Category Archives: An HSCX Blog

Our previous blogs introduced the research underway at ASU into Fully Integrated Supply Chain Organizations (FISCOs).  These organizations are emerging as leading healthcare systems see the great value in a single, integrated SCM organization.  Such organizations have complete procure to pay to deliver processes managed by a single team that has visibility and insight into all of the dynamics and trade-offs in comprehensive SCM decision-making.

These FISCOs …

• Create value otherwise unattainable
• Transforms supply chain from an cost center to an asset
• Address business and clinical challenges directly
• Create a governed autonomous supply chain organization
• Links supply chain to overall system goals

Our research into FISCOs has led us to identify 17 dimensions to these entities.  They are divided among three categories:

• Business Processes
• Technology Tools
• Governance Mechanisms

The adoption and inclusion of these dimensions within the supply chain organization varies among systems.  Those systems that are able to manage the maximum number of dimensions generate high performance levels in the key metrics that define effective SCM.  The dimensions that we consider relevant for a FISCO are:

Which of these functions are not part of your supply chain organization?  What value could you create if they were?  What will it take for your organization to adopt these?

The goal for leading healthcare supply chain organizations is a design where the supply chain management team becomes clinically and technologically driven in all their activities.  Such designs shift the focus from traditional administrative compliance towards the patient’s needs and to the clinical requirements for meeting them.  A change such as this requires a different way of thinking for supply chain professionals as well as the stakeholders that they serve.  As in any business transformation we need to meet  four conditions:

• A clear, well articulated vision and strategy with a description of the value to be accrued to the multiple stakeholders
• The leadership & organizational will to change
• High quality data management and integrated applications for SCM decision-making
• Comprehensive business processes that support the strategy

Organizations that possess these characteristics are positioned to succeed.  We have seen several healthcare organizations that are on this path to such change.  Many are also adopting the FISCO model that we introduced in last month’s blog.  As part of our research we have also identified the four core capabilities that these organizations must develop in order to succeed.

• Value from standardized product identification such as GS1 /GTIN/GUDID
• Access to data from sources such as IoT, Visual/Voice Capture, Clinical Evidence
• Decision making through analytic tools such as cognitive computing, artificial intelligence, and descriptive/predictive/prescriptive analytics
• Information integrity through digital ledgers and possibly blockchain

Developing these capabilities may require investments in information technology, organizational expertise, and external partnerships.  With these four core capabilities in place, supply chain management organizations can leverage and effectively operate highly valued SCM business processes such as:

• Value based selection to ensure that clinical needs are directly connected to sourcing decisions
• Sourcing by category managers possessing expert market knowledge
• Efficient product/order fulfillment to meet clinical needs
• Risk management programs (recall management)
• Dashboards/Control Towers for operational excellence

By following these practices, healthcare systems can develop fully integrated supply chain organizations (FISCOs) that are clinically and technologically driven.  Evidence has shown that this leads to a high performing healthcare system.   Interested to find out.  Stay tuned to these blogs or give us a call.

A team of researchers at Arizona State University have depicted supply chain teams in the most advanced health care systems in the US as Fully Integrated Supply Chain Organizations (FISCOs).  These organizations are characterized by strong clinical engagement where product standardization programs are part of the culture.  This requires a clinical and administrative staff who are fully aware of, appreciate, and are committed to the process and recognize the connection of the value of the process to their mission.  This is more than just a clinically focused supply chain;  this becomes a clinically DRIVEN supply chain.

FISCOs are characterized by standardization working groups where evaluation is made, based in large part, on impact on clinical pathways and market research, evaluation of vendor/sources, evaluation of vendor products, risk management review, product decision, contracting if applicable; compliance metrics gathered and reported.  In the most progressive of these organizations, patient outcomes are monitored, and compliance or deviation form clinical pathway is determined.  If warranted a re-evaluation of the clinical pathway is made and modified as necessary.

Achieving this state of performance is not an easy task.  It requires not just the mission and vision for a clinically integrated organization but investments in the key human resources and technologies critical for success.  On the human resource side, one finds, as discussed previously in this blog, a very strong role for physician engagement, leadership, and guidance for the supply chain staff.

While it is not necessary (but desirable) for physicians and other senior clinicians to have a direct employment link to the supply chain effort, a corporate governance system that recognizes and rewards such efforts is critical.  More complex is the technology needed to progress to a mature FISCO – which can include an organization’s utilization of machine learning and artificial intelligence to assess the key relationships between clinical practice and the materials environment.  In future blogs we will examine a number of these technologies and their deployment.

Attention Supply Chain Managers:  Do you suffer from your organization’s lack of awareness of your supply chain management role?  Here’s a short blog for you to share with your colleagues that will give them a better understanding of your role and the drivers of your day to day activities.  Share this post with others in your organization.

 

Supply chain management (SCM) executives are driven individuals … and ones typically with a very thick skin to deal the wide range of roles and interests of the people that he or she faces on a daily basis.  But in the simplest terms, they are driven by five basic objectives, which are known as the ‘five rights of supply chain management’.

Do whatever is needed to get:

• The right product
• At the right time
• In the right condition
• To the right place
• At the right

In the healthcare field, this is further challenged by the need to deliver support for:

• Best cost
• Best quality of care
• Highest patient outcomes

… and in alignment with the overall goals of the hospital system.

Due to the wide breadth of influence over almost all of the organization’s functions, the supply chain executive must confront some very significant challenges.

1. Sourcing literally thousands and thousands of products
2. Negotiating the best prices for these products
3. Ensuring clinician access to all products subject to a set of usage rules
4. Complying with commercial contract terms
5. Complying with regulatory terms
6. Forecasting the correct demand for all products
7. Assuring that sufficient inventory is in place to satisfy the demands of clinicians (and not too much inventory nor too little)
8. Physically distributing the products from the suppliers to the hospital cart
9. Complying with hospital policies
10. Fully understanding and providing for the clinical needs for all products
11. Assuring appropriate transparency of actions with:
    • Clinicians
    • Finance
    • Suppliers
12. Paying suppliers’ invoices
13. Assuring high product quality
14. Managing product shortages and product recalls
15. Accessing new products

While some could add other challenges, this list alone is daunting.  It encompasses physical operations, commercial relationships, clinical relationships, financial operations, planning, people development, and advanced information systems.

While it’s not a competition as to who has the most demanding role in an organization, the supply chain manager’s role is one of the most challenging administrative roles in healthcare.  He/She serves and responds to almost every hospital stakeholder.  Often in the background, but critical to the successful operation of the entire hospital, the SCM professional is always at the forefront and ready to help when a crisis emerges.

Without a well-functioning SCM group, much of what occurs in the hospital grinds to a halt.  Given the crucial role that medical supplies, devices, and pharmaceuticals play in today’s healthcare environment (about 25% of a hospital’s total budget), clinicians need to know what challenges SCM managers and what drives them.  Consequently understanding SCM and supporting its efforts will contribute greatly to the effectiveness and efficiency of a modern hospital.  So next time that you see a supply chain manager, say hello or, even better, give them a big handshake!

Since early last year we have issued monthly blogs presenting issues and approaches to solutions in the healthcare supply chain management field.  This month we are turning the table and asking you to think of specific issues and approaches to solutions in your own organization.  In other words, a personal plan for your program this year.

1. What are the key Supply Chain Management (SCM) issues that you and your organization are facing this year?
   1. How will these be resolved?
   2. What are the major barriers to resolution?
   3. What role will you play in this process?
   4. What tools and resources will you need to be successful?
   5. What collaborative programs can you leverage to engage both administrative and clinical supply chain leaders in the resolution of these issues?
2. In our April 2018 blog [https://hscxi.comthe-12-keys/] we identified 12 keys to leadership in SCM.  What is your organization doing to advance these?  How are you supporting this?
3. How is your organization elevating SCM within the clinical leadership teams?  See our July blog [https://hscxi.comelevating-scm-with-clinical-leadership/]

If you have interesting approaches to these issues, we we’d like to hear about them.  We could, if you wish, post them on our site for others to hear about and comment.  Or you might just want to ask us for our thoughts about some of these issues.  We’d be glad to comment.  But bottom line, have a most successful year in 2019 and may your supply chains be prosperous and value-creating.

In the past few blogs we addressed product standardization initiatives within healthcare systems.  This is an important and very current topic among healthcare supply chain professionals.  This month’s blog provides a backgrounder into this practice and the rationale for its use.

In almost every industry, business managers establish and prescribe the use of optimal products, protocols, processes, designs and practices aiming to yield maximum performance.  These are standards.  They are chosen through a variety of means but generally follow an engineered approval process within the business and by the business.  While some latitude for deviation from the prescribed product is permitted, it is only done if the financial, operational, or outcomes are not materially affected.

Notably different in this practice is the field of medicine and in particular, the large integrated healthcare providers.  In this case, independent physicians make material decisions regarding the use and non-use of individual devices, supplies and equipment.  These decisions typically are based on personal, independent views of efficacy and comfort.  Amongst physicians, they are referred to as “physician preference items (PPI)”.  For many physicians, these preferences are determined early in their career, often during their training under the supervision of other doctors.

As a result of these strong preferences, healthcare system leaders, whose job is to ensure that both quality care is provided and that the system operates in a sustainable form, are severely limited in implementing standard practices designed to keep costs in line and to assure quality practice.  This is important and significant.  In most hospitals, physician preference items represent close to 30% of the hospital’s medical supplies budget.  Saving just 10% of that spend by applying best practice standardization programs can save 3% of the total hospital budget.

In our advisory practice at HSCX, we regularly find hundreds of thousands of dollars of savings accessible through standardization initiatives.  But even more importantly, the quality of medical practice is improved as the use of standardized products leads to increased patient safety.  To capture these benefits, physicians, other clinicians, and program managers must work together to agree on the right products, processes, practices, and protocols.  The value capture can be astounding.

And it is important to remember that this does not translate into cheaper care.  It translates into better managed care.  In today’s hyper inflationary medical environment, all systems have an obligation to actively pursue standardization.  It’s for the better of the patient and for the better of the system.

Watch for next month’s blog where we will examine the special approaches to standardization in the healthcare industry.  As well, we’ll look how healthcare standardization applies to the episode of care or what has been described as a “Design to Cost”.  In the meantime, think about your system’s approach to standardization.  What do you need to make it more successful?  How can you create more value through standardization?

For the past several years as advisors to hospitals we have had many discussions on the topic of product standardization in healthcare.  Through these discussions we have heard wide ranging views on this from physicians, nurses, clinical support staff, supply chain managers, financial, and other administrative leaders.  For many, this issue of standardization becomes a lightning rod for energized debate about the merits and wisdom of controlling medical practice and the necessity of tightly managing medical expenses.  However, we have realized a crucial point.  The term ‘standardization’ has different meanings to different people.

Within the healthcare supply chain management field, we often use the term ‘product standardization’ when we actually mean ‘product rationalization’.  Rationalization is the process of limiting the number of products that are used in order to focus more on the products that deliver the most value.  This is an important endeavor designed to maximize the value from the choice and use of medical products.  Yet in some organizations, the product standardization process is simply endorsing the use of a particular product within the healthcare system based on its market suitability – and doing nothing to limit product proliferation.  And it is not “merely” about limiting SKUs – but about supplier base reduction, operational efficiencies, and trust gained as we limit the number of companies with which we do business.

Product standardization is simply the process of developing and implementing acceptability standards based on the consensus of all stakeholders.  Ultimately, it is the test of market suitability for a product.  We have many examples of such usage of standardization including the infamous, “Good Housekeeping Seal of Approval”.  This just means that a product is technically acceptable for use as intended.  The FDA does this; medical professional associations do this; as do manufacturers.

But what is more important is the effort to manage the proliferation of similar products that may yield varying medical outcomes.  Endemic in medicine, however, is the acceptance of a clinician’s personal preference for a particular product (and manufacturer) that may differ from the consensus of his or her colleagues.  Too often such preference, while not justified, is tolerated.  Supply chain managers point out that such proliferation leads to quality issues.  Excessive products in use lead to:

• added complexity in supply chain and clinical services,
• more product use errors,
• reduced contract leverage
• reduced service levels from suppliers
• additional cost for sourcing, ordering, and storing.

Through the efforts of value analysis teams and other similar programs, leading hospital systems limit product proliferation.

Some thoughts for you to consider – Make sure that your efforts in this area are not simply product standardization but extend to product rationalization.  Find out what type of standardization your hospital practices – simple or rationalization?  Consider what you can do to improve healthcare quality through product rationalization.  Take a look at how the industry leaders are managing this.  Examine how you can adopt these best practices.

Physician leaders are being challenged, as never before, to help to bend the curve of escalating costs and to improve quality.  As they look for opportunities, a significant number have identified the health care supply chain as a candidate to achieve these objectives.  This becomes especially apparent as they are made aware of the fact that for hospitals, the supply chain is the second largest cost after labor and that failure in the supply chain also impedes the ability of the hospital to carry out patient care.

Physician leaders are also recognizing that medical devices, especially in areas such as cardiology, spine and orthopedics, represent enormous costs, but also savings opportunities to the hospital.  In many cases, the ability to achieve savings in this area is held up by clinician resistance to change.  The objective of standardizing products across a hospital system conflicts with many physicians’ desires for individual medical independence, otherwise known as ‘physician preference’.  Thus, managing supplies in a coordinated and efficient way for a hospital has become challenging both technically and interpersonally.  However, when these conflicts are resolved, effective supply chain management (SCM) becomes a powerful tool for the improvement of healthcare system performance.

These supply chain functional responsibilities are subservient to the activities that precede purchasing action – sorting through the myriad of competing products to assure that one is delivering the standard of care through product choice.  Thus, physician executives working directly with supply chain leadership to understand how supply chain management is organizing the product selection and product securing decision making process is critical. To this end, actions that physician leaders can pursue include:

• Leading discussions in strategic decisions about product selection. One interesting area is the use of reprocessed items – an area where great savings can be achieved – but also an area in where there may be resistance due to clinician belief about the quality of reprocessed items.
• Collaborating with supply chain leadership and physician product-line leaders to form standing value analysis and technology assessment teams to scrutinize the extent to which products are equivalent and thus candidates for standardization.
• Supporting the development of data to assess product brand equivalency – with the goal of reducing the number of suppliers and achieving resultant improved negotiation opportunities.
• Influencing physician colleagues to recognize opportunities for excellence through product standardization and improved supply chain management. This recognizes that physician SC engagement extends beyond “executive” roles to those who can take a leadership role in providing thoughtful considerations about the materials they use.
• Advocating for the integration materials and medical information systems to support product safety and efficacy efforts. This is especially important in the physician preference area and supported by the recent presence of unique device identification for Class 3 products.

The failure of physicians to participate in supply chain decisions opens the organization to a variety of risks.  One risk is the organization becoming overly dependent on suppliers for information.  Pursuing a program focused on value-based purchasing avoids such risks, especially as it involves a wide range of physicians to communicate the organizations resolve for excellence in this area to the community of suppliers.

Leading medical practitioners invest considerable time and attention improving quality and patient outcomes by managing (i.e., reducing) variation in clinical practice.  Unfortunately, their attention to the sourcing of the medical products that they use is not as focused.  Amongst the thousands of products used daily in healthcare, a large number are duplicates and redundant due to individual physician preferences.   While the products may provide similar applicability and efficacy, acquisition costs can vary considerably. Often the one used is not the lowest cost, adding an unnecessary burden to budgets.  As an example, a typical cath lab may stock a dozen or more different stents.  Some of them will be functionally identical with the acquisition cost varying by thousands of dollars.

Higher acquisition costs are not the only factor driving up costs.  Failure to manage variation in the supply chain also impacts:

• Additional staff training costs
• Increased product storage costs
• Unnecessary utilization of valuable medical facility space
• More time searching for specific products
• Higher inventory carrying costs
• More stale dated write-offs
• Increased sourcing/contracting costs
• Higher order processing costs

Interestingly, few front-line clinicians are aware of these cost differentials as product costs are kept far from transparent.  In fact, contractual requirements usually stipulate that providers carefully limit the sharing of information about the price that they pay for medical products.  While not intended to negatively influence the behavior of a clinician’s choice of products, to comply with these requirements, pricing and product cost information is restricted to very few within a healthcare system.  Consequently, clinicians are often forced to make the right decisions without access to all of the information.

Despite the size and scope of this situation, overcoming it need not be an overwhelming undertaking.  As they say, understanding the problem and gaining consensus on the issues is the biggest step towards a solution.  This solution involves attention to and improvement in a few areas.

• Better and more open communication between clinicians and administrators.  We must begin with an understanding by administrators and contract managers that it is in the best interests of the hospital for clinicians to have knowledge and access to product pricing information.  Notwithstanding confidentiality agreements with vendors, hospital administrators need to share this information with clinicians.
• Easy access to timely information about product pricing.  Using easy to use technology, clinicians need to have immediate and timely awareness of product price differentials.  Using either the existing ERP system or a web-based bolt-on tool, this sensitive (and sometimes complex data) can be shared.
• Performance management reports measuring variances in product use where equivalent products were available.   A performance report showing negative variances traceable to a clinician’s use of a more costly, but equivalent product would help department leaders to monitor and correct product usage.

At HSCX we have found that greater attention to the use of non-standard products, notwithstanding physician preferences, will help lead to far better usage of hospital budgets for medical supplies and devices.  And as an important collateral added benefit, it usually leads to better quality medicine.  Relatively simple tools and practices are available for managing this situation.  Through diligent effort, reducing product variation can be managed as a corporate goal, just as reducing medical variation is managed as a clinical goal.

 

We have long understood that product standardization, within an integrated delivery network, is difficult to accomplish due to the extent to which physicians have strong preferences for products. Consequently, among the additional roles that physicians take on is to serve as “surrogate buyers” within the hospital.  This ensures that their preferences are sustained.  For physicians and other clinicians, it is even more complex when they are challenged in an environment where the volume of medical knowledge doubles every 24 months.

Supply chain executives, as well, find it particularly challenging to engage in sourcing programs where in exchange for preferred pricing they make guarantees to suppliers that favorable pricing, based on consolidation of spend, will actually occur.  Much of this change is due to product proliferation, with over 4,000 new 510Ks approved annually in the US.  As a result, no one individual (neither clinician nor administrator) can be sufficiently knowledgeable to fully consider the changing world of options.  Best practices today may not be the best practices tomorrow!  Accordingly, it is an environment where physician leaders must build an environment where clinical colleagues understand that supply chain is their link to clinical excellence.

Physician leaders need a strong understanding of the purchasing dynamics in their own organizations.  They must recognize that they act as representatives of the medical staff to supply chain management – but not as “mere delegates” who assure that all decisions meet the wishes of all colleagues.  Thus, to be successful representatives, they must be trusted by their physician colleagues that they will not only act to meet colleague consensus (and consequently patient), but also act in patient best interest and in consideration of challenges to organizational sustainability.

Physician leaders have become orchestrators of a complex process.  Unfortunately, there is little in clinical education that provides physicians with the skill set for such orchestration.  Successful representation, to meet the needs of both physicians and supply chain goals requires that physician executives

• Meet early and often with their clinical colleagues who utilize items characterized by preference.
• Communicate that their role is to assemble data for colleagues to sustain or reshape preference based on careful reflection
• Recognizing that they and their colleagues are “evidence driven,” engage with supply chain staff to gather credible data on product utilization and the ways products contribute to clinical outcomes and cost within an episode of care
• Work with clinical colleagues to consider and craft exception policies that demonstrate that they understand that many product decisions are unlikely to meet the contingent needs of all physicians nor requirements for patients
• Know that the autonomy at the patient level is important – but that in an era of “big data” – autonomy must be grounded in meeting “evolving” and revised standards of care.

At HSCX we have carefully studied these issues and challenges facing physician leaders.  We understand many of the dynamics and, more importantly, the solutions and tools for orchestrating this complex process. Our ideas and solutions have spurred healthcare organizations to significantly improve their ability to link clinical practices to the supply chain.