The U.S. healthcare system continues to experience unprecedented pressure and expectation to change. Change cannot happen unless there is a meeting of the minds among all key stakeholders and common and collaborative pathways to solutions. Yet, it is unclear if suppliers of medical products and providers of care — which together can influence and create opportunities to impact cost, quality and outcomes — are working in concert to achieve system goals.
Our 2018 survey of providers and suppliers scrutinized eight areas: (1) cost management, (2) integration, (3) technology, (4) management, (5) organization, (6) health system reform, (7) supplier relationship management, and (8) value-based purchasing. We also dropped several issues in this year’s survey — a decision based on feedback from our 2017 respondents, many of whom rated certain items as being only marginally important, despite their prominence in the press and much discussion during professional meetings. Those issues include:
- Impact of 3-D Printing
- Involvement of 3rd Party Payors in Supply Chain Decisions
- Supply Chain Role in Managing Counterfeit Products
- Supply Chain Role with Wearable and Home Technologies
- Entry-Level Supply Chain Talent
- Global Sourcing
This is not to say that these are not issues of interest — but clearly not “top of mind” items for those in the provider and supplier communities.
Who participated in the survey?
Of the 140 respondents in our 2018 survey, 95 percent identified themselves as supply chain management procurement professionals with 67 percent employed in provider settings; 19 percent in manufacturing and service organizations; 6 percent with GPOs; 2 percent with information technology providers; and 6 percent in distributor and other supply chain intermediary settings.
Within each separate group, the focus was on the importance of specific issues and the impact they have on their own supply chain. When interfacing and dependent supply chains have different goals, focal interests and incentives, alignment can be difficult. What occurs in a supplier’s supply chain impacts providers and when providers have a focus that differs from their suppliers, the pathway to achieving optimal outcomes is blocked. However, a mix of participants also provides us with an important window that allows us to see the interdependence of these two entities.
The survey design was influenced by our year-over-year scrutiny of current and evolving trends, AHRMM’s vision for linking the triple aim and supply chain and its impact, and our specification of the factors that distinguish health sector supply chain.1 We have suggested in the past that the health sector supply chain is a “wicked problem.” This means perceived problems are difficult to define, and substantially without precedent, characterized by multiple, significant stakeholders with conflicting values and priorities — for which there are many apparent causes.2
What did we find?
The providers and/or suppliers identified 12 top areas (see Table 1) along with items within each area for consideration over the next five years. Both provider and supplier organizations recognize that supply chain savings drop to the bottom line, contributing to the sustainability of their organizations. Both are also under great pressure to reduce cost, seek savings from their upstream suppliers, and are working to develop products that meet their customers’ needs for value. For both suppliers and providers, highly rated items fell under the categories we had identified as “integration” and “value-based purchasing” — both of which consider outcome and quality in relation to cost.
(80% or Greater of respondents indicating importance)
Noteworthy
Cost and savings from supply chain and integration
The continued expectation for savings from supply chain performance, as the highest ranked trending issue, signals the recognition of supply chain costs as a continuing and distinguishing factor. Everyone is challenged to reduce costs and understand ways that supply chain can bring value to patients and value to the companies delivering products to the marketplace. Over the last year our research on supply cost has revealed the importance of a hospital’s operating status (see Table 2) and the presence of clinical alignment and integration for supply chain cost differentials.3, 4
The integration of the supply chain for both providers and suppliers occurs at both the inter- and intra-organizational levels and is critical to achieving high levels of operational and business performance.5 For providers, of course, a good deal of integration is focused on physician relationships with provider organizations. This includes the recent focus on physician employment and integration through alignment with external physician groups and gainsharing.
Research is showing that employment appears to have a significant impact on supply chain costs. Yet, the costs associated with employment and managing alignment may well counter the savings achieved from employment. As this becomes recognized, supply chain executives will be looking to accrue value from other alignment and gainsharing opportunities. For suppliers, integration through alignment with their tier 1 and tier 2 suppliers is critical to success. Many bring these vendors directly into their own plants and work with them as products are developed and modified. Indeed, a highly rated area by suppliers was building trust with their supply chain partners. Undoubtedly, this is an area where providers can learn much from their supplier supply chain procurement counterparts.
Value-based purchasing as a driver
Value-based purchasing is the process that considers (1) safe and effective products, (2) products judged as superior and covered by payments (3) products accepted and prescribed by physicians and, (4) products preferred and utilized by consumers.6
Without doubt suppliers and providers are concentrating on the quality of product impact, both financially and performance-wise. Interestingly, as revealed in our 2017 survey, neither providers nor suppliers identified items such as the triple aim, bundled payments, or episode-of-care reimbursements as principal to influencing their practices in the coming years. But there is a glimpse of optimism.
In 2018, 88 percent of the respondents said “improving data transparency across the supply chain” is a defining factor associated with value-based purchasing and important for consideration over the next five years. However, caution is urged. Price transparency, without accompanying evidence regarding quality, can lead to decisions that are detrimental to both providers of care and patients. And the extent to which the call for transparency has impacted the actual ability of hospitals to provide cost information for procedures where supply cost is a major contributing factor to a procedure, appears to be questionable.7 Plus, the contention that all benefit from transparency remains challenged, as pricing may actually increase for those who have been receiving the most favorable treatment by suppliers.
How are suppliers and providers different?
Rationalizing lack of common ground between suppliers and providers has been their differences in profitability, respective missions, and agency relationship with end-users. And while there may be validity in such attributions, both suppliers and providers have a good deal of consensus on supply chain trends and issues. Of the top three items (see Table 3), both are focused on achieving savings from supply chain performance and employing data analytics. But where they differ on the top three items is revealing.
Suppliers recognize the importance of building trust with their supply chain partners. Suppliers are aware of their dependencies on their own suppliers and the value to be accrued from alignment, such as reduced transaction costs and improved performance emanating from trust. Providers, on the other hand, are focused on managing the cost associated with supplies — reflecting the pressures on supply chain to contribute to the organization’s financial sustainability. Both groups, interestingly, place the use of artificial intelligence and cognitive supply chain as items of little focus. Those who have followed the reports of this survey will recognize that the top items among supplier and provider remain unchanged.
What is the conclusion?
The CAPS 2018 trends study reveals few significant changes in continuing trends. Ongoing health reform, for example, does not emerge as a focal concern, despite the administration’s continued emphasis on medical care costs. The strong focus on cost and price persists. One reading of this year’s survey results is that supply chain managers, in both supplier and provider organizations, do not fully recognize the interrelationships between the different issues. Perhaps confirming our contention that health sector supply chain is truly a “wicked problem” — with many pressures, conflicting incentives and few obvious solutions.2
Finally, a core premise at CAPS Research is that suppliers and providers of care require a platform for developing evidence-based information on supply chain issues and practices and that such a platform requires learning across industries. This year CAPS Research is carrying out a health-supplier benchmarking study that will allow suppliers in the health sector to assess their performance against their counterparts in other industries.
Acknowledgements: I am appreciative of the support from the Health Sector Supply Chain Research Consortium, an industry advisory group within CAPS Research. The survey was facilitated by AHRMM and the Journal of Health Care Contracting provision of contact information for potential respondents.
References:
- Abdulsalam, Y., Gopalakrishnan, M., Maltz, A. and Schneller, E, “Health Care Matters: Supply Chains In and Of the Health Sector,” Journal of Business Logistics, 36(4), 2015, 335-339.
- Camillus, J., “Strategy as a Wicked Problem,” Harvard Business Review, May 2008.
- Abdulsalam, Y., Gopalakrishnan, M., Maltz, A., & Schneller, E. (2018). “The impact of physician-hospital integration on hospital supply management,” Journal of Operations Management, DOI: 10.1016/j.jom.2018.01.001.
- Abdulsalam, Y and Schneller, E. “Hospital Supply Expenses: An Important Ingredient in Health Services Research.” Medical Care Research and Review (2017), 1-13.
- Flynn, Barbara B., Baofeng Huo, and Xiande Zhao. “The impact of supply chain integration on performance: A contingency and configuration approach,” Journal of operations management 28.1 (2010): 58-71.
- Robinson, J. “Purchasing Medical Innovation: The Right Technology, for the Right Patient, at the Right Price,” Berkeley, University of California Press, 2015.
- Mahomed, S., Rosenthal, J., Matelslo. K and Cram, P. “Changes in Ability of Hospitals to Provide Pricing for Total Hip Arthroplasty From 2012 to 2016, ” JAMA Intern Med. Published online May 29, 2018.
- Abdulsalam, Y. and Schneller, E.” Hospital Supply Expenses: An Important Ingredient in Health Services Research,” Medical Care Research and Review (2017), 1-13. p.9.
