Supply Chain’s laboratory experiment
Products & Services
After the main story and a sequel or two finish their box office runs, Hollywood tends to follow up with a prequel, particularly if the “franchise” performs well among film goers. They simply contract for a product that looks back to show and tell a story about characters from the beginning as a way to squeeze out a little more cash from consumers.
Over the years, Healthcare Purchasing News has explored something of a niche franchise — the world of the clinical laboratory and its relationship to and need for supply chain expertise in the areas of contracting and product selection potentially.
HPN tagged the lab as the “final frontier” following the operating room and diagnostic imaging in terms of dollars expended on products and equipment as well as Supply Chain extending its contractual expertise, which clinicians tend to lack as a core competency.
While a small, but growing contingent of healthcare organizations have seen Supply Chain working with Laboratory on contracting and product management, many more have not.
So HPN reached out to a group of Laboratory supplier experts to gauge product demand and usage experience for Supply Chain professionals to extend an offer of service to help manage and reduce expenses via contracting and sourcing.
Where to start
Zachary Wert, Vice President of Instrument Manufacturing, Laboratory Diagnostics, Siemens Healthineers, identified a prequel of his own for Supply Chain to address first.
“Before trying to identify specific products, Supply Chain must first be willing to work with key stakeholders — lab managers, clinicians impacted by test menu changes, etc. — to understand the patient population the laboratory is serving and what testing menu would both benefit the laboratory and its patients,” Wert said. Conducting some lab background homework gives Supply Chain efforts the necessary context on how to proceed.
Wert emphasizes three critical reasons for Supply Chain to gather lab intelligence.
First, laboratory testing plays a critical role in helping support patient care, particularly in the inpatient and emergency-care settings, with lab tests conducted on nearly all of hospital patients and more than half of emergency patients, according to Wert who cited a January 2017 article in The Journal of Applied Laboratory Medicine as his source.
Second, “producing test results quickly is increasingly challenging for laboratories,” Wert noted. “The growing number of patients, the greater impact of diseases and the increased availability of new tests means more samples are headed to the laboratory.”
Third, the lab industry currently is experiencing a shortage of staff to process the samples and keep up with the rising demand as noted by the Bureau of Labor Statistics analysis of medical and clinical laboratory technologists and technicians, he added.
“Conversations with these key stakeholders can help Supply Chain gain a better understanding of these challenges, and others unique to the institution the lab is supporting,” Wert emphasized. “Open communication with key stakeholders can also bring to light ways in which the laboratory can optimize its operations — via the equipment it uses — to accomplish goals, such as reducing turnaround time for emergency tests or increasing productivity by reducing downtime spent on instrument maintenance. Having this information will help Supply Chain to identify the most appropriate laboratory equipment for its institution’s unique setting and patients.”
Wert cites one example where a laboratory that receives a high percentage of specialty testing requests may wish to bring that type of testing in-house if it currently outsources those services because it does not have the required assays or instruments. Or the laboratory may wish to gain better control over the point-of-care testing devices used throughout the health system by implementing an open connectivity informatics solution, he continued. “The laboratory may even have goals of modernizing its operations by implementing an automation track,” he added.
Concentrating on processes and services for the lab can be just as effective — if not more — as Supply Chain focusing on products and equipment, according to several lab supplier experts.
Bowman also singled out two areas in the POC and central/hospital lab space that should be investigated: Lab connectivity and molecular testing. “These solutions can help an organization run more efficiently with better direct and indirect financial outcomes,” he added.
Assessing lab performance and designing a strategy to help the department manage expenses should be Supply Chain’s aim, according to Lynn Glass, Vice President, Strategic Accounts, Lab, McKesson.
“Doing assessments of both centralized — capital equipment, bulk routine work with broad test menu —and decentralized lab testing — POC/waived testing — is important to be able to formulate a long-term strategy for sourcing and contracting,” she noted.
Chris Gormley, CEO, MedPricer, urges healthcare providers to hone in on purchased services, which comprise approximately 20 percent of a hospital’s total operating costs.
“U.S. hospitals are collectively overspending $39 billion each year on purchased services, which includes all outsourced contracts — both clinical and non-clinical,” Gormley stated. No matter the area, Supply Chain “simply can’t overlook purchased services anymore as it offers unmatched savings opportunities,” he added.
Products vs. processes
Mark Krhovsky, Vice President of Laboratory Sales, Medline Industries, offers some key Supply Chain strategies for addressing products, starting with categorizing inventory into five buckets: Laboratory plastics and consumables, chemicals/solvents, equipment/ instrumentation, reagents and manual micro/plated media.
“When it comes to standalone product cost, equipment/instrumentation and reagents will most likely make up a disproportionate amount of the lab’s overall spend,” Krhovsky indicated. “If costs can be controlled on these particular items then you put yourself in an advantageous position to save money and/or decrease spend for the entire lab. Diagnostic instrumentation platforms — chemistry, hematology, immunoassay — and reagents are often purchased manufacturer-direct in today’s market, which means it is critical for Supply Chain teams to understand the brands that exist within their lab so they can build the proper relationships with those specific organizations and their sales leadership group. In some circumstances leveraging a distribution partner to help manage and oversee these product categories can help Supply Chain teams with overall organization and leverage.”
Krhovsky admits that Supply Chain historically has had limited oversight and responsibility for laboratory product procurement, which may be reflected in departmental economics in terms of managing expenses and pricing.
“With that being the case we often find that general lab pricing has remained quite high in comparison to other areas of the hospital, and contract compliance is often less consistent, he observed. “There is no doubt that Supply Chain teams can have a tremendous impact on general vendor negotiation and contract administration — whether that be directly with the manufacturing community or with the laboratory distributors in the market. In the recent past there have been several new players entering both lab distribution and manufacturing, which means new options and the ability to shop business if the facility is not feeling fully supported by its current partners.”
Krhovsky also singles out shipping and freight for certain high-touch items, such as hazmat chemicals and short-dated, refrigerated microbiology items, as opportunities to help drive down costs.
Gormley notes that his company has identified “plenty” of popular lab-related categories where Supply Chain can look for savings opportunities. They include immunochemistry equipment and consumables, reference lab testing services, blood products and services, laboratory device maintenance services, pathology and laboratory information systems.
“By uncovering lab-related purchased services opportunities, sourcing teams and stakeholders alike stand to gain tighter control and improved transparency within laboratory operations,” he added.
Because of laboratory’s “enterprise-level impact on a health system’s operations, patient outcomes and financial outcomes,” Bowman recommends aligning and incorporating laboratory with a multidisciplinary committee that spans administration, clinical, finance and operations.
“[This] will ensure that all decisions or change considerations around a lab strategy will be properly vetted and all potential impacts — positive and negative — will be identified, mitigated if needed, and executed with fewer surprises,” he said.
Supply Chain should concentrate on reducing variation in the lab, according to Glass.
“Standardization of formulary, reduction in [stock-keeping units], bundling product to fewer manufacturers and vendors or test platforms and systems can provide clinical, financial and operational efficiencies,” she noted. “Utilizing MMS delivery and service model to the non-acute space versus self-distribution through the hospital and out to the non-acute space may provide faster delivery, smaller units of measure, elimination of multiple shipping and delivery steps to insure integrity of product and can ultimately reduce costs while providing operational efficiency.”
The Lab and Supply Chain: Getting to know each other
The 1951 Rodgers and Hammerstein Broadway musical, “The King and I” may have featured the show tune “Getting to Know You” as a heartfelt but whimsical way to move the storyline forward, but that titular philosophy represents a successful business philosophy, too. And it’s one that should not be lost on Supply Chain as it tries to work with their colleagues in the Laboratory to help them manage departmental expenses.
Supply Chain getting to know the Lab’s operations may take some work but it’s well worth the effort for the department, facility and patient care as a whole, according to a trio of lab industry suppliers.
“Understanding unique capabilities, such as lot track-and-trace and sequestration, are keys with lab products. Combined with the need for cold storage and delivery, smaller units of measure to individual clinic sites and the need for a different service model from the acute vs. the non-acute space within the enterprise [these all] are important for Supply Chain to understand when making lab decisions.”
— Patrick Bowman, McKesson Corp.
“The ideal solution is one that offers a variety of functions that are centralized on one platform, that all parties — from sourcing team, to department stakeholder, to executive leadership, to suppliers — can access for instant transparency.
“To truly identify savings within the lab’s cost management lifecycle, the sourcing teams should be able to develop a clear savings roadmap within the platform to define and implement a strong purchased services strategy. With an integrated approach to purchased services lifecycle management, platform users can easily spot savings opportunities, manage incumbent negotiations, go to RFP, and manage contracts all in one place. This approach ensures that, with a high degree of confidence, sourcing teams can negotiate great terms at the lowest rates available.
“Analytics and benchmarking both play an important role in identifying they best savings opportunities by purchased services category, evaluating current and soon-to-expire contract terms and comparing contract terms and prices to those against market standards, regardless of the healthcare organization’s geographic location. By drawing on marketplace data [against which] to compare and measure a company’s spend performance, Supply Chain is able to draw actionable conclusions that guide their negotiation strategy. Streamlining the entire process — from analyzing and benchmarking to running the RFPs — strongly unites the Supply Chain with Lab leadership and enables them to make the smartest purchasing choices for the greatest impact on their bottom line.”
— Chris Gormley, MedPricer
“It’s important to understand instrumentation platforms and workflow. Even small product decisions can have an impact on the inner workings of the lab. [The lab] is a critical unit of the hospital, so it’s paramount nothing is done to interrupt or suspend the lab processes being run every day. Before any product conversion decisions are made the lab should be involved to validate and weigh-in on specific changes.
“Plated media for microbiology is the most difficult and finicky product to handle. It is short-dated, temperature-sensitive and has a propensity for manufacturer backorders. If you can control and stabilize this area of sourcing you have mastered one of the toughest elements of lab procurement.
“There are more high-quality, reliable lab manufacturing and distribution organizations than ever before. In many ways the lab has dealt with subpar service and support without understanding there might be a different way or a better option. Now is the time to seek out the right partners who are willing to go above-and-beyond to assist the Laboratory staff and Supply Chain teams alike.
— Mark Krhovsky, Medline Industries
Lab on Supply Chain: Walk softly as we carry the big stick
What are some of the common mistakes that Supply Chain can make when approaching the Laboratory with offers to help the department manage and reduce costs? Four supplier experts sound off about how Supply Chain may not recognize how deeply and widely lab services are integrated throughout a healthcare organization and a patient’s experience.
“Lab needs to be looked at through a ‘systemness’ lens. It impacts nearly every corner of the enterprise. One of the most common mistakes we see is Supply Chain looking at lab as strictly a cost center or cost line item. It is much more complex than that, and in many cases, reducing costs by eliminating a test and outsourcing can have significant downstream impacts on patient care, patient access, reimbursement revenue and value-based reimbursement incentives or penalties. It is important to take a balanced scorecard approach around lab from a supply chain perspective. In many cases adding lab services may increase costs, but it can also improve operational, clinical and financial incomes when strategically implemented.”
— Patrick Bowman, McKesson Corp.
“Laboratories regularly face budget cuts, and as a result, are unable to upgrade their technology as often as the increasing patient testing demand would encourage. Modern technology advancements afford laboratorians the opportunity to help keep up with the testing demands of today’s patients while helping to improve turnaround time, quality of results, ease of use and safety when handling patient samples. The latest innovations and technological advancements also are helping to restore the clinical laboratory as an exciting place to establish one’s career and address the pitfalls of understaffed laboratories. Anything Supply Chain can do to prevent budget cuts and support the laboratory in its efforts to upgrade its technology and could serve to benefit patients served by the institution.”
— Zachary Wert, Siemens Healthineers
“The most common mistake Supply Chain makes in managing costs with stakeholders — laboratory leaders included — is that they don’t consider purchased services sourcing as an avenue for savings. Historically, equipment and labor costs are the first to be evaluated. However, the cost benefits of re-negotiated purchased services contracts drop to the bottom line of an organization’s profit margins. Beyond the cost savings, considerations for improved service level terms and deliverables can bring a positive impact to patient care.
“To prevent other mistakes from occurring, Supply Chain can take to following steps to best manage costs while working with lab leaders:
- Communicate the sourcing process and metrics that will govern the negotiation and award of contracts. By taking this step, your operations team will be positioned to act more nimbly in response to the laboratory’s requests.
- Obtain industry benchmarks on laboratory purchased services contracts, such as reference lab testing. This allows organizations to determine the competitiveness of their spend in relation to similar providers in their region, and it guides the sourcing roadmap prioritization schedule.
- Maintain a stakeholder roster, making sure the lab contacts are senior enough to make supplier-based decisions and tradeoffs to support system-wide objectives and be able to clearly articulate the business requirements, such as scope of work, quality performance indicators, and identify preferred suppliers.
- Centralize the sourcing process so that lab stakeholders can work directly with the supply chain on one platform to house qualitative and anecdotal information, along with business requirements, contract redlines and current contract terms.
These steps create more transparency within an organization and enable cross-department teams to work together quickly and efficiently to identify and act on savings opportunities.”
— Chris Gormley, MedPricer
“[For] Supply Chain professionals who are starting to work with their labs: One, do your best to understand their world before offering critical advice. Take a tour of your lab, get a sense for the workflow and products/brands being used and introduce yourself to the staff. The lab is a critical area of the hospital and it is complex in many ways. On top of that you will typically see some of your most long-tenured staff in the laboratory. To gain their trust and respect I find it’s always smart to be a student of their world. They’re typically quick to teach and explain — and they’ll know you’re committed to trying to understand even though you’ll never fully grasp all of the inner workings of the department.
“Two, ease your way in. I find that coming in strong with forceful demands is not the best way to get started with the lab. Ensure they’re part of the decision making process and explain to them the overall financial impact of buying decisions and potential changes in products or distribution service. The more collaborative you can make this working relationship the better your overall results will be in the long run.”
— Mark Krhovsky, Medline Industries
Rick Dana Barlow | Senior Editor
Rick Dana Barlow is Senior Editor for Healthcare Purchasing News, an Endeavor Business Media publication. He can be reached at [email protected].
