US Hospitals Waste $25B
on Supply Chains
October 25, 2018
hospitals are spending approximately $25.4 billion more a year on the
supply chain than necessary, according to an annual Navigant analysis.
This represents a 10.2% or $2.4 billion increase in potential savings
compared to 2017.
The study of 2,300 hospitals also suggests a 17.7% average total supply
expense reduction opportunity or up to $11 million a year per hospital,
an amount equivalent to the average annual salaries of 160 registered
nurses or 42 primary care physicians, or the average cost of building
two outpatient surgery centers.
Similar to 2017, lower supply spending may not negatively impact
quality, as Medicare hospital-acquired condition and value-based
purchasing scores are slightly better at top-performing supply chain
facilities, the analysis shows. Further, Navigant found that savings
opportunities are once again relatively equal across hospital size,
regional location, and whether the facility is urban or rural,
for-profit or not-for-profit, or system-based or standalone.
“Even with ongoing efforts to improve supply chain processes and product
use, we aren’t seeing the needle move in the right direction as
significant savings opportunities remain for many hospitals and health
systems,” said Rob Austin, director at Navigant. “At a time when
operating margins continue to decline, we have found that hospital
leadership not fully investing in their supply chain are missing chances
to optimize the financial potential of their organizations.”
Reducing Variation, Waste
Reducing pricing variation and the use of certain drugs and products
should continue to be areas of focus for hospitals to reduce supply
chain costs. To successfully do so, providers need actionable data that
helps tie costs to patient outcomes, and staff who know how to analyze
Having this data
allows for opportunities to:
Optimize utilization of products used during routine procedures.
Engage data-driven physicians on
standardizing use of physician preference items and medications proven
to produce clinically equivalent outcomes at a lower cost.
The key takeaway for health system
executives is that investments in supply chain management pay off,” said
Kevin Connor, vice president of Supply Chain Management at TriHealth.
“Those systems with the highest-performing supply chains are combining
data analytics, collaborative clinician engagement, and deep subject
matter expertise to drive care delivery improvements to the benefit of
the communities they serve.”
High-performing supply chain departments are also enhancing
Among physicians, nurses, and other clinicians with supply chain,
finance, and IT departments.
With suppliers on value-based and
other contracting efforts.
The supply chain
department needs to act as waste or utilization consultants for the
entire health system,” said Paul Weintraub, director at Navigant. “Doing
so requires having the right data at the right time, and the right
experts who can leverage it to help reduce variation in pricing, product
use, and clinical outcomes.
Navigant study found that if all analyzed hospitals could match the
performance of the top quartile of hospitals for supply chain budget
efficiency, $25.4 billion annually could be saved on supply chain
products and related operations, processes, and procedures. Total supply
costs include medical and implantable device costs, medical/surgical and
pharmaceutical supplies charged to patient care departments, and costs
of supplies related to buildings/fixtures, maintenance, and plant
operations. Capital equipment, labor, utilities, and some specialty
pharmaceuticals were not included in the analysis. Data was extracted
from Definitive Healthcare and covers 2016-2018.
Navigant’s Healthcare segment is comprised of consultants, former
provider administrators, clinicians, and other experts with decades of
strategy, operational/clinical consulting, managed services, revenue
cycle management, and outsourcing experience. Professionals collaborate
with hospitals and health systems, physician enterprises, payers,
government, and life sciences entities, providing strategic, performance
improvement, and business process management solutions that help them
meet quality and financial goals.