The traditional approach to supply chain operations is well-established in healthcare—and, simply put, outdated. Centered around group purchasing organizations (GPOs), the practice of keeping many suppliers on contract, with pricing tiers only revisited every two to three years, creates unstable environments that do not support the challenges today’s healthcare organizations face, nor do they align with the goals of value-based care.
It’s estimated that 97% of hospitals rely on GPOs to optimize pricing for supplies through collective purchasing power. It’s a model that has served health care for more than 100 years, but it lacks the strategic focus that such an influential part of operations warrants: supply chain costs in the average health system contribute to a whopping 37% of total cost of care, according to Gartner research.
Cost is a key driver behind the need for supply chain reengineering. In fact, 47% of health care leaders say supply cost reductions was their organization’s No. 1 cost-saving initiative this year. But opportunities to elevate the role of supply chain extend much further than just hard costs. Forward-thinking health systems recognize supply chain’s role in clinical transformation and are rapidly moving this “sleeping giant’s” influence center stage to impact quality and improve patient outcomes.
It's time to move supply chain from transactional to strategic. Here are three reasons why.
1. Building strategic supplier relationships delivers greater value and drives innovation.
When it comes to supply chain, less is often more. Yet traditional GPOs have been slow to consider minimizing the number of suppliers in their pipeline. In contrast to decades-old approaches, building long-term, stable relationships with fewer suppliers allows greater collaboration and exploration of value levers far beyond price points. Supply chain leaders can identify suppliers amenable to collaborative design of contracts, where shared goals are established up front that can be tracked and measured over time. Additionally, ongoing value chain analysis ensures continuous performance improvement related to patient care delivery and supply chain practices, leading to a more mature supply chain—one built on the foundation of clinical transformation.
Elevating supply chain strategy through supplier partnerships built on trust and collaboration also yields additional advantages: innovation and new ideas for approaching common and emerging challenges. The exchange of differing philosophies, processes, technologies, capabilities, systems, and data can all form an ecosystem that can serve as the catalyst for future excellence.
2. Healthcare’s drug shortage crisis requires proactive, smart strategies for resilience.
A decade ago, the concept of drug rationing may have seemed unlikely in the United States. However, when COVID-19 emerged, a perfect storm of converging industry issues, coupled with fallout from the pandemic, led to this exact scenario—and we’re still feeling the repercussions. This year, drug shortages reached an all-time high. Too often, health systems have found themselves in the precarious, reactionary situation of scrambling to find prescription medicines needed for life-saving treatment. Meanwhile, specialty drug spending topped $300 billion in 2021, a 43% increase over 2016 figures, driven largely by a small number of high-cost products.
Getting ahead of this growing crisis necessitates a transformational mindset that embraces the power of supply chain automation, solid inventory management and data insight—allowing health systems to better anticipate drug shortages and react to the market.
3. Supply chain transformation is foundational to improving the patient and clinician experience.
The correlation between a healthy supply chain and patient and clinician experience is easily established. Consider that a recent report from the American Society of Health System Pharmacists calls out the negative impact drug shortages have on both clinician burnout and patient outcomes.
When care delivery is supported by access to the right drug, at the right time, and at the right cost, patient outcomes naturally improve. The same is true for all clinical supply needs across an enterprise. When hiccups occur, supplies are lacking or costs are high due to non-strategic approaches to supply chain, and the patient experience is negatively impacted.
That's why strategic, proactive supply chain management is as essential to care delivery optimization as it is to other supply chain functions. Taking steps such as evidence-based reduction of variations and building resiliency for critical items can make a positive impact.
The Foundations of Supply Chain Transformation
Moving toward a more strategic supply chain starts with elevating the role of supply chain executives and giving them a seat at the c-suite table. The reality is that supply chain touches every part of health system operations and every aspect of the care experience. When supply chain is viewed on a siloed department level, transformation is simply a non-starter.
The role of technology in deriving deeper insights from supply chain operations must also move front and center. Health systems need robust solutions that allow for highly accurate data capture in real time along with reporting tools that operationalize this information to drive key decisions. GPOs should play a key role in providing support and helping supply chain leaders maximize the value of data insights.
Finally, health systems need partners on their supply chain journey. They key is identifying the right collaborators who will share common goals—and being open to upleveling supply chain strategy to position well for the future. When GPO partners share common ground with their health system partners, the opportunities to innovate and move supply chain from transactional to strategic are significant.
Jimmy Chung, MD, MBA, FACS, FABQAURP, CPE, CMRP, is the Chief Medical Officer of Advantus Health Partners and is a member of HPN's editorial advisory board.