9 Best Practices for Effective Hospital Supply Chain Management

Supply chain management in hospitals is imperative because it increases efficiency and productiveness. When medical professionals have all the supplies and services they require, they provide better patient care. Supply chain management also reduces wastage in your organization by maintaining a lean inventory, preventing medical supplies from expiring in storage.

Here are nine best practices to enhance supply chain management in your health facility.

Prioritize Inventory Optimization

You lose revenue and hurt your profit margins when supplies expire because your health facility could not use them. For this reason, it’s crucial to manage the inventory process efficiently.

Consider implementing a reliable equipment management system to control inventory levels.

Ensure that your practice is ordering supplies in the right volumes to match the quantity your staff uses without jeopardizing your patients’ safety. These materials should reach the appropriate departments on time for use when needed.

At the same time, you should maintain low inventory levels to avoid excess materials accumulating in the storage area. Low inventory has a positive impact on your bottom line, and its effect is indisputable.

If you don’t understand how your materials department operates, partner with someone who works there to understand what happens. Implement any changes necessary to improve efficiencies immediately.

Deploy an Effective Pricing System

The hospital management must understand costs to implement an effective pricing system. Use a cost accounting system to process comprehensive information regarding actual and incremental expenses related to a particular service. Other accounting methodologies to support your pricing system include the charge to cost ratio and Medicare cost allocation.

A hospital pricing system requires strategy. It’s in your best interest to understand the cost to charge relationship at the procedure level. Be sure to capture, monitor, and manage data on supplies, labor, and other expenses.

It’s also advisable to keep an eye on your competitors’ prices and compare them with your facility’s. You can achieve this by perusing publically and commercially available databases. Some states in the United States provide data sets that enable health facilities to benchmark with competitors.

Consider investing in tools that give you insights into pricing, cost reduction opportunities, and how to create more value.

Collect Data and Automate Processes

Collecting as much data as possible supports effective supply chain management in health facilities. With a wealth of information, you will understand trends in various departments and discover opportunities for improvement.

Supply chains often partner with third parties that deliver business intelligence regarding ways to save on capital, purchased service engagements, and consumables. Monitoring and broadcasting any savings you have achieved helps the leadership and other departments to understand your progress.

Consider using dashboards to ensure level pricing. It will ensure you are not paying different prices for the same product or service. Have a centralized location for tracking active purchases and any savings you have achieved in completed purchase projects and requests for proposal (RFP).

Invest in robust data analytics and automation tools. They will make your supply chain management less daunting, transforming the process into a strategic business asset. By focusing more on the right hospital management technology, you can reduce financial waste and foster more transparent and data-driven choices.

Develop a Strategic Sourcing Approach

Your hospital can gain enormous value by assuming a well thought out strategic sourcing approach. The first step is to define the purchasing responsibilities that fall under your purchasing department.

In the past, the purchasing department was only responsible for handling capital and consumables, but its roles have broadened over the years. Today, the department manages IT, purchased services, and even service contracts.

Outline the responsibilities your group purchasing organization (GPO) should handle and understand any local agreements already in place. Review the flexibility level you want your organization to have regarding GPO compliance.

However, the decision about your flexibility with GPO compliance doesn’t have to be immediate, as understanding the trends may take a while. If you need help, a third party can provide valuable insights.

Evaluate Your Purchasing Controls

Another supply chain management best practice for health facilities is heightening purchasing controls and automation. The ideal starting point is creating or examining your current purchasing procedures and policies, including the order authorization process.

Deploy a reliable enterprise resource planning (ERP) system that can generate electronic purchase orders. An ERP will require you to input your inventory electronically, further improving accuracy in inventory management.

If your hospital doesn’t have an EDI, you should plan to acquire one straight away. Once you start capturing data electronically, you’ll be able to generate a more accurate item master file. Technologies to consider if you’re looking to improve your purchasing process include electronic invoicing and payments, barcoding, and automated supply dispensing.

Conduct Careful Contract Management

Most health facilities leave contract management to GPOs. Typically, GPOs leverage contracts depending on your negotiation power. They help hospitals to cut costs on products and services. While your GPO will handle all the aspects of a contract, you should understand the contract pricing.

In a regular healthcare system, competitor rates and the figures paid under health plan contracts significantly influence service pricing. You must address these market forces in your facility’s pricing structure.

Failure to pay attention to contracts and market forces can see you overcharged for products and services. Further, you should scrutinize your contracts meticulously to pinpoint ‘strict confidentiality clauses’ concerning negotiated prices.

Improve Order Accuracy and Turnaround Time

Some clinical errors sometimes emanate from mistakes in the ordering process. If you order the wrong products, the hospital staff might lack some tools for performing various procedures.

Patients might receive wrong medications, leading to poor health outcomes and potential malpractice charges. Additionally, your organization can lose revenue. Hence, you don’t underestimate the importance of placing accurate orders and having supplies delivered on time.

When healthcare providers order what they need accurately, your facility doesn’t waste time attempting to reorder the right products. Endeavor to employ order controls that boost supply chain efficiency in your hospital.

One solution is a computerized provider order entry (CPOE) system. A CPOE increases efficiency by reducing turnaround times in the hospital ordering process. It eliminates ordering and transcribing errors by ensuring legible, standardized, and complete orders.

Forecast Demand and Supply Accordingly

For instance, COVID-19 sparked an unprecedented demand for tests and medical staff. In turn, there was a shortage of testing kits, thus, testing backlogs.

The staff needed protective gear to perform tests and treat patients. As patient flows in hospitals skyrocketed, there was a shortage of face masks and other protective equipment. Inadequate protection led to more infections among healthcare workers, leading to understaffing.

Resolving acute shortages requires identifying the root cause of the deficit and striving to expand the available supply. In the COVID-19 example, protecting your health providers should be your priority. Even if you increase the number of ICU beds, the effort is futile without medical personnel to attend to patients.

To stay on top of supply shortages, you require excellent knowledge of the whole healthcare supply chain’s inventory. You must also know your suppliers’ capacity and observe demand patterns and consumption rates to forecast your future inventory requirements. The sooner you predict future shortages, the better your chance to resolve them before running into a crisis.

Involve All Departments in Supply Chain Changes

In a hospital supply chain, the customers are the clinical team. They rely on this department for all the supplies, equipment, and services required to provide patient care.

Supply chains must accomplish their role while minimizing costs for the organization along the way. For this reason, managers might resort to recommending changes that clinicians may not like.

You can mitigate this issue by involving your hospital staff in decision making. Your organization should have a product committee and value analysis team to promote collaboration.

Invite all stakeholders that interact with your supply chain to discuss what works for everyone and establish clear communication channels. Your medical staff will be open to change if you discuss your supply chain goals and strategies with them.

Senior leadership sometimes doesn’t understand how supply chain adjustments impact other departments in the organization. For instance, adding or changing inventory affects the staff who has to use the product and charge it back to the insurance provider. It impacts the revenue cycle and also necessitates changes in the hospital’s chargemaster.

Equipment and supplies touch virtually all departments. A task like updating your item master requires the participation of different departments and support from senior leadership.

Consult Expense Reduction Experts

VIE Healthcare is non-labor spend optimization and margin improvement consultant that uses a blend of seasoned experts, proprietary technology, and extensive data analytics to reduce the costly mistakes, waste, and inefficiencies most responsible for diminished margins. We augment and accelerate the progress of internal teams by going above and beyond the support of a GPO, impartially examining and optimizing everything from purchased service agreements, to supply chain contracts, to OR efficiency in service of finding recovery opportunities on an entirely contingent basis. We are incentivized to maximize client returns, which in combination with the efficacy of their process and technology leads to an average non-labor cost savings of 16%.

Our process is built atop of our patented Invoice ROI™ technology, an automated line-item reconciliation software that helps identify waste, billing errors, and contract-service inequities. Crucially, Invoice ROI™ is the only solution of its kind capable of breaking purchased service agreements down to their base line-item components, which it achieves through advanced Optical Character Recognition (OCR) software. These agreements – which make up nearly 50% of all non-labor spend – would otherwise need to be manually reviewed, severely delaying any margin improvement initiatives. Their three-part process entails:

• RECONCILIATION – Real-time reconciliation of all non-labor line items, matching all invoices against their contracts to verify accuracy prior to payment and enabling real-time corrective action. This includes an extensive examination of all invoices in the last 18 months to allow for clear pattern and trend analysis, identifying the pricing errors and off-contract spend most responsible for waste.
• OPTIMIZATION – Using a combination of line-item details, contract terms, and trend analysis, VIE Healthcare identifies all variations in cost, quality, and utilization to build a roadmap for agreement, contracting, and purchasing optimization.
• INTELLIGENCE – Clients receive extensive benchmarking, arming them with the data they need to execute on better contracting and non-labor spend practices going forward. Unlike most margin improvement methodologies that examine contracting in a vacuum, it’s VIE Healthcare’s detailed analysis of the last 18 months that enables them to catch significantly more waste, identifying opportunities that would have otherwise been overlooked.

VIE Healthcare is a great partner to Natchitoches Regional because they are attentive to our needs and they consistently achieve success well past our expectations.  Not only do they provide a road map to cost savings for our organization, they work collaboratively with our team leaders to achieve the cost savings through direct negotiations with the vendors.

VIE is extremely knowledgeable in all areas of our costs including Purchased Services, Revenue Cycle, Physician Preference Items, Support Services, IT, Laboratory, and the Pharmacy.   And in addition to providing great price benchmarking insights, they excel at analyzing contracts and identifying cost reduction opportunities within the utilization well past any company or GPO that we have worked with in the past.  If you need to identify areas to reduce costs, and have it achieved quickly, then I would recommend you call the folks at VIE Healthcare.  – Brad McCormick, Chief Financial Officer, Natchitoches Regional Medical Center

Are you looking to accelerate your cost reduction goals in your hospital? VIE Healthcare comprises a team of healthcare executives and business analysts who help hospitals save money through proven methods. We have saved our clients about $752 Million since 1999.

Contact us to learn how our margin improvement experts can help.

If you are seeking specific strategies to improve your hospital’s operational and financial health—schedule a call with Lisa Miller.