AHRMM: Technology, cost analyses key to supply chain management

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BOSTON—A faltering economy, coupled with loss of consumer confidence and the added pressure of healthcare reform has created a “perfect storm” in the healthcare industry; thereby, increasing the need for supply stream improvement to help manage costs, according to presenters Aug. 8 at the 2011 Association for Healthcare Resources & Materials Management (ARHMM) annual conference.

Nicholas J. Sears, MD, chief medical officer of MedAssets, said that the changing landscape is dramatically impacting healthcare organizations’ bottom lines. As a result of the Patient Protection and Affordable Care Act (PPACA), hospitals have been forced to look at their supply streams to gain efficiencies in preparation for a pay-for-performance model.

The legislation is all-encompassing, he noted. It covers patients, providers and payors, and includes new mandates, accountability requirements, grants, pilot and demonstration projects, “but there was nothing about cost control. How do you manage cost?” he asked.

The PPACA mandates that hospital-acquired conditions will not be covered with Medicaid and Medicare dollars, and, according to Sears, the federal government has not provided a clear definition of accountable care organization (ACO). Furthermore, officials estimate the PPACA will mandate coverage for an additional 32 million Americans, which will increase demand for service, but not payments, Sears noted. Cost estimates for the plan are $940 billion over the first 10 years and $1.2 trillion over the second 10 years, according to the presentation, with a projected deficit reduction of $143 billion in the first 10 years.

But the numbers don’t add up, according to Sears. “Hospitals will never be paid as well as they are today,” he said.

Sears noted some trends among hospitals trying to cut costs. He said 76 percent delayed capital investments, 53 percent reduced staff, 25 percent cut services, 8 percent divested assets and 3 percent merged with other organizations. Another 24 percent performed other cost-saving maneuvers, Sears said, but supply chain management didn’t even make the top 10.

According to co-presenter Andrew Knight, RN, vice president of clinical resource management for MedAssets, efficiencies can be increased within the supply stream—and some of the needed changes might be obvious.

“It’s the linking of all those ‘Oh yeahs’ that tend to make a more efficient system,” Knight said.

A first step in creating a more efficient supply chain is bringing all the players to the table, Knight said. There should be a supply chain committee within each hospital, and this should include clinical lab practice management (PM), surgery PM, cardiology PM and others. Hospitals should undertake a multi-year model that includes pricing, demand matching, clinical resource management and procedural level margin optimization, according to the presentation.

To improve supply chain management and reduce costs, Knight recommended a rigorous, multi-step analysis process. First, hospitals should quantify opportunities, generate stakeholder kickoff and rationale, gather clinical and business requirements and conduct a request for proposal (RFP) evaluation. Next they should hold a stakeholder review of RFP summaries and financials, and have a stakeholder recommended award. Then they can complete the final negotiations and contracts and implement it, according to Knight. Finally, repeat the process.

Consensus is crucial to success, Knight stressed.

Another feature of an effective supply stream strategy is an electronic system, according to Knight. “You need an electronic system to manage it, communicate it and keep everyone aligned,” Knight said. “We have found this to be key in managing supply chains. It will make your life a lot easier.”

The conference, titled "Supply Chain Revolution: Lead the Charge," runs Aug. 7 through Aug. 10 at the Boston Convention and Exhibition Center.