Supply Chain Costs Have Become the #1 Cost in US Healthcare

This article was written by Lisa Miller.
Across the US healthcare sector, there is now unprecedented pressure to find cost savings opportunities. It is just one of the reasons why your hospital needs supply chain excellence. 
High performance hospitals invest in and build world class capabilities in analytics, sourcing, negotiating and contracting, but it is critical to create a strong supply chain. External dynamics are forcing hospitals to track nearly every dollar they spend, and the healthcare supply chain has had to adapt in multiple ways.
At VIE Healthcare® we are big supporters of building internal supply chain teams and creating a center of excellence, with the supply chain at its core. 

Challenges in the supply chain

As supply chain costs have become the #1 cost in US healthcare, eclipsing areas such as labor expenses, healthcare leaders have been forced to seek out low cost solutions to minimize the financial pressure on their hospitals.  
Already aware of this growing trend, health systems have long sought out new strategies to cut costs in this critical area. COVID-19 has dramatically highlighted and exposed the existing weaknesses in the US supply chain. But the lessons learned from the pandemic can help to create a more resilient and adaptable supply chain.
Some of the challenges include:
Reliance on imports: 80% of active pharmaceutical ingredients (APIs) in the US are produced overseas. This means that any disruption in the supply chain from those sources is potentially devastating to the entire nation’s supply. In 2018, the US topped the list of nations that imported the highest dollar value of drugs and medicines.
80% of APIs in the US are produced overseas. We encourage every hospital to bring its supply chain back to the US. Click To Tweet
“Just-in-time” inventory: At VIE Healthcare®, we have seen an increase in this approach due to immense pressures on hospitals to make cost savings in any way possible. The risk with this strategy is that any disruption can mean hospitals running out of supplies which are critical to patient care. 
Squeezed financial margins: Studies suggest that already thin or negligible margins are at breaking point. The COVID-19 pandemic has pushed the national median hospital operating margin to -8%. Clearly, this is not sustainable in the long-term.  
Solutions, especially in a time of global crisis, are often complex. Healthcare supplies are notoriously expensive, and reimbursement has fallen. Almost every healthcare organization relies on supplies from international sources to try and drive down costs.  

Creating supply chain excellence: taking the first steps

At VIE Healthcare, we encourage all hospitals to bring their supply chain back to the United States, supported by a robust internal supply chain team. The first step is to understand your organization’s vulnerabilities through a post-pandemic supply chain audit, covering areas such as:

• The creation of a Vendor Map to identify potential shortages. 
• Extensive contract reviews.  
• Purchased services mapping. 
• Auditing of several areas, including processes, utilities and medical gases/waste removal. 

In addition, gathering accurate data and identifying supply chain disruptions must be a priority.  Buy-in will also be required from your vendors to implement changes necessary to avoid any supply shortages.
Now is the time to implement innovative policies to ensure the delivery of cost effective services and enhanced patient care. 
At VIE Healthcare®, we recommend the development of a data driven “Spend Analysis’,’ to include an in depth review of current spend and priorities to ensure an effective cost savings strategy. 
We also recommend that all cost savings initiatives are carried out by a cross-functional team.

Seek out interim help 

Since 1999, VIE Healthcare® has successfully partnered with hospitals to identify cost savings in the supply chain. We offer a range of solutions, delivered by our team of experts, for example:

• Supplementing the supply chain workforce with expertise across outsourced services. 
• Data analysis, including unmatched benchmarking experience.  
• Contract analysis and negotiation, including vendor negotiation as required. 
• Telehealth: its use has rapidly expanded from an estimated 11 percent of US consumers in 2019, to 46 percent during the pandemic.
• IT/telecom: we have comprehensive knowledge in auditing, analyzing and uncovering cost savings in this complex area. 

As we say to our clients, ‘’Let’s build the teams, let’s build the capabilities’’, not just in the supply chain but across the organization. 
The pandemic continues to affect the US supply chain. Our COVID-19 Response offers numerous resources to support hospital leaders, including links to external resources, advice on how to maximize your funding solutions and supply chain strategies to manage costs.
Discover more in depth analysis in our exclusive research report Why Your Supply Chain Needs To Come Back To The United States.
Schedule a call with Lisa Miller to discover how your hospital can deliver excellence in its supply chain.