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Study finds $25.7 billion in US hospital supply chain overspending

Cost containment meets the space age (Photo:

A swath of the nation’s hospitals continue to forego multibillion-dollar opportunities to improve their supply chain spending, according to an annual survey released Wednesday by consultancy Navigant.

The survey of 2,127 U.S. hospitals, about one-third of the nationwide total, found that $25.7 billion in annual supply chain savings could be realized if all the surveyed hospitals performed like those ranked in the top quartile. Yet the top performers continue to widen their lead over the others, according to the findings.

The surveyed hospitals spent, in aggregate, $126 billion on supplies from July 2018 to June 2019, the survey found. That’s up from $124 billion during the prior 12-month period and $113 billion in the cycle before that. The $25.7 billion in overspending breaks down to potential savings of $12.1 million per hospital, equal to the annual salaries of 50 primary care physicians and 121 nurses, or the average cost of 3,100 knee implants, according to the survey’s authors.

The overspending in the current cycle came despite a reduction in the number of hospitals canvassed over the prior period, according to the data. This indicates that any current efforts to contain spending across the surveyed facilities is not gaining traction.

“Our analysis does not point to aggregate improvement in hospital supply chain performance, with high-performing supply chains widening the gap as others tread water or lose ground,” said Rob Austin, director at Guidehouse, Navigant’s parent.

The 2019 survey, like the two before it, indicated that the quality of care was not affected by the supply chain inefficiencies. And as in the prior surveys, the 2019 edition showed that opportunities for savings are equal across all types of hospital systems.

Supply redundancies have long been embedded in hospitals’ DNA, based on the premise that optimal patient care demands that hospital procurement managers err on the side of abundance. However, with health care cost containment a front-burner issue and with hospitals perceived as the poster children of fiscal extravagance, executives are under increasing pressure to cut costs without compromising patient outcomes.

It is commonplace for hospitals to order multiple versions of the same product, with different price tags attached, and discover that the least expensive version was just as effective as its pricey counterpart. Guidehouse Managing Director Chuck Peck, a physician and a former health system CEO, recently gathered six surgeons at a Texas hospital who were performing the same laparoscopic procedure. He laid out six different surgical trays representing each of the surgeons’ preferred set of instruments. The cost of the six trays ranged from $1,800 to $3,400, yet each produced the same clinical outcomes, he noted.

“Physicians and other clinicians understand the significant savings to be had in decreasing (supply) variation, and they’re as frustrated as any stakeholder by the lack of progress,” Peck said in a statement.

The top-tier performers, by contrast, focus on supply standardization, the study found. They are also skilled at identifying, through clinical evidence, which services, products and procedures are necessary and most efficient. In addition, they succeed in integrating clinicians with the hospital’s supply chain, finance and IT departments.

The best performers, according to the report, employ “physician executives” to lead the standardization efforts with clinicians who “still see conversations about cost as a potential threat to how they deliver care.”

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.