Dive Brief:

• According to a study by Navigant, hospitals could save $9.9 million annually by making their supply chains more efficient, Healthcare Finance reported last week.
• Supply chains represent approximately 30% of hospital spending, second only to the cost of labor. Pharmaceuticals, the largest cost within the supply chain, represent 5% to 10% of the total 30%.
• The Navigant study revealed that the greatest opportunity for savings exists within physician preference items such as replaceable hip and knee products, pacemakers and stents. Services for food, janitorial services and other contracts also represent opportunities for savings, though at a lower rate.

Dive Insight:

Financially over-extended hospital supply chains are perennially in need of cost management oversight systems.

From ever-increasing drug prices that force some hospitals to go lean on previously-standard crash cart medication staples to the news that over 75% of hospitals still rely on a manual system for inventory management, hospital supply chains continue to overspend due to purchasing disorganization. 

Navigant's report reveals that what was previously thought to be the root cause of high supply chain costs may actually be a faulty assumption: low-cost products yield to lower quality. After analyzing 2,331 hospitals' expenses, the consultancy found the relationship was actually the inverse. In fact, hospitals with higher value-based purchasing scores also outperform their peers when comparing hospital-acquired condition scores.

Perhaps that's why a recent analysis by the Federal Trade Commission revealed Group Purchasing Organizations (GPOs) can immediately have a positive effect on a hospital supply chain. Negotiating bulk pricing when in league with an entire system of affiliated medical centers transfers power from the seller to the buyer, and results in better outcomes for patients, raising not only the quality of care but also the hospital's success rate.

Other solutions, suggested by Navigant, include engaging in supplier consolidation, product optimization, physician engagement and technology automation projects. Regardless of the approach, recent news and case studies are converging on a similar conclusion: hospitals are spending too much on supply chain costs, but lowering costs is feasible.