As healthcare embraces cost, quality, and outcomes as drivers of success, the potential for digital technology is easy to appreciate. When data and analytics are driving decision-making, that can bring a higher level of efficiency to every aspect of care, from interpreting radiological exams, to scheduling patients, to optimizing the supply chain.

It’s that last component, the supply chain, that we wanted to discuss with Marlin Doner, vice president of data analytics and product strategy at Prodigo Solutions, a healthcare technology company focused on helping providers achieve financial control and supply chain cost reduction.

HCB News: From a big-picture perspective, how has COVID-19 impacted hospital supply chain leaders?
Marlin Doner: There are three specific areas of impact that have stood out post-pandemic: risk, responsiveness, and resilience. During the pandemic, we saw shortages across many commodities due to surges in demand as well as supply shortages. In the past two years, supply disruptions drove up the cost of patient care by over 18%.

When it comes to risk, supply chain leaders are now evaluating vendor and supplier risk based on where items are being manufactured, the quality, and suitability of products. In the past, they were typically focused on financial risk. Now, they need to consider where the source of supply is, the usability of the product and whether the product will arrive on time. This extends beyond the supply of finished goods, and should also consider the raw materials that go into the finished goods. The further the supply chain reaches out, the more risk and possibility of disruptions you have.

Secondly, for responsiveness, there is now a federal mandate for how much safety stock is being held in reserve by health systems. The federal government has ruled that any products in the strategic national stockpile are not intended for use in any state or any individual hospitals. Therefore, hospitals must have their own stockpiles. Supply chains now need to determine and stock an appropriate number of specific items that would be required to respond in a pandemic. This is a financial burden on health systems that now must be factored into their total cost of operations.

Finally, for resilience, health systems and supply chains now need to anticipate demand based on numerous input variables. Historically, input factors have been straightforward: “What’s my caseload for specific procedures?” Now, they need to consider other factors, such as demand surges that might impact how much inventory to have on hand, or how quickly they can get supplies based on how close the finished goods are to their point of demand. The focus has shifted to evaluating and aligning variable demand with inconsistent supply.

HCB News: How are major IDNs currently responding to these shifts?
MD: Now more than ever, through transformational service delivery platforms, the C-suites are looking at supply chain to address multiple competing priorities, such as increasing service levels while containing costs; building resiliency and adaptability while increasing compliance and control; and focusing on growth while also ensuring sustainability and diversity across their supply chain footprint.

We’re an industry in transition. For example, ERP technologies are being migrated to the cloud, post-pandemic recovery is still impacting the service mix, consolidation of health systems is ongoing, margins are under constant pressure from inflation, and the healthcare service model is becoming more decentralized. Supply chain is now a strategic priority on most CEO and CFO’s go-forward plans, so there needs to be strategic thought about what healthcare transformation looks like in this evolving world.

Fortunately, supply chain modernization is moving toward more adaptable, nimble, and responsive supply channels that improve customer experience while reducing the cost of care. Technology is proving to be a key enabler of the advancements needed to connect the ecosystem, promote collaboration, and deliver on emerging supply chain strategies to overcome these challenges.

HCB News: What are some of the key benchmarks that supply chain leaders should be mindful of during this response?
MD: There are operational and financial benchmarks that need to be top of mind for all decision-makers across the continuum of care.

Supply chain leaders need to drive better performance around contract utilization, which is ensuring supplies purchased are from active, valid contracts. They should also aim to increase compliance, which is ensuring that items purchased are from the correct source of supply at the right price.

Supply chain leaders must focus on increasing visibility into all the costs that go into patient care. It’s critical to consider the total cost at a procedural level and monitor how much of that cost is being recaptured through revenue; making sure there’s no leakage of cost. Ensuring minimal spend leakage simply means that all inputs into patient care are accurately documented, billed, and the health system is being appropriately reimbursed from the Payer.

Prodigo Solutions has analyzed more than $35 billion of supply chain spend to identify trends and performance gaps that erode the health systems’ pursuit of savings. As an industry, less than 40% of negotiated savings are realized over the life of the contract. The inability to operationalize thousands of available contracts and the complexity of terms and conditions tied to price incentives embedded in those contracts are key culprits to the erosion.

Prodigo also found that less than 45% of supply chain spend flows through items managed in the item master. This means that more than half of a hospital’s supplies expense is actively managed. As a result, less than 65% of purchases are tied to valid, active contracts. And less than 85% of purchased lines had the right contracted price — in fact, nearly 40% of items are being purchased at more than one price.

These trends will continue to negatively impact the bottom line of healthcare without the ability to manage the velocity and volume of supply chain data as well as influence end-user buying behavior to bring more spend under supply chain control.

HCB News: Are there challenges for evaluating specific operational performance against broad industry benchmarks?
MD: It’s an interesting question because the challenges result from both internal operating structures and external market factors. We all understand that the average cost of a patient care interaction has been increasing at a rapid rate for the past few years, which is putting pressure on health systems to ensure they are getting accurate reimbursement for services being incurred. Where the clinical enterprise is disconnected from the operational enterprise, it is a challenge aligning operational and financial performance objectives with patient outcome targets. Engagement and alignment with clinical stakeholders are common gaps that supply chain leaders need to fill.

Payer mix, based on the type of care provided as well as whether a patient is insured publicly or privately, or not at all, impacts revenue. So, when you look at broad industry benchmarks, there’s not a standard profile across every patient care episode, so this makes it difficult to compare benchmarks related to costs and reimbursement at an industry level.

At best, benchmarks are guidelines that help us improve decision-making by comparing our results against our peers. However, there are many variables that go into industry results, so we need to be careful how we compare our results against the broader industry.

HCB News: How might a larger IDN use benchmarking differently than a smaller individual hospital?
MD: I think the simple answer is the smaller the hospital, the harder it is for them to allocate dedicated resources to understand where their performance indicators are, relative to the industry. It’s common for a smaller hospital to have antiquated systems, leaving them very little visibility. Larger IDNs have the advantage of being able to invest more resources in people and technology to do the needed analysis, resulting in better information for better decision-making.

HCB News: Who should have a seat at the table when it comes to evaluating supply chain challenges?
MD: Internally, health systems should align their clinical enterprise, financial enterprise, and their operational enterprise. Uniting these three internal areas helps to overcome and combat common supply chain challenges around cost, quality and outcomes.

Externally, health systems must engage others to overcome their challenges. To be effective, supply chains must have trading partners and other technology partners who are aligned and incentivized to shorten the path to digital transformation. Healthcare supply chain is complex, globalized and always evolving, so it is important to surround yourself with expert partners.

HCB News: Where should a hospital look first when assessing the efficiency of its supply chain?
MD: They should determine whether the supply chain is responsive. Time is money, so the modern supply chain must respond in real time to demand, supply, and financial triggers. They should determine if the supply chain is compliant. Typically, requesters are not procurement pros, so the purchasing interface needs to direct them to preferred goods and services. And they need to determine whether the supply chain is efficient. Digital supply chains are connected, so transactions between trading partners must be automated across the procure to pay life cycle and powered by accurate data.

HCB News: In what ways will supply chain be different in three to five years?
MD: I believe the physical flow of goods and the virtual flow of information will be more aligned and more efficient. Supply chain has historically focused on the physical movement, or logistics of moving goods from the source of manufacturing to the point of demand. But digital transformation is enabling the virtual interaction to flow more seamlessly between trading partners. As a result of the pandemic, we have seen tremendous adoption of a virtual work and care experience. This evolution is leading to new care pathways that require both a virtual and physical connection between the patient and the care provider. And supply chain is a critical link in that experience.