In recent years, Consolidated Service Centers (CSCs) have emerged as a viable solution for newly formed and expanding hospital systems challenged with balancing increased patient volume and decreased reimbursements with the need to reduce costs. CSCs with functional capabilities offer the potential to maintain or even improve service levels to geographically disparate system facilities with the added benefit of reduced cost.
Healthcare supply chains of the past were small and diverse (see Figure 1). However, as the complexion changes and systems continue to merge, healthcare delivery has become increasingly decentralized, leading to an increase in the number of supply chain customers as well as heightened service expectations. In the future, home health and telehealth will become a larger customer base, requiring service and response expectations more closely aligned with a Business to Consumer (B2C) model. These factors all point to the advantages of a CSC approach (see Figure 2).
This growing trend is evident in the over seventy CSCs found nationwide. These CSCs are solely supply chain focused or include, or are considering inclusion of, clinical support capabilities such as Central Sterile, Pharmacy, Lab, Surgical Kit Assembly, and Food Service. Free from hospital space constraints, these clinical support functions can be designed as high performance “Centers of Excellence” similar to best-in-class industrial factories.
In addition, systems are considering alternative business approaches where the CSC remains in the healthcare system, the CSC becomes a separate business unit or the CSC is funded and run by a third party. The independent business approach allows the team reduced internal competition for capital as well as flexibility to “sell services” to other hospitals. Assessing the need for a CSC, incremental clinical support functions, or the business structure requires a detailed business case analysis that considers holistic operational costs as well as alignment to the system’s strategy.
As engineering consultants actively involved in this emerging environment, we see more newly formed, as well as expanding, hospital systems creating or expanding CSCs to leverage scale and save costs. This is driven by a number of factors including hospital consolidation, campus expansion, supply chain strategy, quality and work standardization, service level improvement, labor availability, hospital space constraints, risk mitigation, and regulatory issues (e.g., California’s OSHPD). We believe that cost pressures and consolidation will continue to push systems in this direction.
These CSCs can include many functions that are shared across their care network. Proven use cases include:
- Medical surgical supply distribution
- Bio-medical/Clinical Engineering operations
- Surgical custom pack assembly
- Bed repair
- IT imprinting and storage
- Equipment and furniture storage
- Disaster preparedness supplies
- Marketing/Print Shop
- Capital equipment staging and tagging
- Centers of Excellence: Pharmacy, Lab, Central Sterile, Food Service
To properly evaluate each function, the team must first gain a detailed understanding of the function’s purpose, customer base, documented versus “expected” service criteria, timing and frequency of movement, staging/storage needs, inventory replenishment cycle, and required position to serve the facility, department, and patient. With a detailed understanding of the clinical service criteria needed to enable world-class care, the team can then test alternative approaches to moving all or just a percentage of functions to the CSC. The team must model and consider operations over 24/7 demands, as well as within disaster preparedness scenarios.
The team will then need to perform an operational and strategic criteria business-case analysis, developing a return on investment and involving non-clinical support services, to create a vision for the future. The vision for the CSC must investigate the potential of automation, as the Material Handling Industry of America (MHIA) notes that the path toward 2030 includes major workforce challenges across all industries, including healthcare. Three major issues facing operations and supply chain professionals include recruiting people, improving the skills of people, and managing and retaining qualified people. Advanced automation may be a viable play. (See the table below for a few real-life examples of systems benefiting from creating or expanding off-site operations to save costs).
Because of all these changes, health systems should think differently going forward if they want to optimize operational scale. Reductions in cost reimbursement and major changes in the financial structure and systems, for example, will continue to worsen. Leadership will be evaluating all care assets for cost savings, and hospital consolidation is becoming the trending response.
Industry consolidation is nothing new. From 1990 through 2009, the banking industry, for example, experienced significant consolidation through acquisitions and mega-mergers that resulted in only a handful of banks dominating the market. The landscape of the healthcare industry is no different. Consolidation is here, and with it comes the opportunity to leverage scale, build synergy, and increase efficiency. When considering your system’s response to the dynamic evolution of the healthcare industry, we recommend leveraging the following proven industrial best practices to plan your CSC:
- Utilize a 3- to 5-year planning horizon that aligns with the hospital system’s growth plan.
- Develop a CSC vision that will help define an effective roadmap to minimize throwaway costs.
- Develop a real estate growth plan that aligns with and enables future growth. Many systems lease part of a building not considering future growth or business continuity issues.
- Utilize proven industrial engineering methods to design the optimized process and then define the building needs. This design process will include lean thinking and proven best-in-class automation.
- Leverage industry-proven software systems to operate efficiently (e.g., warehouse management systems, manufacturing execution systems).
- Utilize a rigorous business case analysis that considers space, capital, staffing, inventory and logistics costs for CSC feasibility, real estate planning, department move decisions, and automation justification.
Cost pressures, decentralized care models, and hospital consolidations are creating the need for, or expansion to, system-based Consolidated Service Centers and/or Centers of Excellence. Properly executed, a Consolidated Service Center will be a strategic asset to a health system—a center of excellence for operational capabilities that leverages operational and logistical scale, minimizes risk, and delivers effective and efficient capabilities to nurses at patients’ bedsides.
