No one is sure exactly how this will be accomplished, but one thing is certain: government reimbursements are going down—down from a level that today only covers about 80 percent of the cost of delivering care. At the same time, healthcare providers are being required to invest in and ensure "meaningful use"of electronic health record (EHR) technology.

Against this backdrop, supply chain leaders are in the difficult position of trying to demonstrate the importance of investing in the supply chain. The key is demonstrating how the supply chain can ease the financial strains of healthcare reform. Here are some examples:

UDI in EHRs
Meaningful use of EHRs will likely require inclusion of unique device identifiers (UDIs) for products used in patient care. Manufacturers are preparing for the U.S. Food and Drug Administration mandate requiring them to assign and label their products with a unique standard code, such as GS1’s Global Trade Item Number (GTIN) or Health Industry Business Communications Council’s Labeler Identification Code. Healthcare providers need to consider how they will include the UDI in EHRs, including capturing data at the point of use and ensuring their supply chain systems integrate with their EHR systems.

Value-based purchasing
With the move to value-based care, hospitals will need to pay more attention to the cost of the supply chain, which can account for up to 45 percent of total operating expenses. This is especially important for hospitals that perform a high number of orthopedic and / or cardiac procedures, in which the price of the product can account for as much as 50 to 80 percent of the cost of the procedure. Capturing data about use of these products is currently a manual process, often performed by both clinicians and supplier representatives. Information technology and process improvements can improve accuracy and productivity across the supply chain.

Moving care (and supplies) outside the acute care setting
To lower healthcare costs, more care will be delivered outside the acute care setting, which is the most expensive real estate in healthcare. More patients will be treated by community health organizations, surgi-centers, retail clinics and at home. Supply chain staff will need to have greater visibility into product purchasing, delivery and utilization beyond the hospital walls. Data must be shared in a standardized manner across systems and facilities.

GHX understands the challenges faced by both healthcare providers and suppliers in meeting the challenges of healthcare reform and how adoption of standards, process automation and use of cloud-based technologies can help lessen the financial burden, while helping to improve clinical performance.

The supply chain represents the second largest operating expense for most hospitals, but it is also the fastest growing. In fact, based on studies conducted by the Strategic Marketplace Initiative, supply chain costs are on a trajectory to supersede labor costs as early as 2022 for some hospitals.

It not just about price
The challenge in reining in supply chain costs is that most hospitals have historically focused their efforts on lowering the price they pay for products, which is only part of the cost. They have neglected to look at ways to reduce direct and indirect costs—things like error-ridden manual processes, discrepant data, logistics and inventory carrying costs, to name just a few.

Gartner Research says supply chain represents 40 to 45 percent of hospital or healthcare system operating expense. Gartner also says healthcare delivery organizations can reduce those costs by 5 to 15 percent if they better analyze, plan and control the purchase and use of goods and services, which can translate to a profit increase of 2 to 7 percent. Unfortunately, few organizations have the level of supply chain talent and leadership necessary to make this possible.[i]

The power of consolidated purchasing
Supply chain professionals are often limited in their ability to drive significant change because they only have responsibility for a portion of non-labor spend. In many hospitals, materials management is responsible for commodity-type purchasing, while the OR, lab, radiology do their own thing. Then there’s food service, linens, office supplies and purchased services. And that’s just within the hospital walls. What about purchasing at non-acute care facilities within the same organization? If healthcare systems are going to have an understanding of how much it costs to deliver care, something that will be required under healthcare reform, consolidating supply spending and operations will be critical. Only then can supply chain leaders have visibility into the data that can drive better operational and financial performance, as well information on the efficacy of supplies to improve patient care.

GHX helps you rein in costs
By automating more of their purchasing, hospitals and other healthcare delivery organizations working with GHX are improving productivity and gaining better insights into not only their supply spend, but also opportunities to further streamline operations and expenditures. Perhaps more importantly, they are working more closely with their trading partners to find new ways to optimize business practices across the supply chain.

^{[i] Supply Chain Consultants and Outsourcing Providers for Healthcare Delivery Organizations, Gartner Research, 5 July 2011}

By contrast, in manufacturing environments, 60 percent of the IT budget often is devoted to operations and supply chain.

The information technology payback
A study of more than 270 hospitals over a four-year period recently highlighted “the negative impact of long-term underinvestment in back-office infrastructure and processes.” The study, conducted by Oracle Healthcare Insight, provides a strong business case for reversing that trend, noting that “healthcare providers that make greater investments in back-office automation and process improvement enjoy operating cost ratios that are 2 to 4 percent better than those of their peers.” Specifically, the study called on providers to increase investments in tools to enable electronic order exchange with suppliers (including the use of order acknowledgements and advanced ship notices), and automate processes around procurement, invoicing and catalog price updates.

Industries that invest in technology are better able to integrate various functions and organizations, which in turn can increase appreciation for the interdependent nature of the supply chain. An e-commerce infrastructure, for example, creates connectivity and linkages that enable supply chain partners to share data with one another and collaborate to improve business processes.

The cloud and the supply chain
The increased use of cloud technologies in the healthcare supply chain can help mitigate many of the financial challenges. Rather than having to invest in expensive hardware, the cloud provides opportunities for trading partners to store, access and analyze data in a virtual environment and take advantage of upgrades more quickly and at lower cost.

Let GHX focus on the technology while you focus on running your business
Hospitals and healthcare systems working with GHX have access to the world’s largest single community of healthcare suppliers, with which they can conduct a wide variety of electronic data interchange (EDI) transactions. Working closely with a Product Council comprising both healthcare providers and suppliers, GHX continues to deliver software-as-a-service (SaaS) to automate purchasing, contracting, content management and payment processes.

Unlike healthcare, other industries generally have strong working relationships between buying and selling organizations. This is driven by an understanding that the supply chain is a system, and that what happens on one node of the chain will have repercussions upstream or downstream. These industries have learned that the way to optimize supply chain performance is to involve all parties. That has not been the case in healthcare, as illustrated by a 2010 Gartner Research report that found that 93 percent of respondents believe there is a lack of trust with their trading partners.

Trust: A commodity often in short supply
Many attribute these findings to the fact that supplier-hospital relationships have been historically focused on a contentious topic: price. Suppliers naturally want to sell high, hospitals want to buy low. This lack of trust also tends to be self-fulfilling. When organizations or individuals do not trust one another, they are less apt to share information;when they don’t share information, the lack of transparency breeds mistrust.

Fortunately, with cloud-based technologies that foster collaboration being deployed in healthcare, and as more supply chain practitioners recognize the interdependent nature of the supply chain, relationships are changing. When suppliers are seen as partners, not adversaries, hospitals can take advantage of the expertise many manufacturers have in programs such as LEAN and continual quality improvement. Manufacturers can not only help their customers lower costs but also lower the cost of serving them.

GHX fosters trading partnerships
Many participants in GHX, whether buying or selling organizations, say the greatest value of working with a single trading exchange is the opportunity to change the way they do business together—for the better.

Learn more on our Collaboration and Community page.

Other industries have optimized their supply chains by adopting global standards to identify products, the organizations that sell and buy them, and the locations to which they are delivered. Over the past 30 years, there have been attempts, largely unsuccessful, to broadly adopt and use these kinds of standards in healthcare. Now, there are signs that that is beginning to change.

The FDA’s Unique Device Identifier rule
One driver is the pending Unique Device Identification (UDI) rule from the U.S. Food and Drug Administration (FDA). It will require medical device manufacturers to uniquely identify their products with one of two existing standards: either GS1’s Global Trade Item Number (GTIN) or Health Industry Business Communications Council’s Labeler Identification Code. When this rule takes effect, many believe it will provide the much-needed impetus to move healthcare forward on standards adoption, at least for product identification.

The FDA only has jurisdiction over manufacturers, but there is growing recognition among healthcare delivery organizations that use of a single product identifier for each of the products they use can also deliver benefits. In addition to greater supply chain efficiencies, standards can provide better visibility into the products used in patient care, which can improve comparative effectiveness research and recall management, among other things.

Other industry initiatives
Meanwhile, in the United States, a group of leading integrated delivery organizations, the major group purchasing organizations (GPOs), and several trade associations have called on both providers and suppliers to begin using the GTIN, as well as GS1’s standard for organization and location identification, the Global Location Number or GLN, in transactions. The GLN, when used in combination with a GTIN, can help ensure that products are delivered to the right place at the right price.

In the case of GTINs, manufacturers have to move first, by assigning the standard to their products, and then communicate that information to their customers. Healthcare delivery organizations, on the other hand, have to assign GLNs to locations within their facilities and communicate that information to their vendors.

GHX is in a position to help
Because GHX works with such a large percentage of the healthcare industry, it can assist with this process. Through the GHX Industry Standards Users group, GHX and its members are sharing best practices in standards adoption and use, including how to synchronize data between trading partners and utilize standards in transactions, even when their systems are not yet capable of holding the standards. By working together, these organizations can accelerate the value standards have to offer

Learn more on our Global Standards pages.