Understanding Healthcare Supply Chain Management

Leveraging partnerships

The health system or hospital’s supply chain can extend from a factory across the globe to the bed of a patient within its four walls, with many points in between. Therefore, healthcare organizations rely on various partnerships to direct products from the point of manufacture to the point of use and facilitate cost-effective purchasing of these items. In addition to the suppliers themselves, healthcare facilities typically rely on group purchasing organizations (GPO) and distributors for supply chain support.

Ensuring diversity in sourcing

In an effort to reduce the cost of medical supply and pharmaceutical manufacturing, suppliers have increasingly moved their operations from North America to Asia, most notably China and India. While reliance on foreign manufacturing serves to keep product costs low, it has resulted in a more fragile and unpredictable supply chain.

The consequences of the global approach to medical supply and drug manufacturing were clearly seen at the onset of the COVID-19 pandemic when closure of Chinese factories and the closing of international borders resulted in severe shortages of personal protective equipment (PPE).

A key lesson learned during the pandemic is that healthcare organizations must diversify supply sourcing. Reliance on one or two manufacturers for critical products puts a healthcare facility at significant risk for supply shortages if these companies are forced to slow or stop production.

What is a GPO?

A GPO is an entity that leverages the group buying power of its members to secure competitive pricing for medical supplies and pharmaceuticals. Its members are comprised of health systems, hospitals and other patient care organizations (e.g., long-term care facilities, home health agencies, etc.).

There are both efficiency and cost benefits from partnering with a GPO. Instead of a healthcare organization having to negotiate individually with each of its suppliers for savings and discounts, the GPO does this on its behalf. Because the GPO represents hundreds of facilities, its negotiating power is far greater than any single facility alone.

What is CHeS?

In the past decade there has been momentum on the federal and industry level to standardize the way all healthcare supply chain stakeholders identify medical supplies. If all parties use the same language to identify a product, it makes it far easier and more efficient to facilitate recalls, perform adverse event reporting and manage the countless supplies used in patient care.

Founded in 2000, the Committee for Healthcare eStandards (CHeS), now part of the Healthcare Supply Chain Association (HSCA), is a collaborative of organizations dedicated to driving the adoption of data standards in healthcare.

The group endorses the adoption and use of GS1 standards, including the Global Location Number (GLN) for location identification and the Global Trade Item Number (GTIN) for item identification, as well as use of the Global Data Synchronization Network (GDSN) for synchronization and sharing of these data standards among organizations.

The GS1 standards are one of three accredited by the FDA as unique device identification (UDI) issuing agencies. The other two are the Health Industry Business Communications Council (HIBCC) and the International Council for Commonality in Blood Banking Automation (ICCBBA).

CHeS also endorses the use of the United Nations Standards Products and Services Code (UNSPSC) for the classification of healthcare products and services.

Common challenges in healthcare supply chain management

ERP and EHR Limitations

The two main information technology (IT) platforms that health systems and hospitals use today are the enterprise resource planning (ERP) system and the electronic health record (EHR) system. Neither have the capabilities required for holistic, enterprise-wide inventory management. The ERP system provides visibility into medical/surgical supplies that the healthcare organization ordered but misses costly and critical items that are crucial to manage (e.g., implants, pharmaceuticals, etc.). The EHR system documents products used in patient care, but only when clinicians enter items into the system, which is a significant challenge when documentation is manual and time-consuming. While most healthcare organizations attempt to integrate the ERP and EHR, there is no automated mechanism to record the depleted inventory and trigger processes to procure more.

Disconnected point of use (POU) systems

To facilitate inventory management in clinical areas and replenishment of supplies, health systems and hospitals employ multiple point of use (POU) systems. The Perioperative area uses one system, Cath Lab another and the Nursing Units yet another. While these tools enable supply replenishment based on par levels for general medical/surgical supplies, they do so in silos. And because they are not integrated with each other, or with the ERP or EHR, they only provide visibility into the supplies within the confines of that specific care area. Therefore, when items are delivered to care areas, the supply chain loses visibility to them. They have no way of tracking when products are moved, where they are stored and the status of expiry dates. The disjointed nature of inventory management in care areas also presents challenges with recall tracking and adverse event reporting. This results in any number of inventory management issues – from overordering or stockouts, to products expiring on shelves before they can be used. Even more concerning is the risk that an expired or recalled item is used on a patient

Clinical time spent on inventory management

Without a way for the supply chain to effectively manage supplies in care areas, these responsibilities fall to clinicians. This is especially true of consignment products that are not contained within the ERP system. Nurses are left with the responsibility of managing these items, documenting their use in the EHR and collecting the information required to pay the manufacturer, bill the patient and ensure supply replenishment. In most cases this is done manually, with nurses peeling stickers off product packaging during a case and later keying this information into various IT systems.

Even the documentation of general medical/surgical supplies contained within the item master presents a significant burden to clinical teams. During a case, clinicians must stop to document product usage in the EHR so that these items are billed and reimbursed. With their main focus being the patient in the room, it is common for clinicians to miss items, resulting in lost charge capture. This is especially true when the process is manual with clinicians having to physically key data into the system.

Reliance on third parties

As we have seen during the COVID-19 pandemic, health system and hospital reliance on third-party distributors and manufacturers can backfire in times of crisis. When a healthcare organization has only limited supplies on hand and relies on third parties to replenish what was used, or in the case of the pandemic, deliver significantly higher volumes of critical products (e.g., PPE), they come up against competition from other health systems and hospitals requiring these same items. When critical supplies are in the hands of third parties, rather than on-site or nearby in a central storage area managed by the healthcare organization, any disruptions in the extended supply chain poses risks that supplies will not be available.

COVID-19 has prompted many healthcare organizations to rethink their inventory management practices, most notably the “Just in Time” approach where they keep limited stock on hand and rely on third parties to deliver items as they are needed.

Regulatory and industry compliance

There has been growing recognition among regulators, industry associations and individual healthcare organizations around the importance of tracking supplies at the item level throughout the supply chain – from the point of manufacture to the point of use. As a result, regulations have been developed to drive more accurate product tracking and tracing, including the U.S. Food & Drug Administration’s unique device identification (UDI) rule and U.S. Health Resources and Services Administration (HRSA) 340B statute. Because the ERP system contains only general medical/surgical supplies, and in most cases lacks item level details on these items, it cannot support the level of traceability required to meet these regulations, or perform lot tracking, recalls and expiration date management necessary to prevent patient harm.

How can providers overcome common challenges in healthcare supply chain management?

Mapping and monitoring your supply network

An enterprise-wide system integrating an SCM with your ERP and EHR systems that features automated tracking and management of supplies in all storage and use areas can serve as your central platform for supply chain digital transformation. By consolidating the management of all supplies within a single system that automates supply tracking from receipt through point of use, you can gain complete visibility into your inventory and control over it.

Improving management of your supplier base

At an industry level, there are efforts to move drug and medical supply manufacturing back onshore or nearshore to increase the resiliency of the healthcare supply chain. With manufacturers closer to home, the supply chain grows shorter and there are less opportunities for breaks in that chain.

Building redundancy into your supply chain

At the individual facility level, supply chain teams have been working to identify trustworthy and safe alternate suppliers that they can turn to if their primary sources are unable to supply what they need in terms of products for any reason, whether it is COVID-19, a natural disaster or some other unanticipated event.

Standardizing

Improving supply management, utilization management and standardization doesn’t happen without technology. By reviewing product performance data on an ongoing basis, clinicians gain evidence that enables informed decisions on physician preference item (PPI) standardization and supplier consolidation. Standardization and consolidation cut costs by reducing inventory levels, providing leverage in contract negotiations to obtain better pricing and reducing the overhead costs associated with working with multiple suppliers.

Obtaining necessary data

Healthcare organizations that collect product data and track product movement electronically can improve supply chain accuracy. Providing visibility across supply chain processes that span the ERP and EHR requires a common data foundation that allows access to near real-time data on supply availability and usage for proactive decision-making.

Centralizing forecast data

By analyzing historical trends, organizations can create better forecasts for optimal inventory levels of each product, reduce spending on specialty products with product standardization and identify bulk buying opportunities. With a point of use inventory management solution, the supply chain can manage the optimization of inventory levels for appropriate case activity, handle case picking routes for faster picking without mistakes and automate the data capture of product usage during procedures.

Focusing on performance

Fully automated inventory management processes reduce the burden of manual data entry on frontline and back office staff, leading to greater engagement and reducing burnout. With single sign-on and user interface integration, clinicians can perform a single scan that accurately records case information within multiple applications (e.g., clinical, financial, operational). This level of automation also eliminates any double-entry processes to reduce the risk of erroneous input while providing real-time patient safety alerts.