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How a ‘Costco Model’ for Health Care Supply Chain Presents a Best Bet for Value

By reimagining health care supply chain as a centralized, high-value distribution and product selection and procurement model, hospitals and health systems can more effectively reach their goals for expense reduction while driving substantial improvements for patients and team members alike.

Having ample product choice within the healthcare supply chain would seem advantageous on the surface. Yet the sheer number of options available to healthcare workers is reaching a tipping point for many health systems.

For example, there are a whopping 9,000 different types of disposable medical gloves utilized in the United States today. While some have special properties depending on how they will be used, and others address specific allergies, it’s a sign of a common problem in health care purchasing: too much variation for too little value. At a time when everyone is striving for better solutions and care, variability drives costs up and reduces economies of scale in production, distribution, procurement.

It’s one reason why a “Costco model” for health care supply chain—one that focuses on limited selection from proven manufacturers that stand behind the quality of their products—could be key to reducing supply expenses while improving quality of care.

Moving away from “supercenter-style” supply distribution

One of the things that separates Costco from other supercenters is that Costco offers a more limited selection of products. While featured brands may have unique packaging, case count, size, or design, the focus is always on quality brands that have been leveraged to optimize value for the end user. It’s a business model that Costco’s CFO says gives the retailergreater leverage with vendors. Customers gain access to products from solid brands that the retailer stands behind—typically for better value than customers could find anywhere else—while Costco benefits from reduced costs and increased efficiency. The retailers makes decision-making at the point of care easy and provides comfort and peace of mind for the consumer.

Now compare this model to health care supply chain. Today, supply chain generatesup to 40% of a hospital’s total operating costs(when combining medical/surgical, pharmacy, and purchased services), yet just 17% of products are distributed via a consolidated distribution model. This contributes to unnecessary expense. Why? Because when distribution isn’t consolidated, product selection isn’t standardized, leading to higher acquisition costs for supplies, a tendency to store excess inventory and challenges for staff in locating the right product for the right physician. It also diminishes a hospital’s ability to control the quality of the products it uses for clinical care—putting health outcomes at risk. Logistics is also an essential consideration: How will ongoing maintenance be addressed? What steps are in place to manage recalls, disinfection and distribution, and more, and who will provide support?

At a time when 47% of health care leaders say supply cost reductions will be the1号cost-saving initiativethis year, the old ways of managing supply chain won’t bring the value that organizations need in an uncertain economy and an ultra-competitive environment. Instead, health systems must seek to set a market standard for value in supply chain by tightening standardization of supplies, building stronger relationships with fewer suppliers, and basing supply decisions on quality, not preference.

Bringing market-standard value to supply chain

How can hospitals and health systems make the move to a more Costco-like approach to supply chain, one that helps drive standardization and improved clinical care and outcomes while significantly removing cost? Here are three key considerations.

  • Lead with clinical quality and drive toward standardization, knowing the economics will be optimized through this approach.This can be done by putting all the leading measures for a particular type of supply in one place and considering all these measures in determining which supplies to purchase and which vendor relationships to strengthen. For instance, on the clinical engineering side, leading organizations view purchases of medical equipment not just from the perspective of equipment performance and cost, but also what the vendor brings to the table in terms of ongoing maintenance and the ability to monitor for and address recalls. Some also consider whether the vendor offers real-time tracking technology, a feature that enables caregivers to spend less time searching for equipment and more time with patients. In hospitality, key factors for evaluating supplies might include the ability to enhance the patient experience while providing services in more efficient and effective ways.
  • Don’t be afraid to have tough conversations around supply standardization. Just as there are a thousand versions of disposable medical gloves, there is also immense variation in medical products across all categories in varying spectrums . It’s an issue that not only impacts cost, but also can put the safety of patients and health care workers at risk, asECRI’s study of disposal hospital gownsfound. Achieving a market standard of clinical and economic value for health care supplies means changing team members’ mindset around individual preference, especially when research showshigher supply spending does not equate to improved outcomes. Doing so strengthens an organization’s ability to fulfill its mission by protecting quality of care and the patient experience while putting less pressure on its bottom line.
  • Lean into vendor reliability. In a Costco-like model for health care supply chain distribution, vendor reliability—not just price—is a determining factor for product selection. Coming out of the pandemic, when supply chain shortages in health care were common, vendor reliability is now a high priority for76%的医院采购的领导人, according to a recent survey by the Association for Health Care Resource & Materials Management (AHRMM). Furthermore, organizations are increasingly turning to vendors for tech-enabled ways to automate supply chain processes and gain actionable insight on supply consumption, according to AHRMM. Leading hospitals and health systems are also leveraging vendor partnerships to meet the whole-health needs of the communities they serve, such as by applying research and innovation to optimize care for underserved populations and address social determinants of health.

By reimagining health care supply chain as a centralized, high-value distribution and product selection and procurement model, hospitals and health systems can more effectively reach their goals for expense reduction while driving substantial improvements for patients and team members alike.

Photo: Yuichiro Chino, Getty Images

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Dan Hurry

Dan Hurryis president,Advantus Health Partners, and chief supply chain officer,Bon Secours Mercy Health. Advantus makes supply chain easier for its clients through streamlined supply chain management, organizational purchasing, operations and cost-savings efficiencies. Dan is responsible for the strategic vision, growth and operational management of the consulting and supply chain functions, and oversees essential functions, including finance, clinical transformation, strategic sourcing, pharmacy and lab services, procure to pay, digital, field operations and business development.

He is an experienced executive with a proven track record of driving results in the logistics industry. Dan has successfully implemented supply chain strategies resulting in significant cost savings, improved customer service and increased efficiencies.

At Bon Secours Mercy Health, he oversees supply chain for one of nation’s largest nonprofit health systems with 48 hospitals across seven states and Ireland.

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