U.S. hospitals are spending approximately $25.4 billion more a year on the supply chain than necessary, according to an annual Navigant analysis. This represents a 10.2 percent or $2.4 billion increase in potential savings compared to 2017.
The study of 2,300 hospitals also suggests a 17.7 percent average total supply expense reduction opportunity or up to $11 million a year per hospital, an amount equivalent to the average annual salaries of 160 registered nurses or 42 primary care physicians, or the average cost of building two outpatient surgery centers.
Similar to 2017, lower supply spending may not negatively impact quality, as Medicare hospital-acquired condition and value-based purchasing scores are slightly better at top-performing supply chain facilities, the analysis shows. Further, Navigant 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, or system-based or standalone.
“Even with ongoing efforts to improve supply chain processes and product use, we aren’t seeing the needle move in the right direction as significant savings opportunities remain for many hospitals and health systems,” says Rob Austin, director at Navigant. “At a time when operating margins continue to decline, we have found that hospital leadership not fully investing in their supply chain are missing chances to optimize the financial potential of their organizations.”
Reducing pricing variation and the use of certain drugs and products should continue to be areas of focus for hospitals to reduce supply chain costs. To successfully do so, providers need actionable data that helps tie costs to patient outcomes, and staff who know how to analyze it. Having this data allows for opportunities to:
- Optimize utilization of products used during routine procedures.
- Engage data-driven physicians on standardizing use of physician preference items and medications proven to produce clinically equivalent outcomes at a lower cost.
“The key takeaway for health system executives is that investments in supply chain management pay off,” says Kevin Connor, vice president of Supply Chain Management at TriHealth. “Those systems with the highest-performing supply chains are combining data analytics, collaborative clinician engagement, and deep subject matter expertise to drive care delivery improvements to the benefit of the communities they serve.”
High-performing supply chain departments are also enhancing collaboration:
- Among physicians, nurses, and other clinicians with supply chain, finance, and IT departments.
- With suppliers on value-based and other contracting efforts.
“The supply chain department needs to act as waste or utilization consultants for the entire health system,” says Paul Weintraub, director at Navigant. “Doing so requires having the right data at the right time, and the right experts who can leverage it to help reduce variation in pricing, product use, and clinical outcomes.”
The Navigant study found that if all analyzed hospitals could match the performance of the top quartile of hospitals for supply chain budget efficiency, $25.4 billion annually could be saved on supply chain products and related operations, processes, and procedures. Total supply costs include medical and implantable device costs, 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 2016-2018.
Navigant’s Healthcare segment is comprised of consultants, former provider administrators, clinicians, and other experts with decades of strategy, operational/clinical consulting, managed services, revenue cycle management, and outsourcing experience. Professionals collaborate with hospitals and health systems, physician enterprises, payers, government, and life sciences entities, providing strategic, performance improvement, and business process management solutions that help them meet quality and financial goals.