Of the 1,000’s of products used daily in a healthcare system, a large number are duplicates and often redundant … Managing Variation in the Healthcare Supply Chains

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.

variation

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.

 

Posted by: Jim & Gene

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