Lars Thording

Supply chain lessons emerging from the coronavirus pandemic

July 15, 2020
By Lars Thording

How hospitals can reduce costs and better control their supply chain will be particularly relevant as administrators and clinicians prepare for the reopening of service lines that have been shut down during the coronavirus crisis. As reprocessing provides substantial savings across hospital service lines, the industry’s role in answering this is significant.

Some single-use device reprocessing companies have tried to play a role in the ongoing supply of personal protective equipment (PPE), while others did not have the ability to directly participate in the manufacturing or reprocessing of products critical to the hospital supply chain. However, throughout the crisis, and even more so as the crisis recedes, reprocessors are focused on helping hospitals re-envision their supply chain strategies and reduce costs, so that they can regain financial health and create sufficient control and slack resources in the hospital supply chain to be able to better respond to situations like these in the future.

What happened?
When mitigation efforts became policy in the U.S., the pandemic had already settled with the population of certain locations in the U.S. Hospitals were called on to prepare for a worst-case scenario of deaths in the hundreds of thousands and hospitalizations that would exhaust the staffing and technology capacity of the hospitals. Directed by federal and local authorities, hospitals shut down elective procedures and redirected all resources to handling the expected mass influx of COVID-19 patients.

Thanks to mitigation efforts, the worst-case scenario happened in a handful of locations, while most locations have dealt with situations where mitigations (social isolation, washing hands, etc.) meant hospital capacity was NOT exhausted. Instead, the curve was flattened, despite the fact that coronavirus cases and COVID-19 deaths still increased (in some cases dramatically). In the process, though, the worst-case scenario preparedness effectively crippled most hospitals financially. In the majority of states and cities, healthcare services essentially stopped, except for COVID-19 related services: Hospitals shut down most orthopedic and cardiology procedures, and patients stopped going to the hospital, out of fear of COVID-19 contamination.

When the country went on alert, the service lines that regularly produce profitability for hospitals (service lines like cardiology and orthopedics) were shut down, while the unprofitable service lines - ER and ICU - were kept open and absorbed all the capacity. Regularly, most hospitals retain a low level of profitability by having profitable (mostly elective) service lines offset the loss on less profitable service lines. I don’t think anybody knows what a financial rescue package for hospitals could look like, but right now, most hospitals are financially in ruins, and we need to focus on what a financial normalization plan for hospitals looks like. A large part of that will involve assessing the supply chain to further boost savings across services lines so that future crises like the one we’ve just witnessed can be better weathered by hospitals.

What did we learn?
A key lesson from the coronavirus pandemic is that our health system’s financial viability is closely linked with its ability to appropriately address pandemics and other drastic demand shifts. Closing elective procedures probably reduced the spread of the virus to patients and healthcare staff, but it also shattered hospital finances, reducing the hospital’s ability to provide proper care to COVID-19 patients and others. Economics and health: These are not separate issues, but closely interlinked, which you recognize when you look at the situation at a local hospital level.

We also learned that our hospitals did not have sufficient control over their supply chain, and they lacked critical resources to respond appropriately. Many U.S. hospitals are operating financially at a near-loss, and they need to reduce costs to be able to handle crisis situations.

A clear lesson emerging from this pandemic is that control of the supply chain is not just a matter of financial viability; it is also a matter of being able to effectively respond to substantial changes in healthcare demand. Supplier relationships at hospitals are too often characterized by lack of transparency and the dominance of new technology adoption over financial considerations. We have just learned that this is not sustainable. The hospital needs to be able to create financial slack in their supply chain, they need to closely control vendor relationships, and they need to have the ability to shift market share quickly.

We also learned, collectively, that our healthcare system needs to get better at utilizing resources and assets, rather than just throwing away after use. We need to develop a new consciousness around re-use. Reprocessing of single-use devices has been around for more than 20 years now, but an expansion of the practice should be reconsidered as well as the adoption of similar practices to reduce waste and build slack in the supply chain.

What now?
As service lines like cardiology and orthopedics reopen at hospitals, the importance of maximizing the profitability of these procedures as means of helping hospitals rebound cannot be understated. For the most part, these services will be trying to address pent-up demand in coming months. For example, electrophysiology (EP) labs across the country have been closed or restricted to only the most important procedures. Patients who haven’t been treated need to be treated. While atrial fibrillation is not always a life-threatening condition, it will become that over time. Patients who don’t undergo treatment and instead control symptoms with drugs have serious quality-of-life challenges.

At the same time, for many hospitals, EP procedures are an important source of revenue – a source that under normal circumstances allows the hospital to maintain other service lines that may be losing money. Hospitals for which EP is a highly profitable service line will be looking to quickly treat the patients who have gone untreated, in order to normalize their financial situation and fiscally rebound after a period of essentially losing control of the spend.

For hospitals that treat a lot of CMS-reimbursed patients, the situation looks more difficult. They face a catch 22 of simultaneous pent-up demand for procedures and a broken financial situation, caused by the tremendous demands of the coronavirus. Many U.S. hospitals are used to an operating margin of 2 percent or less; with ER, patient care and ICU demanding 100 percent of their resources, their financial situation looks bleak. In addition, given the large number of people who have lost their jobs during the crisis, many more will need to rely on CMS for insurance, which can dramatically exacerbate the financial challenge for many hospitals.

In the short term, hospitals are in great need of solutions that bring them back to profitability. In the long term, they must create slack in the supply chain so they can appropriately respond to future pandemic shifts in demand.

Reprocessing as a supply chain strategy
Reprocessing of single-use devices has a role to play here. The majority of U.S. hospitals already use single-use reprocessing as a means to reducing costs. However, these programs typically limit the types of devices that are reprocessed, despite the fact that there is no evidence to suggest that certain FDA-cleared devices are less safe or effective than other FDA-cleared devices. In addition, many reprocessing programs are not viewed as a supply chain strategy and, thus, do not receive the focus they deserve.

As a result, nationally, hospitals save on average about half of what they could save from single-use device reprocessing in EP labs. Re-imagining reprocessing as a supply chain strategy would not only release massive sums for the hospitals, but it would also help create the supply chain slack and control needed for situations like this.

Catheter ablation can exemplify this: There are more than 360,000 ablation procedures a year in the U.S. More than 240,000 of these are likely atrial fibrillation (AFib) procedures, which continue to grow by more than 15 percent per year thanks to better technology and more diagnoses. Device costs in AFib procedures are roughly $10,500 per procedure (more than half of CMS’ reimbursement rate). This means, in the U.S., we spend more than $2.5 billion per year on devices used in AFib procedures.

Nationally, the savings potential from single-use device reprocessing in electrophysiology broadly is just under $900 million. $780 million could be saved in AFib procedures alone. However, reprocessing activities produce nowhere near this level of savings. Our studies suggest that, across all EP procedures, hospitals could more than double their EP reprocessing savings – and realize an additional $532 million in savings.

This level of economic infusion into the hospital supply chain would certainly go a long way towards producing the supply chain slack needed to address, as an example, a pandemic. However, this level of savings increase is only possible if the hospitals are successful in taking control of their supply chain and leverage reprocessing as a supply chain strategy. This means informing vendors that the clinical effectiveness and financial sustainability of EP labs depend both on close technical and clinical collaboration with the vendor AND on controlled, safe cost reduction strategies, such as single-use device reprocessing. In addition to maintaining clinical outcomes, cost control is vital to both superior patient care and the financial viability hospitals. In simple cost terms, if a hospital currently saves $100,000 a year reprocessing simple, inexpensive catheters in the EP, it could increase these savings to $300,000 by including mapping catheters and diagnostic ultrasound catheters.

Hospitals must look for technologies or solutions, both in the EP lab and beyond, that reduce costs and either reduce procedure time or improve patient care. The supply chain and cost challenges surfaced by the pandemic have shown us very clearly that the current cost realities are not sustainable for healthcare. There must be a new deal made with large manufacturers in order to create space and flexibility in the supply chain and to reduce vulnerability.

In summary:

• Do not entertain new technologies that add costs without demonstrably improving patient care.
• Demand that you get the full utility of the assets you purchase, which includes reusing single-use devices.
• Ask your key vendors to immediately start working with reprocessors to ensure their products can be reprocessed.
• Finally, take a look at your reprocessing program: Most hospitals only save about half of what they COULD save from reprocessing. Then work with your reprocessor to realize those savings.

About the author: Lars Thording is the VP of marketing & public affairs at Innovative Health LLC.