Hospitals spend $25 billion more a year on their supply chains than they need to, report finds

An analysis of 2,300 hospitals found that they could save $25.4 billion a year, without compromising patient care and outcomes, by benchmarking their supply chain management practices to the top quartile of their peers.

The study, conducted by Navigant, a consultancy, said that hospitals could reduce their supply costs, on average, by 17.7 percent. This translates into a $11 million annual cost-savings per hospital surveyed. At hospitals that practice more efficient supply spending, a lowering of costs does not negatively impact the quality of service, according to Navigant.

Moreover, the opportunities for substantial savings exist across multiple hospital types, no matter if they are large or small in terms of bed size, profit or non-profit facilities, or what type of disciplines they practice, the report found.

A hospital supply ecosystem is unique and enormously complex. It encompasses many functions, and unlike other supply chains, it is designed to deal with life-or-death scenarios. Hospital supply operations have long been considered inefficient by design, the argument being that a too-lean supply chain could leave clinicians short of needed supplies and equipment during an eme

Until recent years, many hospital organizations were accustomed to a robust flow of insurance reimbursements. However, reimbursements have been squeezed, particularly for Medicare, amid a backlash against the rising costs of hospital care. The shift has forced hospitals to look hard at their cost structures, all the while preserving their overriding mission of providing quality care.

While there have been strides in recent years towards improving supply chain efficiency, the needle hasn’t been moved far and fast enough, Navigant said. “Even with ongoing efforts to improve supply chain processes and product utilization, it’s clear that significant savings opportunities remain for many hospitals and health systems,” said Rob Austin, Navigant’s director of health systems, in the report.

The $11 million in annual per-hospital savings could fund the equivalent of two outpatient centers, or alternatively the salaries of 42 physicians, or the salaries of 160 registered nurses, the report found.

The most effective hospital supply chains engage data-driven doctors to standardize the use of equipment and medications shown to produce equally positive outcomes at a lower cost, the report said. They also foster collaboration between the clinical side and the supply chain, finance, and IT departments, as well as with suppliers and other contractors, according to the report. Finally, they leverage actionable data by putting it in the hands of people who know how to analyze it, the report said.