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What health care supply chain can learn from other industries

December 11, 2012
By Tony Benedict

Utilizing best practices from other industries

Utilizing best practices for health care based on experiences from other industries is probably one of the most relevant topics for the health care supply chain today in light of the imminent changes scheduled in 2013. The increase of Medicare dependent Baby Boomers over the next 10 years, coupled with the 2 to 3 percent cuts Medicare will impose each year for the next 10 years will strain the health care system beyond anything imaginable in prior decades. The cuts in Medicare most likely will be followed by cuts in reimbursement from private payers. Accountable Care Organizations and bundled payments are two other changes that providers have needed to adjust to starting Oct. 1 of this year.

Most supply chain professionals are focused on reducing product related costs through volume-based contracting and utilization related costs through value analysis efforts. The question going forward is how does one take an additional 30 to 40 percent of cost out of the delivery of care while still addressing the challenge of product cost being either the first or second highest cost related to care delivery? How much of the care delivered is waste?

For anyone working as part of the health care supply chain, the answers to those questions are incredibly important. So what are the best practices to help reduce the cost associated with delivery of care? The answers can be found by looking at several industries that have managed to be innovative and deliver their products and services to customers in a more efficient and cost effective manner.

Upon first entering the supply chain sector of the health care industry, the first thing one will notice is that there are no real standards, at least not like those found in the retail, high tech, or consumer packaged goods industries. Standards are essential because they enable interoperability – or the ability for disparate things to work together in an integrated fashion. For example, the standards developed for USB enables any computer peripheral to connect to any computer and work. The hardware and software are based on those standards and not only simplify things, but also reduce costs involved in the manufacturing. It’s difficult to name a corollary in health care. Interoperability of capital equipment providers is an example – not all are compatible with competitors’ equipment. Hardware providers in health care want you to buy just their products so they don’t want theirs to work with anyone else’s. If you’ve been in the industry for a decent amount of time, you know who these providers are and this helps explain why costs are so high to switch equipment and platforms. Software is another example. There are just a handful of EMR providers and even fewer clinical application providers. Since interoperability can be a concern, hospitals often must make a choice and stick with it, especially to meet meaningful use requirements for government reimbursement. Bar coding and RFID systems are relatively inexpensive and work well in many other industries, but have yet to take hold in health care at a price point that makes it attractive to most facilities. But by looking at how other industries work and how companies have found success, there’s reason for optimism.

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