What Is Supply Chain Management In Healthcare?

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From patient portals to EHR (electronic health record) systems, the use of technology in health care is at an all-time high. However, hospitals and other health institutions have not entirely embraced tech solutions in the supply chain management (SCM) area. For many physician practices and hospitals, cutting costs has become one of the main goals, while improving supply chain management leads to significant cost savings for hospitals and also drives efficiencies in patient care.

Sage Growth conducted a survey with 100 participants (hospitals’ supply chain leaders), and almost half of them said that they still use manual processes and outdated tools to manage supply expenses, inventory, and other supply chain activities. That is why supply chain costs rank near the top for health care organizations and various other physician practices. When deciding how to reduce costs, many of them look to the billing and services portion of their revenue cycle, not knowing that promoting efficiency in the supply chain can create significant cost-reducing opportunities across the organization.

In this article, we will explore the role of supply chain management in detail.

What is Supply Chain Management in Healthcare?

Generally speaking, the supply chain refers to all the resources needed for an organization to deliver goods or services to the consumer. However, managing the healthcare supply chain is typically a very fragmented and complicated process – it involves managing supplies, obtaining resources, and delivering services and goods to the healthcare provider and patient.

In the process, information and physical goods usually go through a number of stakeholders (e.g., hospitals, healthcare providers, manufacturers, insurance companies, and regulatory agencies). Basically, it’s a network of interconnected stakeholders that engage in delivering a product or service. Designing innovative methods and new approaches to facilitate the flow of information and products from suppliers to consumers is at the heart of any excellent supply chain management.

Healthcare supply chain management refers to the procurement and distribution of products and services as they move from the storage room to the patient. It comes with a set of its own challenges, but the major problems include:

  • Out-of-stock issues (may lead to expensive health care delivery charges, unwarranted increase in inventory spend, and pilferage)
  • Demand for specific types of products in inventory.
  • Hoarding of supplies.

All of these issues contribute to increased supply costs that healthcare providers and hospitals can’t meet with their budgets. What contributes to the complexity of the healthcare supply management also includes poor product standardization, inadequate data reporting, lack of automation throughout the process, and increasing regulatory requirements.

For example, think about all the items healthcare providers require to treat their patients. They use gloves, syringes, scissors, papers, pens, and computers. Employees involved in healthcare SCM are responsible for stocking and inventory management operations. But things are more complicated than just ordering enough gloves and syringes. Supply chain management also includes the management of relationships with customers and suppliers to deliver the best possible customer value at a lesser cost to the supply chain overall.

Aligning the supply chain to the health care delivery model is a challenge for hospitals and hospital systems. Furthermore, promoting further alignment between the supply chain and clinical departments can improve patient outcomes, patient experience, professional satisfaction, and cost.

Where does the healthcare supply chain begin?

The healthcare supply chain begins with the manufacturer of medical products. The manufacturer produces items and sends them to a distribution center. Hospitals can either purchase products directly through the distributor or manufacturer, or through a group purchasing organization (depending on the type of product). Then, the products are sent to the organization and stocked into inventory for patients and providers. The organization needs to make sure that medical providers aren’t left without essential items and that patients can access potentially life-saving products. 

Furthermore, the participation of regulatory agencies is also involved in healthcare supply chain management. These agencies determine whether a medical resource is fit for use and if providers will be reimbursed for using it on particular patients.

The Complexities of the Healthcare SCM

What makes healthcare supply chain management so unique and complex is that all stakeholders involved are independent (meaning that they seek to protect their interests), and different stages in the supply chain may be focused on their own goals. Hospital executives may want to buy the most affordable quality items, while healthcare providers may want to use a specific product that suits them best (which could lead to increased costs). For example, they may prioritize their preferences for certain medical products, while healthcare financial managers try to reduce costs and minimize outdated products. Healthcare organizations often face squirreling away or hoarding of certain products by healthcare providers.

Because supply chain goals are not always aligned, the healthcare supply chain management process becomes fragmented and inefficient. In a 2019 survey conducted by Cardinal Health, 45% of respondents said that manual supply chain-related tasks have a negative impact on patient care, while 42% of them said supply chain tasks take too much time away from patient care. The issues created by supply shortages of medical supplies have been widely reported by healthcare professionals and patients over recent years.

Patients also have a voice in the healthcare SCM process. Hospitals and other organizations may be able to stock up on properly-sized gloves, but certain patients may need a latex-free option or other more customized medical items. To ensure that they have the products ( when they need them), clinicians often opt to manage or hoard their own supplies. That, in turn, contributes to off-contract spending and cost variance that is difficult to detect. The time spent waiting for someone to deliver or looking for supplies is another invisible cost that’s often overlooked.

Overcoming Challenges in Healthcare SCM

  • Increased transparency

By harnessing utilization and price data, some healthcare organizations were able to increase their cost transparency. They can manage and track inventory more efficiently and construct better contracts with medical manufacturers. When there is visibility of product movement (from finished products to their use on the patient), organizations can capture consumption and demand activity. This will allow them to reduce variation and waste in their supply chain.

  • Automation

Utilizing various automated tools (such as computerized provider order entry systems) can help organizations improve price transparency by standardizing and streamlining provider orders. Also, using RFID technology can help capture huge volumes of data from an item’s barcode.

  • Communication

To boost performance and achieve significant cost reductions, healthcare providers need to work together and communicate effectively, while healthcare organizations are focused on eliminating waste and reducing redundancies. Also, everyone is turning to the concept of value-based care – a form of reimbursement to providers that is tied to the patient outcomes and quality of care. To optimize the healthcare supply chain management in this form of healthcare system, getting all departments on the same page is an essential strategy for optimizing SCM.

Healthcare organizations must be willing to take risks, including teaming up with the right third-party logistics provider and leveraging the power of advanced supply chain technology to create a better supply chain and risk management strategy. If you need help with making your healthcare supply chain management system and inventory management more sustainable and resilient, Redbird Logistics Services is there to provide assistance. Feel free to reach out to us today!

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