US hospitals are spending $25.4 billion more than necessary on supply chain

by John R. Fischer, Senior Reporter | October 24, 2018
Business Affairs
U.S. hospitals are spending approximately $25.4 billion more than necessary annually on supply chains, costing themselves a potential savings of $2.4 billion when compared to 2017.

That’s the finding of an annual Navigant analysis of 2,300 hospitals, representing a 10.2 percent increase in possible savings in an area where many providers have not accumulated the resources and leadership needed to take advantage of cost saving opportunities.

"There's a huge opportunity to reduce supply costs, the second-largest costs for a health system behind labor; but [executives] need to do a few specific things," Rob Austin, director at Navigant, told HealthLeaders Media. "[Executives] have to engage clinicians, focus on data, and have more people professionally trained in the supply chain. For a CFO to invest in supply chain, [they need] a supply chain leader who has a vision and skills, sometimes [from] outside of the industry, that they can apply to healthcare."

Providers in the southeast had the highest equivalent savings opportunities of any regions in the U.S. at 18.7 percent while the northeast showed the lowest at 15.2 percent.

Saving opportunities, though, were found to be relatively equal among providers regardless of size and regional location, as well as whether they were urban or rural; for-profit or not-for-profit, and system-based or standalone.

Lower supply spending also does not necessarily reduce quality, as evidenced by scores for Medicare hospital-acquired condition and value-based purchasing at top-performing supply chain facilities which have shown slightly better results.

The study indicates that with proper investments, an average total reduction of 17.7 percent in supply expense is possible. This adds up to $11 million a year in extra savings annually per hospital, an amount equivalent to the average annual salaries of 160 registered nurses or 42 primary care physicians or the average cost of constructing two outpatient surgery centers.

To achieve this, providers need actionable information that draws comparisons between costs and patient outcomes, and staff who are capable of analyzing the data.

Such resources enable hospitals to utilize products used in routine procedures and engages data-driven physicians to standardize use of physician preference items and medications that have been proved to produce clinically equivalent outcomes at a lower cost. This leads to reductions in price variation and the use of certain drugs and products.

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