? Appreciated? And finally, accepted and used?

The short answer: It depends. Some laboratory departments prefer to operate on their own, so to speak, under the guise that they know their own unique circumstances, processes and technology, regardless of rudimentary skills in contracting, negotiating and procurement.

Protecting turf as part of the corporate line may only go so far as concerns about the bottom line cross the line on maintaining overall operations.

But there’s a way for both Supply Chain and the Lab to toe the line – together.

“Before looking at bankable strategies and concrete measures that can be taken by Supply Chain to assist hospital labs, it’s important to understand the foundational aspects of every true partnership—trust and relationship,” advised Mark Krhovsky, Vice President of Laboratory Sales, Medline Industries. “As is the case with most clinical disciplines in the hospital, lab is unique and particularly technical. Additionally, if you look at the tenure and experience level of most lab employees, it typically ranks in the top of both categories across the hospital network. With all that being said, I always encourage our Supply Chain partners to spend time in the lab before making any drastic changes or suggestions. Meet and get to know the various staff members—most notably directors, managers, supervisors and pathologists. Get a sense for workflow and technologies as well as goals and pain points.

“If you do these things, while making an effort to learn and understand their environment, your solutions and suggestions will have a better chance of being heard and ultimately adopted,” he closed.

Eric Jurinic, Vice President, Corporate Supply Chain, Accumen, reframes the “trust” issue a bit.

“I don’t necessarily think it’s a trust issue,” he indicated, “[but] more of a second or third set of eyes to ask questions from a different perspective. This also stresses the importance of a cross-functional team who can bring these different perspectives. As humans, we don’t know everything, we don’t know what we don’t know and others can bring a fresh perspective to avoid pitfalls.” 

Basic instincts

Executives with lab supply chain experience offer at least a dozen ways for Supply Chain to help Laboratory control, manage and reduce expenses or even areas for Lab to concentrate on its own.

Jurinic starts with the fundamentals.

Revisit all contracts and analyze compliance. “Are you exceeding contractual commitments, are you leveraging boilerplate pricing, are your contracts year-to-year or evergreen [renewed automatically unless canceled by either party]? If so there is an opportunity,” Jurinic insisted. “This sounds like a basic approach but, believe it or not, we see that contracts are neglected more often than not.”

However, if Laboratory negotiated its own contracts and monitored its own compliance how might they know if they even need help in these areas?

“Often times they may not know what to look for, questions to ask, etc.,” Jurinic said. “Supply Chain, Finance and third-party organizations can help. Chances are the Lab is being told by the supplier, ‘this is the best deal I’ve ever seen.’ If you hear that, proceed with caution.”

Look at leases and reagent rentals. “There could be a hidden opportunity for a buyout, lease renewal or other hidden costs,” he advised.

Consider low-cost alternatives. “Many times these are only private-label items but ultimately [from] the same manufacturer you are using today.”

Rethink “big-box closed systems” that require you to use a supplier’s reagents and consumables after buying the supplier’s analyzer. “Many hospital labs who are using ‘the big-box closed systems’ solutions are having supply issues right now because suppliers oversold, thus forcing the lab to send COVID testing out to a reference lab at [higher costs]. Labs can actually turn this into a win to save money by bringing the testing back on site, have redundancy and qualify for the higher reimbursement,” Jurinic indicated. “You do this by adding a higher complexity test on an open channel instrument. Why don’t they? It’s a scary thing that seems to be synonymous with reference labs or academics. It’s actually not that hard and it’s not scary. We are helping to bring up three labs, and the ROI is fantastic – less than a two-month payback. [Costs for big-box closed systems] vary by supplier and quantity, but we’ve seen labs spend anywhere from $100,000 to over $1 million on instruments that still have not showed up, can’t be used to full capacity or even at all because of [COVID-19-related] shortages.”

Jurinic encourages Lab to focus on patient care and leverage Supply Chain without worrying about losing control.

“Make sure Supply Chain is engaged early as they will do the work for you and ‘package up’ all the details so the Lab can do the comparative analysis based on the objective data comparisons of all the various options Supply Chain puts together,” he said. “The process works kind of like this: Engage Supply Chain, identify clinical viable suppliers, go to market. Work smarter, not harder, and leverage your team!”

Standardize products, services

Medline’s Krhovsky lists three primary areas.

Consumable standardization. “The hospital lab is notorious for product variation,” he noted. “The lack of purchasing oversight has allowed each individual clinician [his or her] own procurement power leading to a more fragmented sourcing approach. There are undoubtedly areas where high brand preference is excusable and even necessary, but many of the general consumable categories offer prime opportunity for standardization. Examples of these categories range from basics like microscope slides to slightly more complex products like pregnancy tests.

“I’ve consulted facilities in the past that were using 10 different pregnancy tests across their network, and those tests – in instances – varied in price by more than 20 percent,” he continued. “These are scenarios where Supply Chain can step in to help address variation and drive standardization savings as they have visibility system wide and the bandwidth to give these projects focus. 

Instrumentation and capital contracts. “Instrumentation, and their subsequent reagents, are typically one of the highest spend categories within any hospital lab,” Krhovsky said. “This includes, but is not limited to, chemistry, immunoassay, hematology, molecular, centralized urinalysis and blood bank. The majority of these contracts are manufacturer-direct, run five-plus-year terms, and amount to spend that can quickly get into the tens of millions of dollars. Incredibly clinical in nature, there is undoubtedly a technical element to these decisions that is rooted in the needs, dynamics and testing requirements for that particular lab. That being said, there is always room for Supply Chain to be involved with product negotiations and contract review. These are elements where Supply Chain has a particular skillset and level of experience that should always be leveraged. And as one of the largest areas of spend, even small, incremental improvements or adjustments to a pending deal can prove to be financially vital.”

Distribution programs. “If you compare lab distribution to the current standard of medical/surgical distribution – where Supply Chain has been an integral partner for decades – the disparity is hard to ignore,” he noted. “And yet the lab is as important as any clinical department at the hospital, so why the lack of change to the status quo? I believe lab clinicians and leaders are busier than ever, and also experiencing the pressure of more impactful outside stressors. Their focus has been on turnaround times, staffing, reimbursement changes and other tangible elements that are paramount to their long-term relevance and viability.

“There is a crop of newer organizations, both regional and national, who are rethinking the models and levels of service around lab distribution,” Krhovsky continued. “That choice and the involvement of Supply Chain in these decisions will have two critical impacts on the market. One, it will raise the competitive level of all distributors in the market including the historical incumbents. Two, it gives hospitals a realistic option to take business elsewhere if it makes sense to their bottom line.”

Deep dive

Iris Jungherr, Vice President, Automation and Diagnostics IT, Siemens Healthineers, homes in on specific lab-centric operations and processes where Supply Chain can be tapped.

“During the pandemic most core laboratories were seeing a decrease in overall test volume and a shift in assay menu mix,” Jungherr observed. “Knowing this information and even predicting these trends can have profound impact on the operations of the lab and hence bottom line. For example, by knowing the menu shift and predicting volume fluctuations, suppliers can advise clients on an improved menu structure between instruments that is better balanced, thereby reducing the time spent performing [quality control] and calibration and the costs associated. Suppliers can also advise on creating a new operating/staffing model based on the new volumes.” 

Jungherr recognizes that the shift in menu and volume will impact ordering frequency and associated commodities.

“Solutions, such as inventory monitoring and management, can be adjusted to address the new testing and volume requirements, thereby reducing the potential of over or under ordering a component,” she added.

“Finally, Supply Chain inquiring about the COVID-19 clinical pathway and associated testing schemes can prove instrumental to support laboratory activities that can have enormous impact on length of stay,” she continued. “For example, the cascade of testing and reflexing testing in the clinical pathway can be managed with rules written into a middleware program, ensuring proper adherence to protocol and quickening the decision-making process. Supply Chain supporting the need for digitalized solutions can have an overall impact to the hospital’s bottom line.”

Roll up your sleeves

Dedicating departmental resources can make a big difference, too, according to Barbara Strain, MA, SM (ASCP), CVAHP, Principal, Barbara Strain Consulting LLC, and formerly Director of Value Management, University of Virginia Health System. Strain has experience in helping Lab apply value analysis to its decision making.

“Assign specific buyer and contracting staff to the clinical laboratory, including but not limited to the Core Laboratory and specialty testing laboratories, [such as] Microbiology, Molecular, Immunology, Toxicology, Pathology, Phlebotomy and Blood Bank,” Strain recommended. “This assures that the supply chain values the laboratory operations and wants to have a firsthand understanding of their needs.”

Together, they should set up a lab-centric inventory management program.

“If one does not already exist, co-designing an inventory management system to guarantee laboratory reagents, test kits, PPE and other products needed for patient testing are ordered and delivered on time every time is key,” she continued. “Supply Chain and the Laboratory might also draw on internal process improvement coaches or use services offered by laboratory supplier contracts to assist in 5S and other LEAN activities to organize workflow and create nearby supply availability locations.”

The laboratory should be included in the organization’s Value Analysis program, according to Strain, and a value analysis coordinator should be assigned to work directly with the laboratory team. 

“Laboratories are cautious about doing this as they typically have established meetings to discuss new testing methods, clinical-based evidence, equipment capacity and requirements, make-or-buy lab testing services as well as laboratory information system (LIS) and electronic health record (EHR) enhancements all in an effort to provide clinicians with accurate, timely results to treat patients effectively,” she acknowledged.

Labs that have embraced value analysis, according to Strain, recognize that the process helps to keep initiatives on track by:

  • presenting contracting options
  • organizing supplier meetings and presentations
  • assisting in collecting and providing product evaluation reports
  • scheduling end-user reference account calls
  • analyzing current versus estimated new costs, ROI and other analytics
  • facilitating consensus decision making
  • establishing key performance indicators (KPIs) to monitor efforts in meeting their goals. 
About the Author

Rick Dana Barlow | Senior Editor

Rick Dana Barlow is Senior Editor for Healthcare Purchasing News, an Endeavor Business Media publication. He can be reached at [email protected].