This is a pivotal time for the health sector. Almost two decades following the publication of the landmark study “To Err is Human”1 safety, efficacy, and cost remain as significant challenges to American healthcare. We have designed, and implemented strategies building on clinical findings and the proliferation of information technologies, with the hopeful identification and adoption of best and progressive practices to improve individual and population. However, healthcare cost control and consistent clinical excellence remains elusive. Factors contributing to system performance are rarely attributed to “supply chain” management excellence or challenges. Yet there is tacit recognition that the cost of care, costs for pharmaceuticals and devices, and the refocusing of health provision on value, rather than volume, signals the importance of the materials environment — second only to human resources in hospital costs.
CAPS Research’s Industry Advisory Group, the Health Sector Supply Chain Research Consortium, for nearly a decade, has chronicled major trends associated with the health sector supply chain. Our assessment of “persistent trends” in 2016 revealed the five items, which year-after-year, have been top of mind for supply chain executives; (1) MD Engagement and Employment, (2) Collaboration, (3) Unique Device Identification, (4) Health Reform and (5) Supply Chain and Clinical care. The assessment also identified “big data” and “metrics” as evolving themes. The 2017 survey considered major current and “near future” issues influencing IDNs as well as suppliers. The survey design was influenced by (1) our previous scrutiny of trends, (2) AHRMM’s linking of the triple aim and supply chain (3) our recent specification of the factors that distinguish health sector supply chain.2 and (4) health reform.
Healthcare supply chain is a “wicked problem” — meaning that the perceived problem is difficult to define, and substantially without precedent, characterized by multiple, significant stakeholders with conflicting values and priorities and for which there are many apparent causes.3 This year’s study questioned both provider and suppliers on areas of inquiry pertaining to supply chain trends of importance over the next five years. For each item respondents were asked to consider their own organization’s supply chain and to indicate the level of importance for a battery of questions covering economic issues, supply chain integration, supply chain technology, management of the supply chain, health reform, supplier relationship management and value-based purchasing trends.
From thirty-four items in the above categories, twelve items were identified (Table 1) by providers and/or suppliers as top areas for consideration over the next five years. Provider organizations recognize that SC savings drop to the bottom line, contributing to the sustainability of the organization. Providers, under great pressure to reduce increases in pricing, seek savings from their upstream suppliers and are working to develop products that meet their customers’ needs for value. Interestingly, five forward looking items fell under the category we had identified as “integration.”
Economic trends
Both providers and suppliers identify expectations for savings from supply chain performance as the highest ranked trend. All are challenged to reduce costs and to understand the ways that supply chain can bring value to patients as well as to the companies bringing products to the marketplace. There is a systematic examination of supply chain performance functions including purchasing, distribution, information management with a renewed eye on insource vs. outsource decisions. For those hospitals and suppliers that have undergone mergers and acquisitions, one of the first places looked for savings is the supply chain. While price remains important, much of the focus is on the inordinate cost of supply chain management operations functions. Additional savings are being sought from the better understanding of clinical processes and the extent to which products contribute to outcomes — placing pressure on hospital supply chain executives to improve their ability to engage clinicians as trusted partners. Savings achieved from eliminating unnecessary products drop, immediately to the bottom line. And the ability to achieve supply base reduction contributes to provider opportunities to negotiate with suppliers and supplier willingness to work closely with hospitals.
Integration trends
Supply Chain Integration is the degree to which an organization “collaborates with its supply chain partners and collaboratively manages inter and intra-organizational processes, to achieve effective and efficient flows of products and services, information, money, and decisions to provide maximum value to the customer.”4
For providers, integration is challenged by the supply-related differences within and between specialty services as well as a lack of investment in technologies that track and help to manage supplies across the organization. Interestingly, the prominence of unique device identification (UDI), as an integrative foundation, does not seem to persist. Yet the integration of supply chain and clinical data is important to both suppliers and providers. From a provider perspective, the failure of senior management to position supply chain as a key integrator across the organization remains an important integration barrier. From both a provider and supplier perspective, the lack of trust at both the organizational level and the interpersonal levels, acts as a barrier to integration. Suppliers frequently approach their provider customers at multiple service points — with no one individual acting as an interface across services and the provider organization does not have an entity that resembles a “buying center.”
Physician engagement continues as an integration item trend since 2009 and is a highly agreed upon issue. The concern is no longer simply about physician preference item compliance — but addressing a new set of challenging questions — relating to clinician integration to meet the challenges of accountable care, achieving economic goals in an era of new payment schemes (e.g., bundled payments) and adherence to evidence-based practices. Strategies for physician engagement remain uncertain. For example, physi cian employment, has been thought to drive physician engagement as has participation in gainsharing arrangements. However, there is little evidence that employment is uniquely associated with a higher level of clinical and economic integration nor evidence for the sustained value of gainsharing to achieve integration.
Management trends
Predictive analytics enables health sector supply chain practice away from its transactional focus and capitalizes on existing data to forecast future outcomes with an increased amount of reliability, considering unanticipated scenarios and risk factors. The approach differs from demand forecasting in several ways: Not only is it more strategic in its examination of previous usage patterns, but it also analyzes the elements that contribute to changes in demand, lending itself to proactivity. While traditional forecasting, generally considered aggregate measures of consumption and demand and is steered by the analyst, predictive analytics and business intelligence techniques explore patterns in transaction-level data with the purpose of excavating insights for which the analyst may not have been explicitly searching. Other industries, such as retail and technology, have been relying on large, integrated databases to fuel their predictive analytics efforts toat looking more critically at products downstream from manufacturing to the customer. As hospitals and integrated delivery networks build more robust databases with existing and emerging technologies, they will be better positioned to take advantage of big data and understand the flow of products from supplier to end user.
At CAPS Research, we have embarked on a journey to benchmark supply chain performance with an emphasis on a set of items that transcend the traditional benchmarks that providers have employed to allow the healthcare industry to reach the standards of supply chain practice achieved in other industries. Especially important are benchmarks that reflect key corporate objectives related to value-based health sector purchasing. Supply chain has an important role to play in improving safety, reducing hospital acquired infections and pressure injuries — but there has been scant attention to linking supply chain metrics to clinical excellence metrics. Areas to consider include risk mitigation, total cost of innovation, contributions to innovation, contribution to margin, etc.
Organization of supply chain
The organization and positioning of supply chain continues to be of concern to supply chain managers in the health sector — for both providers and suppliers. In 2010 we identified barriers to repositioning of supply chain in provider organizations to include 1) the culture of individual hospitals, 2) a lack of leadership to push this change, 3) physician dynamics, 4) a lack of understanding of the supply chain, 5) no understanding of the need for change, 6) worries about the cost of conversion of the supply chain position from operational to strategic and 7) incomplete centralization and the fracturing of “systemness,” brought about as a result of mergers and acquisitions. While many provider organizations have elevated supply chain to the vice-president level, there continues to be a lack of parity in scope of influence for those in such “elevated” positions, with major strategic decisions made without the supply chain leader at the table. In provider organizations the role of the Chief Purchasing Officer is much more centralized and influential.
Supplier relationship management trends
Trust continues to be the principal focus of both providers and to a somewhat lesser degree suppliers. In healthcare, providers and suppliers face multiple sources of tension as they develop relationships, but such tensions need not hinder a good working relationship. Providers often perceive themselves to be at an informational disadvantage, especially with the lack of price transparency and the bundling of products with “value-added” supplier services. The supplier’s role at the hospital remains a controversial issue. Providers recognize the value that supplier representatives extend to clinicians and hospital operations, but remain suspicious of ulterior motives of entrenchment and up-selling. Suppliers on the other hand argue that providers do not consider “total cost of ownership” and are easily swayed by competitively priced alternatives.
While it may appear that suppliers and providers have divergent concerns and conflicts, both sides showed highly overlapping perceptions regarding the relevant factors in a good relationship. Two such factors identified in previous research are information-sharing and the use of formalized contracts, which were characteristics of the best relationships perceived by both providers and suppliers. Interestingly, new collaborative models are evolving between suppliers and providers — where high levels of trust are critical to success. Cleveland Clinic’s recent collaboration with Medtronic5 is a good example as are the relationships that Johnson and Johnson has forged with Intermountain Healthcare.
Value based purchasing
Value-based purchasing is the process that considers (1) safe and effective products, (2) judged as superior and covered by payment (3) accepted and prescribed by physicians and (4) preferred and utilized by consumers.6 Interestingly, neither providers nor suppliers identified the triple aim item nor the role of insurance in purchasing, products that are judged by payors as worthy for reimbursement as a principal foci, while both reported improving data transparency across the supply chain and cost management as critical for consideration over the next five years. These two items, of course, are critical to value-based purchasing as are economic pressures to control the rising cost of medical devices. And while few identified the impact of payors on purchasing and supply chain, payors are increasingly considering cost of supplies in their determinations — either through payments via. episode of care or through population based payments. Yet supply chain managers did not identify supply chain’s role across the episode of care as a principal focus.
2017 reveals several significant changes in ongoing trends. Surprisingly, ongoing health reform, for example, does not emerge as a focal concern nor does the changing role of supplier representatives, global sourcing, supply chain human resources shortages nor the use of big data (one of the more prevalent items from the previous year). The strong focus on cost and price persists.
One reading of this year’s survey results is that supply chain managers, within between both supplier and provider organizations, do not fully recognize the interrelationships between the different issues — perhaps supporting our contention that health sector supply chain is truly a “wicked problem.”
| TREND CATEGORY | PREVALENT ITEMS* | PERCENT PROVIDER FOCUS | PERCENT SUPPLIER FOCUS |
|---|---|---|---|
| Economic | Expectations for Savings from SC Performance | 96% | 96% |
| Integration | Achieving Information Technology Integration | 93 | 79 |
| Integration of SC Throughout the Organization | 94 | 83 | |
| Managing Physician Preferences Items | 89 | 77 | |
| Physician Alignment with Supply Chain Goals | 88 | 77 | |
| Integrating Supply Chain Data with Clinical Data | 87 | 87 | |
| Management Trends | Use of Data Analytics | 94 | 88 |
| Use of Supply Chain Performance Benchmarks | 93 | 83 | |
| Organization of Supply Chain | Repositioning Supply Chain as a Strategic function | 88 | 88 |
| Supplier Relationship Mgt. | Building Trust with Supply Chain Partners | 86 | 92 |
| Value-Based Purchasing | Improving Data Transparency Across the SC | 83 | 88 |
| Managing the Cost of Supply | 94 | 88 | |
|
*A prevalent item is one scored as important or very important by at least 80% of either supplier or provider respondents. |
|||
We are grateful to AHRMM for its support in carrying out this survey. Key staff at CAPS Research contributing to the survey included Geoff Zwemke, Director of Benchmarking and Steve Lutha, Research Specialist.
References:
1. Kohn L, Corrigan J, Donaldson M, eds. “To Err Is Human: Building a Safer Health System” Washington, DC: Committee on Quality of Healthcare in America, Institute of Medicine. National Academies Press; 1999. ISBN: 9780309068376.
2. Abdulsalam, Y., Gopalakrishnan, M., Maltz, A. and Schneller, E , Healthcare Matters: Supply Chains In and Of the Health Sector (with). Journal of Business Logistics, 36(4), 2015, 335-339.
3. John Camillus, Strategy as a Wicked Problem, harvard business review • may 2008
4. Flynn, Barbara B., Baofeng Huo, and Xiande Zhao. “The impact of supply chain integration on performance: A contingency and conguration approach.” Journal of operations management 28.1 (2010): 58-71.
5. Joe Carlson, Medtronic in Deal to Help Run Labs in Cleveland Clinic Medical Center, StarTribune, November 29, 2016. http://www.startribune.com/medtronic-in-deal-to-help-run-labs-incleveland-hospital/403609776/
6. James C. Robinson, Purchasing Medical Innovation: The Right Technology, for the Right Patient, at the Right Price. Berkeley, University of California Press, 2015.
