Protect Shrinking Margins With Supply Chain Data

Data is critical to all areas of healthcare, and the quality of that data matters. Most hospitals understand the need for high-quality data when it comes to medical care. They invest in the latest technology and resources for X-rays, CAT scans and MRIs to help doctors pinpoint patients’ problems, yet they rarely place the same importance on hospital supply chain. As a result, rather than hard data and analytics, hospital supply chain depends on spreadsheets and institutional knowledge.

This lack of investment has an impact, because just as bad data about the location of a tumor will reduce treatment effectiveness, the past two years have demonstrated that failing to understand what’s on the shelf, where it’s located, and when it’s likely to stock out can have disastrous consequences for hospital finances, patient and staff safety, patient satisfaction, and more. Consider, for example, that 40% of hospital staff have canceled cases due to an out-of-stock supply, and 69% have had to delay cases while locating missing supplies. With OR time costing hospitals between $20 and $80 per minute, delays alone may add up to $50,000 annually for a busy OR in a 250-bed hospital, and the cost of cancellations may be even higher. Beyond financial impact, those disruptions create a lack of trust in the system, causing nurses to resort to hoarding to ensure they have necessary supplies.

To prevent such disruptions, hospitals need real-time visibility into data that shows actual supply use across departments and locations, by procedure, and from physician to physician. With this information, supply chain staff can identify items that are critically low and reallocate inventory across the hospital or health system. At the base level, hospitals should know:

  • What they have in inventory
  • Where it is located
  • How much they have of each item
  • How fast items are being used
  • What is on order and
  • When they will run out.

Here are six insights that hospitals should be able to glean from their data if they want to avoid stock outs and overstocking, improve outcomes, and protect patient and staff safety.

Is PAR (Periodic automatic replenishment) accurate?
Without accurate transaction data, hospital PAR levels are often out of date. And because no supply chain tech ever got in trouble for having too much inventory on the shelf, that typically results in over-ordering. While this may protect against stock outs, it also creates waste and ties up funds that could be better used elsewhere. By tracking actual item consumption, hospitals can establish PAR levels that match their demand profile and patient census, allowing supply chain leaders to adjust ordering to avoid stock outs.

What is stocking out, and why?
Knowing when a specific item is likely to stock out means more than just tracking what’s on the shelf. If specific items stock out frequently, it may mean that employees are inaccurately scanning items to circumvent PAR levels and generate orders in the quantities they think they need. While most hospitals understand the cost of stock outs, there is also a cost associated with overstocking. We believe that the typical hospital has between $1 million and $2 million worth of dead inventory on its shelves. That’s money that could pay for staff salaries or new equipment.

What is at risk of expiring?
Hospitals throw away an estimated $765 billion of usable medical supplies each year, and 7% to 10% of items expire on the shelf. That is costly for hospitals, and if an expired product is used with a patient, it could compromise safety and expose the hospital to lawsuits. To avoid this, hospitals need to know in advance what items are close to expiring. This allows supply chain leaders to move expiring inventory to higher-volume areas or return it to inventory prior to expiration.

How much does each case cost?
Failure to understand the true cost of an individual case puts hospitals at risk of financial losses. That is particularly true at a time when staff costs are skyrocketing and supply shortages are creating unprecedented price increases. Many hospitals perform cases that cost them money every time. This is not sustainable with operating margins down dramatically compared to pre-pandemic levels. To address these challenges, hospitals need real-time analysis of material and labor costs for a given procedure so they can address clinical variances and inefficiencies that may impact their bottom line. Collecting this information also allows hospitals to compare costs against fees collected and reimbursements and take steps to improve margins.

How can I maximize staff resources?
Staffing shortages are hitting hospitals hard, forcing supply chain leaders to do more with fewer resources. Supply chain data can help here, as well. Tracking scanning activity and requisition lines generated by each employee allows supply chain leaders to better understand which employees and departments are shouldering the load and which could use additional help or training. This allows hospitals to maximize existing resources while potentially improving quality of work.

How accurate are preference cards?
Hospitals waste an average of $1,800 on every operating room surgery because of outdated preference cards. When preference cards are not maintained, items picked for a case may go unused, creating waste. Meanwhile, necessary items may not be picked, causing a delay in procedures as staff track down needed items. By maintaining an accurate picture of what is actually used in a given procedure, hospitals can update preference cards to improve outcomes and save money. In addition, understanding variances in the supplies that different physicians use allows hospitals to better understand changes that could lead to better outcomes.

With margins shrinking and costs growing rapidly, the financial outlook is grim for hospitals and health systems. While there is a cost associated with collecting and analyzing data, the cost of failing to reduce waste and control costs wherever possible is significantly higher. In short, failing to base supply decisions on real-world conditions costs hospitals millions each year and potentially puts patient and staff safety at risk. The pandemic taught hospitals that neglecting supply chain data has a cost in the form of stock outs and increased costs, but while these concerns are fading, supply chain challenges are not. As a result, hospitals that do not act now risk jeopardizing their own financial future.