A new hope, or slippery slope, for supply chain?
By R. Dana Barlow
Editor’s note: This article originally appeared in The Journal of Healthcare Contracting, a sister publication of Repertoire Magazine.
Before the turn of the millennium many either feared or desired the term “alternate site” in the healthcare market.
Those who feared it generally worked in acute care settings, nervous that these non-acute care facilities would siphon all the revenue-generating patients away, which would leave the hospitals with only the sickest patients consuming resources that would place financial operations and jobs in jeopardy. Those who desired the term generally saw those facilities as a way to gain a competitive advantage and to control clinical pathways within the emerging integrated delivery networks (IDNs) that defined a reforming industry. Not surprisingly, the feared became economic prey for the desired.
For supply chain executives and professionals, the term represented an expansion of responsibilities, mindsets, duties and accountability – and a raft of inherent and ongoing challenges in terms of strategic sourcing with value analysis, contracting and distribution of products and services, regardless of their affiliation with or ownership by hospitals, hospital systems or IDNs.
For context, non-acute or remote care comprises ASCs, clinics, physician offices, diagnostic imaging centers, freestanding laboratories, urgent care facilities, retail clinics, home health programs and hospital-at-home programs.
Sidestepping the sin-bin
Not surprisingly, hospitals attach a greater importance to supply chain operations due to the volume and value of products and services brought in and recorded on the expense side of the balance sheet. But it needs to be standardized and unified for optimal budgetary and economic advantage, sources recommend.
“In the acute care environment, understanding and optimizing supply expense is a focus for most IDNs,” Paul Oppat, executive director, Supply Chain Services, at Phoenix-based Banner Health, said. “The preponderance of their supply expense occurs in their hospitals. However, outside of hospitals and ASCs, supply expense is often not a high priority. Optimizing the supply chain is a team sport and we are working to energize additional focus in this area.
“Outside the hospitals, logistics and administrative costs impact a higher percentage of the supply spend due to the nature of smaller and often frequent ‘last-mile’ deliveries,” Oppat continued. “With this in-mind, our challenge is to create supply chain replenishment models that are easy for people who are not supply chain experts, and balance service needs with transaction cost.”
Staffing/support model and ordering/item master management represent two key hurdles in the non-acute space, according to Atanas Ilchev, system director, Supply Chain Operations, UChicago Medicine.
“In our early stages of non-acute facilities expansion we had to figure out a staffing model that is flexible enough to support low-volume facilities,” he indicated. “This was a real challenge given the fact that neither hospital supply chain nor our partners/distributors were ready to assist with our staffing needs for non-acute facilities. The second challenge is related to ordering controls as the non-acute facilities are not on the main ordering platform/ERP (enterprise resource planning) system. This could lead to multiple non-approved products penetrating facilities causing supply expenses to continuously increase and potential compliance issues.”
Ian O’Malley, executive director, Strategic Sourcing, UChicago Medicine, points to non-acute care sourcing and transactions knotting the value analysis process as well as relationships with clinicians outside of hospital settings.
“In our VA process we incorporate revenue cycle and finance data into our total cost of care analysis before a device or technology is approved,” he said. “The different reimbursement models and acquisition cost models for the same technology across these sites of care has challenged us to refresh and update multiple models for each device/technology. While a technology may be approved for one site of care, it may not make financial sense in other sites of care, so we may have to work with our clinicians to identify alternative approaches to treatment that provide clinically equivalent outcomes. Our group does push back strongly where costs are different by site-of-care as companies need to adjust their pricing strategy to take into account the growth of this market segment, so organizations don’t have to maintain multiple price points that create item master and invoicing issues downstream.”
Cost and accounting pressures may ease a bit now that UChicago Medicine has converted all its non-acute care sites to the IDN’s unified ERP and inventory management system, according to Eric Tritch, senior vice president and Chief Supply Chain Officer. But geography inserts an additional wrinkle.
“Another factor that complicates the analysis is when you operate in multiple states, there are typically different rates from government insurance plans like Medicaid, so what might be financially viable in one region may lose money in another,” Tritch said. “Service providers are often also geographically located and cannot always service all sites, or many aren’t set up to support non-acute locations and certainly non-hospital at home, so as [Ilchev] mentions, our staffing models and partners have needed to evolve.”
Neil Allen, senior director, Spend Management and Administration, The University of Kansas Health System, Kansas City, Kansas, highlights the complexity behind supply chain operational planning when dealing with changing players, processes and procedures.
“It is challenging to establish the right long-term strategy in an ever-evolving landscape,” he acknowledged. “A strategy that is not scalable and does not evolve will inevitably introduce rising supply costs and inefficient operations. Standardization across all areas of care can also pose a challenge, particularly as the non-acute space continues to grow at a rapid pace. Without a structured approach, supply standardization and ease of operations become increasingly difficult. The impact of classes of trade can also be a struggle due to the added cost and the potential to create a more complex distribution network. As the non-acute space continues to grow, multifaceted operations and the rise of additional costs will greatly affect outcomes.”
Pursuing hat tricks
As roiling budget and labor/staffing issues mount, supply chain operations must bob and weave around hurdles and speed bumps to fulfill their expansive duties, sources concur.
For The University of Kansas’ Allen, supply chain needs to make it about the patients first and supported by technology second.
“Establishing clinically integrated teams that align with both the clinical and patient aspects is critical,” he noted. “These multi-disciplinary teams can help ensure strategies and decisions remain clinically focused. Another important aspect is establishing key metrics that can be used to improve operations, reduce supply costs and ensure off-formulary and off-contract supplies are visible and managed. Furthermore, ensuring value analysis and contractual opportunities are not confined to all discussions and negotiations across all areas of care is essential.
“Providing technology to support supply management allows clinicians to remain focused on patient care and less on supply chain activities,” Allen continued. “Automation and simplifying supply ordering, backorder management, sub-processing and other workflows is essential in reducing labor costs.”
Banner’s Oppat encourages supply chain to demonstrate as well as promote its importance.
“We need to educate stakeholders about the positive impact an optimized supply chain will have on their patients and their business,” he insisted. “To quote Doug Bowen, Banner’s Chief Supply Chain Officer, the ‘the supply chain is everyone’s business’.”
Eric Helliker, Supply Chain Area Director at Banner, recognizes the variation that non-acute facilities bring to operations.
“We need to be flexible with our customers and understand that different parts of the continuum require different service levels. There is not a ‘one size fits all’ in the non-acute space,” he indicated.
“We need to develop close relationships with business partners who can bring economies of scale to last-mile delivery where we may not be as efficient,” Oppat added.
UChicago Medicine’s Ilchev concentrates on the big picture of labor and the recruitment of service providers to assist when necessary.
“One creative method to address staffing needs at non-acute facilities that we have deployed successfully is partnering with a third-party vendor who is willing to adopt your standards and act as an extension of the supply chain department from the main acute facility,” he noted. “Also, we have partnered with our distributor to meet staffing needs as well. Both of these solutions come at a cost as flexible and highly trained personnel are needed at non-acute facilities. In addition to that, for a well-organized non-acute support program to work, one needs to address the overall departmental structure to maintain standards, service levels and meet the needs of clinicians.”
Structured process granularity likely will make the most difference, Ilchev insists.
“The best method to introduce control over supply ordering is by implementing formularies and regular review of supply spend for each of the non-acute facilities to ensure compliance to formulary and control over supply spend,” he added.
Still, UChicago Medicine’s O’Malley urges supply chain leaders to stand firm on departmental and organizational objectives, using technology as an enabler.
“Contractually we push our suppliers for one price point for our system regardless of site of care,” he said. “In rare situations where we can identify the need for disparate pricing our group can accommodate but this adds costs to the contracting and item master maintenance work long term, so a strong justification is needed. We have also partnered with IT to begin enabling more remote support capabilities from our suppliers – think ‘telesupport.’ These technologies allow the rep to virtually enter the room and provide support/guidance as needed, thus reducing the costs to support multiple sites of care and allowing them to patch into multiple procedures across the system – the same as if they would be on site at our large acute location.”
Such a philosophy drives the suppliers and vendors with whom UChicago Medicine chooses to work, according to Tritch.
“We are also cultivating partners that can be flexible for smaller facilities,” he said. “One resource needs to wear many hats, and the closer to the home, the more hats they need to wear. We are developing processes and technology that keep these flexible providers or caregivers from having to be experts in things outside their domain and focus on making things easy and automated to provide the supplies and services needed for care.”
Lighting the lamp
From dedicated teams to product formularies to standardization, IDN supply chain leaders have implemented processes to smooth out the kinks and rough edges that defined the boundaries between acute and non-acute facilities in the past.
“We have invested in a small team of talented supply chain professionals who focus on the non-acute supply chain full-time,” said Banner Health’s Oppat. “They ensure a positive customer experience while partnering with key stakeholders to improve supply chain performance.”
From people to products, supply chain sets and implements standards, according to Hollie Gallagher, Banner Health’s Supply Chain Services senior program director.
“Standardized product formularies help manage a seemingly endless catalog of purchase opportunities,” she noted. “Also, while some suppliers prefer to segment non-acute as a different business line, we focus on our ‘one supply chain’ model so we leverage the scale of our supply chain to benefit all parts of the continuum. This keeps supply costs down in a non-acute environment where reimbursements are low.”
Supply chain at UChicago Medicine strives to simplify the shopping experience for its clinical customers, according to Tritch.
“A good simple solution is ‘punch-out catalogs’ through our Oracle Cloud ERP,” he said. “We work to make the buying experience easy and controlled to formulary but also keep the data and process rooted in our ERP systems. This provides ease of ordering for providers [and] caregivers where needed and keeps within our standards.”
UChicago Medicine’s supply chain also dispatches special teams to facilitate processes, too, O’Malley reports.
“We have implemented VA teams by site of service to help align and standardize device utilization across the system,” he said. “Where standardization is not possible due to specific site implications (such as cost and reimbursement changes) we can help ensure we have the rationalization for the decision backed by clinical evidence, financial analysis and market dynamics. Our Strategic Sourcing team also partners with our Service Line leaders to understand their goals with regard to shifting sites of service so we can get ahead of equipment and technology needs to make this happen.”
Tritch stands behind the benefits of their team approach.
“Having some roving dedicated supply chain staff in the non-acute domain is fundamental to success and keeping things consistent and standardized and connected into the mothership to provide support where needed,” he added.
Ilchev encourages other organizations, regardless of size and variety, to implement any of the strategies and tactics that UChicago Medicine employs because they are sustainable all around.
“The risk of compromising care without having the right staffing model and/or non-approved supplies being used on patients is much greater than the cost to implement right organizational structure and ordering controls to ensure high quality care at the best total cost,” he concluded.