Alex Kacik November 13, 2019
The gap between
the most efficient supply chain operators and their peers has widened,
revealing that hospitals have a $25.7 billion cost savings opportunity,
according to an updated study.
Unnecessary
hospital spending on supply chain products and related operations surged 12%
from $23 billion in 2017, according to a Navigant analysis that compared
the top quartile of most efficient supply chain operators to a sample of 2,127
hospitals. It rose 1% from $25.4 billion in 2018,
despite health systems' purported focus on
cutting costs.
"That number
is going the wrong way," said Rob Austin, director at Navigant. "The
top healthcare supply chains are doing a great job, others are falling further
behind."
Individual
hospitals can save up to $12.1 million per year, which is equivalent to the
average annual salaries of 165 registered nurses or 50 primary-care physicians,
or the average cost of 3,100 knee implants, according to Navigant's analysis.
Health systems
have had difficulty broaching cost conversations with clinicians, who typically
haven't been formally trained in the area. When asked to switch products or
supplies, doctors often claim that quality with deteriorate. Many
administrators avoid the subject altogether to avoid losing physicians' trust.
Cost accounting
systems are often lacking, which means executives and administrators have
limited data to benchmark current expenses and change behavior. Service
contracts are also often mismanaged.
Some health
systems are standardizing which
instruments, implants or devices they use, or at least reducing the number
used, in an effort to eliminate care variation, lower costs and decrease
complications. But not all organizations have the bandwidth or infrastructure
to pursue those efforts.
During a recent
visit to a Texas hospital, Dr. Charles Peck—a managing director at Navigant
parent Guidehouse and former health system CEO—laid out six different surgical
trays filled with each of the preferred instruments that six doctors use for a
laparoscopic procedure. The cost ranged from $1,800 to $3,400 even though
outcomes didn't vary.
"Most want
to do the right thing, they just don't have the information," Peck said,
adding that doctors are often getting most of their information from sales
representatives. "If an administrator decides for them without including
them in the conversation, they will immediately say that they only care about
the money. You have to get them involved."
Even though some
physicians may disagree, providers that spend less on their supply chain tend
to perform better in Medicare's Hospital Value-Based Purchasing Program and
Hospital-Acquired Condition Reduction Program, according to Navigant.
The top supply
chain operators are selecting the most efficient services, products and
procedures and weeding out ones of low value, according to the study. They are
also partnering with physicians to reduce physician-preference item variety and
employing physician executives to lead those standardization efforts.
"The holy
grail and largely untapped aspect of all of this is the utilization of a
product. You don't really need to use an average of 3.5 stents per procedure,
you really only need one stent," Austin said. Health systems are improving
their pricing and standardization, but have work to do on utilization, he said.
Vanderbilt
University Medical Center implemented a laboratory formulary to try to order
the right test, at the right time and in the right environment to curb lab test
cost inflation and improve care.
The academic
medical center formed a committee with pathologists and lab experts, physicians
and clinical staff which eliminated tests with limited clinical utility,
restricted the ordering of tests with long turnaround times for inpatients, and
reviewed all genetic testing. Vanderbilt estimates that it is saving more than
$3 million a year.
Earning support
from physician leaders goes a long way, said Dr. Jeffrey Balser, president and
CEO of Vanderbilt University Medical Center and dean of the Vanderbilt
University School of Medicine.
"The biggest
opportunity is in the unconscious clinical variability," said Balser,
explaining that it's easy to change learned behavior with the right data.
While supply
chain consultant Jamie Kowalski didn't fully agree with Navigant's methodology,
any increase in supply chain expenses is cause for concern given hospitals'
reported cost-containment efforts and achievements, he said.
"Those that
are not making much progress might not have a plan or process, lack active
executive involvement and support, have the wrong people trying to orchestrate
it, have poor or outdated data, or operate in a locale that cannot survive
losing a surgeon," Kowalski said.
The
second-largest source of waste in the healthcare industry comes from the opaque
pricing of medical services, drugs and medical devices, to the tune of around
$240 billion per year, a recent JAMA study found.
"Most
hospitals do not have an adequate, or any, cost accounting systems in
place," Peck said. "In a lot of cases, the organizations we go into
haven't audited the contracts they have."
Health systems
have sought scale to lower their supply chain expenses. Although the
expectation that bundling purchases will significantly lower expenditures has
not always come to fruition, research shows.
"Bigger is
not always better," Austin said.
Total supply
costs for the Navigant study included medical and implantable devices, 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
excluded, the consulting firm noted.
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