3 things to address to ensure a stable supply chain for your practice

Supply-chain instability at the start of the COVID-19 pandemic had a profound effect on the healthcare industry, highlighted by the procurement crisis in Personal Protective Equipment (PPE) for frontline healthcare workers and medical equipment and pharmaceuticals for patients. Even as we begin to envision a post-pandemic future, continuing backlogs and unsustainable workarounds and rising international turmoil supply fresh evidence that supply-chain fragility is untenable.

Resilience is essential.

Now is the time for health systems and practices to review the dynamics of the current workplace, the recent and rapid evolution of care delivery, and the readiness of the organization to continue to grow with these changes.

Here are three key elements every healthcare organization should address to ensure a resilient supply chain:

• Maturing prime vendor relationships
• Management of critical stock
• Addressing inefficiencies in current processes

To be clear, key prime vendor relationships can determine operational agility and deserve scrutiny under this lens. For example, the pandemic highlighted deficiencies in the just-in-time (JIT) model many vendors employ to service medical practices. Likewise, assessing sufficiency in current supply of critical stocks means analysis with hard-won insights on withstanding surges in demand. And most importantly, conducting a review of current processes for less-than-optimal performance will pinpoint processes that can be revamped to be flexible when needed, as well as more efficient day-to-day in the new normal.

The justification for a strategy centered on these areas is best understood by revisiting the events of the recent past with a focus on impact and lessons learned.

Retrospective

The onset of COVID-19 revealed large-scale reliance on competitive but distant producers for essential healthcare supplies and equipment. This resulted in difficulty procuring PPE supplies, medical devices, and pharmaceuticals under surges in global demand and chaos in international production and shipping. The most notable example involves N-95 masks, which were subject to price gouging, bidding wars, hoarding, and counterfeits.

Compounding supply chain issues were catastrophic financial losses. According to the American Hospital Association, U.S. hospitals and health systems lost an estimated $202.6 billion over the four-month period between March 1 and June

30 in 2020 (or $50.7 billion per month), and at least 42 hospitals across the country had either closed or filed for bankruptcy by summer. Thin margins evaporated when elective surgeries disappeared and the cost of providing care went up. Ensuing challenges included managing the massive shift toward telehealth services, surges in emergency caseloads, vaccine rollouts and public health policy confusion amidst political polarization and social unrest, and widespread staff burnout and labor shortages that have yet to abate.

Surviving healthcare organizations have been forced to transform quickly in a time of great uncertainty. This pandemic will not last forever, but future disruptions are guaranteed. It is now time to synthesize and integrate what we have learned over the past two years. Setting a vision for supply chain resilience helps provide the directional guidance organizations need to stay agile, transform at scale, and prepare for the next wave of change.

Looking inward

Lasting business “scars” from the pandemic include fragmentation of global trade and supply linkages. Organizational responses to such conditions have given rise to unsustainable “emergency” workarounds that risk becoming standard practice — to ill effect. For example:

• Health system supply chains saw key supplies become unavailable
• Health systems competed with each other, oftentimes through the same vendor relationship, driving up prices of key supplies by multiples of 100%
• Verbal communications between health systems, suppliers, and manufacturers needed to be more frequent in order to obtain scarce supplies, creating further bottlenecks
• Continued time-intensive processes and inflated costs hinder the ability to provide optimal care and protect health system staff

Creating more resilient supply chains requires systematically identifying and tearing off such counterproductive bandages. A few areas to consider might include:

Continued review of Just-In-Time (JIT) model

Lean approaches reduce inventory carrying costs, risk of expiration, and ideal supply metrics. However, as 2020 proved out, practical realities must factor in the equation. Critical lower cost items such as N-95 masks, with a ~400% mark-up and a massive increase in consumption, can lead to millions in added expenditure.

Stockroom and Par Count modernization

Bar coding, QR codes, and RFID are not novel technologies — yet health systems typically do not leverage these technologies for accurate counts. These accurate counts are vital in keeping supplier relationships working optimally and obtaining data for analysis on future supply chain business decisions.

Variation in preference cards

A lack of item standardization of preferences in a health system can increase costs by as much as 20% — without any clear benefit in increasing the effectiveness of patient outcomes.

External pressures

Industry trends and patient demographics such as continued payer/provider consolidation, increasing prevalence of chronic conditions, an aging population, and the ongoing cost of care above inflation will continue to impact healthcare operational dynamics. At present, influential movements include:

• Centers for Medicare & Medicaid Services (CMS) direct contracting
• Shift toward more home-based care
• Value-based care supplanting fee for service
  

Such trends shape the delivery of healthcare, and thus, resilient supply chain strategies. Negotiating dynamics will shift as direct contracting entities can create value-based contracts with preferred providers. Capitation payments will provide short-term investment, which can be used to fund modernized technology such as patient-engagement systems. Hospitals providing fee-for-service will be challenged to partner with providers who are controlling total medical expenses, and value-based care initiatives will continue to drive transformation. These factors need to be addressed in formulating supply chain strategy.

Formulating supply chain vision

Supply chain management vision should be informed by clear goals. For example, a midsized healthcare organization might aim for:

Improved efficiency, with less than 1% unmatched invoices due to tolerance exceptions

• Reduction of taxiing of product to near 0%
• 100% digital supply chain documentation (no paper files)
• 24/7 staffing intelligence (making HR information available anytime to HR and management)

A plan should identify strategic goals and include evaluating systems and processes, and then identify top priorities for the next 18–36 months based on metrics such as those identified above. Priority areas will include anywhere work is highly manual or paper-based and anywhere managers and staff can be empowered by modernized technology (and easy-to-access, real-time, meaningful, and actionable data).

Business processes can wield outsized influence on the cost and outcome of healthcare work. Because many processes are continuous, small improvements can add up to huge benefits. Aim to focus on reviewing processes that are executed often, cost more than best practice, impact customer satisfaction, and/or support staffing strategy.

Achieving supply chain resilience

Healthcare organizations need supply chains that are resilient and able to cope with the many challenges. The speed and scale of the pandemic put the onus on survival response at the expense of gaining efficiencies in process. There is now an opportunity to reflect, and forge a path that strengthens the organizational practice of provisioning.

Shortening supply chains where possible enables more control over vendor relationships for the future. Reviewing and assessing your current policies, processes, stocks, equipment, and technology portfolio to identify gaps and priorities is also key.

As the front line in fighting COVID-19, healthcare teams deserve the highest recognition for their service. The goal must be to provide them with the best work experience going forward. Resilient supply chains enable quality workplace experiences, and ensure health systems and hospitals can effectively and efficiently continue to fulfill their vital mission long into the future.

Charles Anastos is Healthlink Advisors Executive Vice President and Chief Operating Officer, and Marc Franks is Healthlink Advisors Business Systems & Operations Practice Leader.