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5 ways to reduce supply chain costs

July 31st, 2014

by Shon Wettstein


As payment models move from fee-for-service to value-based care, hospitals and health systems work to maintain hospital budgets by reducing spending by 20 to 30 percent across individual departments. To that end, many hospitals realized significant savings is the medical device supply chain--one of a hospital's costliest areas. Supply costs are usually the second largest expense in a hospital after labor--and industry analysts predict they will take the top slot by 2020.

Understanding this problem is one thing, but solving it is another. Most surgeons are unaware of their supply costs or how to reduce them through substitution of equally reliable, less expensive alternatives. Changing the status quo is nearly impossible due to limited price transparency and no vehicle for sharing cost information. In other words, there's more to changing behavior and reducing a system's supply costs besides simply capping prices.

Intermountain Healthcare, based in Salt Lake City, Utah, recognized this conundrum. Rather than focusing solely on costs, its leaders developed the Surgical Price Reduction Initiative and New Growth (SPRING) program. SPRING facilitates better intracase utilization of supplies by looking across 50 of the highest volume procedures for variation in supplies, length of stay, time in the OR and add-on procedures, such as labs, x-rays, physical therapy and supplies. It aims to reduce procedure costs by providing surgeons with real-time, procedure-based information on supply options and alternatives. It also focuses heavily on workforce education and the study of cost-effectiveness.

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Intermountain Healthcare's supply utilization management program is on track to reduce variation resulting in intracase savings of $25 million in the Surgical Services Clinical Program in its first year. The organization applied it to other clinical programs including cardiovascular, intensive medicine, behavioral health, women's and newborns, pediatrics and oncology. The program puts Intermountain Healthcare on track to reduce operational expenses by $400 million by 2016.

Among the many approaches to reducing supply chain costs, the following five key strategies proved highly effective:

  1. Ensure your purchasing decision makers have a solid working knowledge of specific devices in addition to a business background, for credibility and physician buy-in
  2. Streamline to drive out redundancy, as many processes and devices are similar and lead to inefficiencies
  3. Show physicians their cost per case and how they compare to others in the department
  4. Optimize product selection through physician engagement
  5. Educate physicians on the effectiveness of less expensive devices that offer the same clinical outcomes

Thinking creatively about supply chain management and engaging physicians in those efforts can help organizations quickly achieve greater value and savings--which can ultimately make a significant impact on a hospital's overall financial goals.

Shon Wettstein is a senior manager of supply chain solutions for Intermountain Healthcare.

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