Healthcare cost reduction hinges on supply chain savings

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The healthcare climate of the 21st century has already prompted difficult choices and given rise to creative solutions and sophisticated business practices — and we’re only 15 years in.

With opposing market forces of rising costs and lower reimbursement, it seems there will be a rocky road ahead for some time to come as hospitals and healthcare systems continue to face margin erosion more than any other market segment in the U.S. Costs have already come out of the system in the form of pharmaceutical cost cuts, resulting in their own margin reductions. Full-time healthcare employees have been targets for bottom line savings as labor expenses have also been trimmed.

At first pass, both of these measures may have appeared to be effective, but in reality, they have not categorically shown a drastic outcome in lowering overall costs. So where do we turn to further reduce costs and ensure a financially viable healthcare model far into this century?

Relying on legislation seems to be an endless battle, wrought with special interests, and dependent upon processes that lack urgency and any real connection to the day-to-day challenges of our industry. We haven’t yet exhausted all the factors within our own control — independent of legislative intervention — where additional healthcare savings can be realized. This is where the supply chain comes in. Healthcare supply chain teams have a golden opportunity to leverage the knowledge and data available to them to not only maximize their current cost saving methods, but more, to pioneer new approaches to logistics and potentially game-changing sophisticated solutions.

Third-party logistics (3pl)

Several hospitals have realized the potential for savings in the supply chain space and have partnered with 3PL companies to reduce shipping and handling costs, streamline their operations and provide quick and smart data in a pinch. However, it was recently estimated that a full 50 percent of the healthcare market is still managing their own freight expenses and may not be realizing ultimate savings. That means half of the market could be saving in areas that they are unaware of, simply by leveraging the expertise of a logistics company.

Freight management

The most basic of the healthcare logistics services is the strategic management of inbound and outbound freight from vendors. This includes small parcel, large cargo freight and international shipments coming in and out of hospitals every day, often at the initiation of numerous and varied individuals within the organization.

Many healthcare professionals are unaware of the freight expenses that are added to their invoices for products purchased, or of the opportunity to combine or even eliminate these charges. Often, physicians schedule procedures in a short timeframe, requiring hospital purchasers to place overnight orders with expensive shipping costs to meet their needs and those of the patients. These costs can also be contained with strategic management and oversight.

Logistics companies offering freight management programs can add significant value in not only lowering freight costs, but in extrapolating data quickly and creating visibility to where freight dollars are actually being spent. This ultimately leads to better management and accountability throughout the healthcare network.

Courier and fleet services

If a healthcare system has already implemented a freight management program, the next step in cost reduction is a thorough review of courier and fleet management services. Evaluations of a variety of healthcare networks, both large and small, have revealed the potential for waste, redundancies and inefficiencies in moving supplies, lab specimens and other internal documents within the network.

Common challenges include the duplication of routes within one courier fleet or not having visibility of multiple couriers delivering and retrieving at the same location. Implementing a courier management program has proven to lower cost, reduce service errors, minimize stat expense, provide better tracking to optimize routes, and, ultimately, save healthcare systems millions of dollars annually.

Shared fulfillment/central service center model

For healthcare systems to fully optimize supply chain savings and enhance profitability, they can’t do it alone. One of the newest and most sophisticated approaches beginning to take hold is a concept called the shared fulfillment/central service center model. This completely restructured supply chain strategy is an ideal consideration for healthcare systems looking to take cost containment to the highest level. It requires manufacturers on the front-end and multiple stakeholders throughout the healthcare system to collaborate with the supply chain team and agree to centralize stocking and storage facilities. Costs are, in turn, distributed across these multiple facilities, which can generate a wealth of savings, streamline operations and improve process flow.

By consolidating physical stocking and storage sites into a single offsite location, significant costs and inefficiencies can be eliminated. The added bonus of this concept is simplification of the entire supply chain process. Operationally, this approach allows healthcare systems to restructure their supply chain strategy to accommodate supply standardization across an entire healthcare network. The service center can become the single source of products for both acute care and alternate sites.

This model can also provide better control of non-standard supply spends and can lead to additional cost saving and revenue generating opportunities through asset management. For example, it would be possible — and conceptually more cost efficient — to incorporate the purchasing, logistics and storage of supplies needed to support shared services such as printing, bio-medical engineering, sterile processing, laundry, and medsurg fulfillment into the central service center model.

There is no doubt that 3PL services can significantly influence the size and scope of savings available to a hospital or healthcare system, depending on how sophisticated of an approach is desired. Implementing freight and courier management programs will scratch the surface of savings. However, embarking on the development of a larger, more sophisticated approach, such as that of the shared fulfillment/central service center model, is a step toward unlocking the prospect of a stable healthcare landscape for decades to come and perhaps circumventing additional government regulation.

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