US hospitals are wasting $25.7 billion on supply chain spending

por John R. Fischer, Senior Reporter | November 20, 2019
Business Affairs
Unnecessary spending on U.S. hospital supply chains
has surged by $2.7 billion in the last two years
A Navigant analysis of 2,127 hospitals has found $25.7 billion being spent on unnecessary hospital supply chain spending annually in the U.S.

The figure is a $2.7 billion rise from its previous estimate in 2017, with the average annual supply expense reduction opportunity for individual hospitals jumping 22.6 percent from its 2017 figure to $12.1 million. The analysis also points out discrepancies between top performing health systems and other medical practices.

“Unfortunately supply chains are just not that strong at managing their expenses in healthcare,” Rob Austin, director of health systems for Navigant, told HCB News. “With a lot of margin pressure for hospitals and health systems, they’ve cut a lot of shared services. There has been a lack of investment in both personnel and in tools and capabilities around those areas.”

The $12.1 million in the average annual supply expense reduction opportunity is equivalent to the average annual salaries of 168 registered nurses, 51 primary care physicians or the average cost of 3,100 knee implants.

Those in the top 10-15 percent of well-performing hospitals were found to be adept at managing their supply chains and associated costs, allowing them to create their own group purchasing organizations and distribution centers. They also are taking on more clinicians.

Austin says improving supply chain management at more hospitals requires more quality-of-care conversations. “The thing that really works best is peer-to-peer recommendations from clinicians. Setting up things like physician panels around selecting products that you’re going to use, as opposed to just telling them here is my implant, is really important. Physician panels, sharing data information and just even one-on-one meetings between supply chain people and clinicians.”

The study also seeks to relax concerns that lower supply spending will equate to lower quality care, as higher-performing supply chain departments were found to score better on a pair of Medicare quality programs.

“It seems almost counterintuitive. But what supply chains with lower costs are doing is reducing variability. That means that instead of having, for instance, three or four surgical trades they are going down to two surgical trades,” said Austin. “There are fewer things to be trained on in the OR. There are just fewer products out there. What it does is make it simpler, and so they’re reducing clinical variability because there are fewer variables.”

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