Navigant finds potential $25.7 billion annual supply chain savings for hospitals

Nov. 13, 2019

Unnecessary U.S. hospital spending on supply chain products and related operations and procedures has reached approximately $25.7 billion a year, according to an annual analysis by Navigant, a Guidehouse company. The potential savings opportunity represents an 11.8% or $2.7 billion surge from 2017, the study of 2,127 hospitals finds.

For individual hospitals, the average total supply expense reduction opportunity remained steady at 17.4%, but the dollar savings opportunity jumped 22.6% from 2017 to $12.1 million. This amount is equivalent to the average annual salaries of 165 registered nurses or 50 primary care physicians, or the average cost of 3,100 knee implants.

“Our analysis does not point to aggregate improvement in hospital supply chain performance, with high-performing supply chains widening the gap as others tread water or lose ground,” said Rob Austin, director at Guidehouse. “It’s incumbent upon providers and suppliers, including pharmaceutical and device manufacturers and distributors, to attack these continually rising expenses to improve supply chain efficiency for all stakeholders, including patients.”

As with previous years, the analysis suggests lower supply spending doesn’t mean lower care quality. Supply chain savings opportunities continue to be lower for high performers in Medicare’s Hospital Value-Based Purchasing Program and Hospital-Acquired Condition Reduction Program. Furthermore, the analysis found that savings opportunities are once again relatively equal across hospital size, regional location, and whether the facility is urban or rural, for-profit or not-for-profit, system-based or standalone, or academic or non-academic.

High-performing supply chain departments continue to leverage cost and quality data to reduce unwarranted care variation through the following:

·        Enhancing utilization – Identify which services, products and procedures are truly needed and most efficient, based on clinical evidence.

·         Increasing standardization – Partner with data-driven physicians to reduce physician preference item and medication options to those shown to produce like quality outcomes at a lower cost. Using a standardized set of supplies - or decreasing the variety used - reduces costs while helping clinicians better focus on care variation and the overall quality of care delivered.

·         Integrating clinicians with supply chain, finance and IT departments – Employ physician executives, such as chief medical officers or surgical subspecialty directors, to lead standardization efforts with clinicians, many of whom still see conversations about cost as a potential threat to how they deliver care.

“Physicians and other clinicians understand the significant savings to be had in decreasing variation, and they’re as frustrated as any stakeholder by the lack of progress,” said Guidehouse Managing Director Chuck Peck, MD, a former health system CEO. “Realizing these opportunities requires system and supply chain leadership to have more direct conversations that start at a place no clinician can walk away from—quality of care. Such conversations are best initiated by someone clinicians know has been in their shoes.”

In addition, high-performing supply chains are establishing strategic partnerships with key suppliers to more openly share cost information and conduct joint product development. Such collaboration allows entities to move away from what has often been an adversarial relationship between procurement personnel and their health system’s suppliers.

The Navigant study found that if all analyzed short-term acute care hospitals could match the performance of the top quartile of hospitals for supply chain budget efficiency, $25.7 billion annually could be saved on supply chain products and related operations, processes and procedures. Total supply costs include medical and implantable devices, medical/surgical and pharmaceutical supplies charged to patient care departments, and costs of supplies related to buildings/fixtures, maintenance and plant operations. Capital equipment, labor, utilities and some specialty pharmaceuticals were not included in the analysis. Data was extracted from Definitive Healthcare and covers 2016-2019.

Navigant has the release.