How To Improve Hospital Supply Chain Management

America spends more on healthcare than any other nation, yet 1 in 5 hospitals are likely to close due to financial challenges. In 2019, U.S. healthcare spending reached $3.8 trillion, and revenues for nonprofit hospitals grew more slowly than expenses. Furthermore, hospital spending will increase by 5.7% each year from 2020-2027. Why are hospitals struggling?

Issues surrounding Medicare and Medicaid are major contributors to the American hospital crisis. In 2019, hospitals saw higher use due to the increasing amount of citizens utilizing Medicaid, but Medicare reimbursement rates are just 41% of private insurance rates – often less than the cost of care. By 2027, and as Baby Boomers age into Medicare coverage, government programs will pay 47% of national healthcare costs, but the problem will still remain.

The larger issue lies within the tight job market and hospital supply chain management. By 2025, 2.3 million new healthcare workers – including nurses, physicians, lab techs, and surgeons will be needed. However, there aren’t nearly enough new graduates to fill these positions. As a result, hospitals are extending offers such as free housing and larger bonuses in attempts to recruit more talent.

Now, hospitals are turning to technology to solve their challenges. Specialty drugs and implementing new technologies are costly, so hospitals will need budget surpluses to pay for research and development to improve patient care.

Furthermore, more than half of hospital executives say better supply chain management could grow their profit margins by up to 3%. Mike Rip, Founding Director of Healthcare Administration & Public Health Programs at Michigan State University says, “Healthcare is not based on supply and demand. It can’t be ‘stocked’ like it’s a traditional product.” Supporting this, 3 in 4 doctors and nurses think seamless supply chain operation is critical, and nearly all hospital executives say supply chain is an investment priority.

Every hospital has the potential to safely reduce their supply chain expenses by $11 million annually, or by 18%, without negatively impacting the quality of care provided to the patient. That money could be used to fund the salaries for up to 160 nurses or 42 primary care physicians, or even build 2 outpatient surgery centers.

The future of hospitals relies on data-based decision making, and “big data” could save the American healthcare economy up to $450 billion each year. The most commonly overlooked opportunities for cost reduction include data entry, automation, and purchased services. Nearly 20% of doctors’ and nurses’ time is spent managing supplies, and 78% of hospitals still manually count inventory. Furthermore, just 17% monitor inventory with real-time RFID tracking, and up to 30% of hospital purchases don’t match contract pricing.

By taking advantage of big data, hospitals can analyze patient results to improve outcomes, use operational data to boost productivity, improve revenue and profit margins, and eliminate waste, fraud, and abuse.

All in all, adopting supply chain efficiencies from other industries could save the healthcare sector up to $130 billion. For more information on how hospitals can reduce waste and improve their supply chain management, continue reading below.