Introduction to Healthcare Supply Chain

Speaker 1Hello, this is Brian Bartel, and I'm here with Laura Velardi, and we're here to give a brief and high-level overview of Healthcare supply chain and some of the terms that we use.

Speaker 1What is Supply chain?

Speaker 1When you look at it, Supply chain is the process of getting a product or service from suppliers or producers to the end user. Supply chain exists as a support function of an organization to ensure that Business operation units have access to the products they need to complete their processes, resulting in Profitability through completion of customer facing products and services.

Speaker 1And a formal end to end Supply chain encompasses the sourcing and Procurement of raw materials, manufacturing products, logistics to ship finished goods to distributors or directly to end users, and then the internal distribution and use of a product by the end user.

Speaker 1Today, in almost every industry, products are sourced and manufactured globally, resulting in a worldwide system of complex channels to ensure that consumers have access to the items they want and need.

Speaker 1Operationally, almost all organizations require some form of physical products to operate. Even in service-related industries, supply utilization and related costs factor into the level of services offered. It's important to also note that for most organizations, supply cost is the highest expense, second only to labor, and in a recent study by SpendEdge, they estimate that supply expense will actually eclipse labor as the top cost in US healthcare in the near future.

Speaker 1So in order to operate efficiently, organizations must have access to the right products at the right time and at the right cost. Demand planning and utilization forecasts can help ensure stock levels and stock on hand is adequate to provide safe and efficient patient care.

Speaker 1Hospital supply chains are tasked with sourcing, procuring, inventorying, and distributing supplies throughout their organization. Healthcare supply chain professionals work to source, procure, store, and distribute supplies to the clinical Business units, as well as non-clinical areas, such as EBS housekeeping, food service, office supplies, and others.

Speaker 1In an optimal relationship, Supply chain is able to focus on filling the hands of those that heal by operating at the intersection between clinicians, finance, and suppliers.

Speaker 1Most Supply chain organizations are responsible for working within these three areas to drive costs down while maintaining adequate on-hand levels to ensure Operations. Supply chain is tasked with sourcing products that meet clinical efficacy and to help improve the care that patients receive while reducing the cost to the organization. The Association for Healthcare Resource and Materials Management defines this as the cost, quality, and outcome movement.

Speaker 1Depending on the size of the hospital or IDN, healthcare supply chains utilize various contracts to procure supplies.

Speaker 1According to Becker's Hospital review, 96-98% of all of all hospitals utilize a Group purchasing organization or GPO to assist with the sourcing and contracting for supplies. These GPOs utilize the aggregated spend of members to negotiate national contracts for various categories of spend and allow hospitals to access these contracts to drive down their costs.

Speaker 1Some GPOs allow members to pick and choose which contracts, if any, they will use, while some direct hospitals to standardization through GPO contract compliance. Many GPOs also offer rebates that are collected and given back to the hospital, further reducing the cost of supply spend to the organization.

Speaker 1GPOs are clinically driven. They utilize various clinical advisory groups composed of members to collaborate on best Practices and assist with the negotiations and sourcing via strategic category management plans.

Speaker 1One type of contract is the sole source. This is optimal for standardization and a direct spend to one supplier.

Speaker 1Dal, as the name implies, direct spin to two suppliers, and there may be incentives to give one supplier a higher percentage of spend than the Other. Multi-source is similar to dual-source in that multiple options with varying incentives to drive spend optimization are available.

Speaker 1The last is an optional source, and this is where organizations may utilize these contracts at their option. Many purchase services which are non-product related fall in this category, but purchase services has been taking the spotlight for spend optimization as it represents a large portion of overall spend and may or may not fall under the purview of Supply chain. Some examples of purchase services would be elevator service maintenance agreements, landscaping, and etc.

Speaker 1Depending on the size of the hospital or IDN, there may be a dedicated strategic sourcing or contracting team that drives standardization initiatives for that particular organization through their own negotiations with vendors and distributors.

Speaker 1This drives the local contracts, which are contracts that are negotiated outside of the realm of the GPO and include new Technology, purchase services, and Other items that do not fall under the normal GPO categories. And now I'm gonna hand it off to Laura to talk about Value analysis.

Speaker 2Thank you, Brian.

Speaker 2So Value analysis has been around since the 1970s, but the expansion of the concept didn't really start taking off until 2010 or so. Most healthcare systems have some form of a Value analysis committee, a coordinator, a nurse, or a clinician in the role.

Speaker 2The formal process is to have the surgeon and vendor submit the new Technology request to the individual or team responsible for Value analysis. We then Research the product for clinical efficacy, supporting documents such as Level One studies, and verify CPT or DRG codes for Reimbursement along with pass-through payments.

Speaker 2The initial value to collaborating with the Value analysis team is to prevent delays from bringing the product in or addressing any concerns that need to be addressed beforehand. The second value is the new product or Technology being requested may provide a savings opportunity across the market which can lower your cost per case or allow for market standardization.

Speaker 2The standardization reduces product variation given that many clinicians float between facilities, and it's considered an employee and physician satisfier. With today's healthcare environment in consideration that many supplies are manufactured overseas, Value analysis teams partner with vendors to identify substitute products to address Supply chain challenges such as raw material shortages, increase in global demand for the product, federal administration sanctions, and lastly, shipping delays.

Speaker 2Value analysis is a Business strategy that should be embraced as a collaborative partnership between the vendor, physician, and Supply chain to optimize the Efficiency. Brian, back to you.

Speaker 1Thank you, Laura.

Speaker 1If you're a vendor, you've know or undoubtedly had discussions with buyers and purchasing teams about uh purchase orders. So why are these important? Well, purchase orders or POs serve as the formal document to request supplies or services. Most organizations have strict purchasing policies in place that govern spending authorization limits and purchasing processes to ensure compliance and protection for the organization.

Speaker 1These policies ensure that spend has been properly reviewed and approved to help reduce rogue spending and unauthorized purchases through non-approved vendors or suppliers.

Speaker 1Vendors must go through onboarding sanction checks to ensure that they are a valid Business and are not on the Office of Inspectors General or the OIG list of excluded individuals and entities, which provides information to the healthcare industry, patients, and the public regarding individuals and entities currently excluded from participation in Medicare, Medicaid, and all Other federal healthcare programs. Doing Business with these could carry hefty fines and Other penalties.

Speaker 1Further, the purchase order number serves as an internal tracking mechanism that allows the receiving department to receive the product into the Materials Management Information System or the MMIS, which will then direct the Supply chain team on where the product needs to be physically delivered. Receiving teams process a large amount of incoming freight each day, and packages that do not clearly reference a PO cause extra work and cause delays on critical supplies.

Speaker 1A three-way match is the process of matching the invoice, the purchase order line, and the receiving report to validate the details of a purchase before making a payment. In order to reduce the risk of fraud and financial loss by preventing the Reimbursement of unauthorized purchases, a three-way match is often required. This three-way match requires the matching of an invoice, a purchase order, and the receiving report to validate a purchase before making a payment.

Speaker 1Once an item has been received on a PO line, the accounts payable department is able to pay the related invoice, which also references the PO number.

Speaker 1Organizations require credit lines to purchase goods and services, and outstanding payments can cause severe delays on purchases, which can impact patient care if purchasing teams cannot procure needed supplies.

Speaker 1Moving on, talking a little bit about the different types of items, non-stock and stock items. So once an item is vetted and approved, it will be assigned a designated number in the MMIS item file master. This unique identifier allows the Supply chain to bring the item into its on-site inventory, storage, or warehouse, which are called stock items.

Speaker 1If an item is managed outside of the warehouse and kept in a specific department with no backup stock or warehousing, this is what we call a non-stock. This is an important distinction as non-stock items are not readily available and must be ordered in advance to account for shipping time frames. Typically, these items are higher in cost and reside in areas such as the surgical suites.

Speaker 1Trunk stock are items that are shipped in advance or brought in by reps for specific cases. These specific items can cause issues for payment, implant tracking, and patient charging if they have not been set up and is an approved item in the MMIS prior to use. Reps will often bring in items that circumvent the formal approval process.

Speaker 1And an old saying is that friends pay list price. And in terms of medical supplies and devices, it's important to note that there's a wide variance between the cost of what one practice or facility or IDN pays versus another, which can lead to overpaying tremendous amounts for high-value implants and surgical items if Supply chain is not involved. Supply chain can help reduce these costs through formal processes in alignment with contracts and standardized Operations.

Speaker 1Healthcare supply chain exists to support clinical Operations with the goal to ensure all clinicians have access to the right product at the right place, at the right cost, and at the right time. In the past, these teams have been seen as transactional functions, but have been continuously bringing increased value to the organization through more formal and strategic processes, resulting in lower costs, reduced out of stocks, and more innovative approaches to Operations.

Speaker 1Organizations that allow Supply chain to have strategic Business partnership with clinicians, Business units, executive teams, and suppliers have a competitive advantage by using data and analytics to evaluate spend, increase patient outcomes, and tie that back to revenue streams created through Operations.

Speaker 1Advanced healthcare systems and IDNs have created clinically integrated supply chains where collaborative interactions between clinicians, Supply chain, and suppliers drive initiatives to improve patient care, expand Business lines, and reduce associated costs through standardized products and processes. Reducing variance leads to lower risk, better outcomes, and more reliable data streams to make patient-centered decisions.

Speaker 1There needs to be open and transparent communication between clinicians, Supply chain, finance, and suppliers. This is where true value exists, and there should be a deeper focus on the Innovation that suppliers bring with new technologies paired with the extensive extensive skill sets of clinicians. We hope that you, we appreciate your time. We hope that you found this presentation helpful.