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Why Healthcare Institutions Need Supply Chain Analytics

Apr 18, 2017

Healthcare is a complex and expensive industry, with many layers and costs to navigate. It requires a very large and diverse number of supplies, some of which are perishable. Sometimes small, inexpensive items aren’t properly tracked, leading to stockpiling of unnecessary quantities. Only one-third of US hospitals consider their supply chain management process to be very effective, and as value-based reimbursement models begin to take over the industry, it is becoming even more important for hospitals to control their costs.

The healthcare industry has traditionally operated on fee-for-service reimbursement, meaning that hospitals are paid according to the type and number of services performed. However, US federal officials are moving towards a value-based model, where institutions are paid according to the quality of care provided. This model considers factors such as the number of readmissions and the quality of preventative care.

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Value-based reimbursement requires healthcare providers to be efficient in their delivery of care, and the supply chain is one area that is often rife with inefficiency. Many institutions don’t have a strong idea of what they need and end up purchasing supplies and equipment that go unused, taking up space. Excess amounts of drugs and other perishable supplies expire before being used. The amount of data involved in tracking prices, quantities, and expiry dates are immense, and many hospitals are currently not equipped to deal with it. This results not only in wasted inventory but in inaccurate pricing — if the institution does not have a strong understanding of its supply chain costs, its prices will likely not reflect its actual expenses.

A strong supply chain analytics solution can help with all of these problems. Many documents can be digitized, making them easier to track, store, and cross-reference. Supplier relationships can be better managed, as a database of contacts, prices, products, and other information streamlines communication and decision making. Good analytics allows the user to identify the suppliers with the best offerings, as well as determine optimal order quantity.


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Inventory management is also essential here. Every item received should be recorded and compared against its purchase order. If the hospital knows exactly how much it has and whether it will expire, analytics programs can then determine when it needs to be reordered and in what quantity. This reduces overstock and wasted products, and also makes it less likely that the institution will run out of an important supply. An inventory management system that is tied in to supply chain management can create a wealth of savings.

Poor data standardization contributes to communication and analytics challenges. Different organizations within the supply chain use different data formats, making it difficult and time-consuming for hospitals to read and catalog the data. While the FDA released a rule in 2013 to establish a worldwide identification system for medical devices, adoption has been slow. If more organizations adopt it, supply chain management will improve.

Healthcare institutions are beginning to recognize the importance of supply chain management and the value that analytics can bring. Hospitals are adopting analytics solutions, and a recent survey by Global Healthcare Exchange found that provider organizations view predictive analytics as the biggest healthcare supply chain opportunity in 2017. As institutions start to take greater advantage of analytics tools, savings for both them and for patients will follow.

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