Challenges and Changes in the Healthcare Supply Chain

Supply chain usually refers to the resources needed to distribute goods or services to the end user. In healthcare, managing the supply chain is normally a very complex and fragmented process. Healthcare supply chain management is a process of obtaining resources, handling supplies and distributing goods and services to providers and end users. To complete the process, information about medical components and services usually go through a number of independent stakeholders, including manufacturers, insurance companies, hospitals, providers, group purchasing organizations and several regulatory agencies.

Healthcare cannot be stocked like it is a traditional product, meaning that it’s not based on supply and demand. That makes a hospital’s supply chain very unique and different from a business supply chain. The highly-regulated nature of healthcare and the changing expectations of consumers (patients) are driving change and creating unique challenges. The supply chain management (with its strategic role within the quality and affordability of patient care and the cost structure of healthcare institutions) is at the heart of those changes.

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The challenges and changes that the healthcare supply chain faces include:

Data collection and value analysis

Understanding exactly how much it costs to deliver health care has become more critical in a payment environment that reimburses for value. Costing based on inaccurate and uncoordinated data will become perilous. According to this 2016 survey, almost 70% of healthcare leaders said that their supply chain is the most valuable source of actionable data – even more than population health information and electronic health records.

Accurately capturing and analyzing data along the supply chain can help provide better information on product needs, stabilize inventory, improve risk management strategies, reduce waste, and bring costs down. But since many steps within the supply chain are still manual, there is a lack of data gathering, modeling, and reporting. A surprisingly high number of hospitals are still manually counting inventory and have never implemented an automated system to track inventory in real time.

Reimbursement and costs

After staff expenses, SCM costs comes as the second-largest expense for hospitals and healthcare systems. Healthcare supply chain cost reductions and productivity improvements are among the top priorities of healthcare administrators and executives. The Affordable Care Act implemented the value-based reimbursement model to incentivize healthcare providers to coordinate patient care with a pay-for-value model. This model is based on results and performance rather than the traditional pay-for-service model (where patients need to pay upfront). Supply chain plays a significant role in the delivery of value-based care, especially in the area of cost control.

Procedure processes and physician preferences

Healthcare providers themselves can often be one of the biggest factors in supply chain costs. Different healthcare professionals, surgeons, and physicians have their own preferences for the tools and products they use (as well as how they use them during a procedure). Many organizations allow this to be the decisive factor in many purchase decisions, even though it’s not the most cost-efficient method. Failure to update practitioners’ preferences (once vendors, inventory, or those preferences change) and lack of uniformity can lead to excess products wasted, inefficient use of supplies, and a black hole of costs.

Current State of Healthcare Supply Chain Management

The main drivers of the market’s growth include:

  1. Increased adoption of supply chain management software
  2. Emergence of cloud-based solutions
  3. Reduction in operational costs
  4. Adoption of GS1 standards


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