Over the past 30 years, hospitals have been adopting technologies to steadily increase process automation throughout their operations in an effort to enhance efficiency and reduce costs. It began in the 1980s with the initial use of mainframes and desktop computers for electronic patient registration, continued through the late 1990s with “Best of Breed” systems, such as materials management information systems (MMIS) for order processing and inventory management, and then transitioned in the early 2000s to present day with the adoption of on-premise (“on-prem”) enterprise resource planning (ERP) systems that automated both materials management and financial operations.
In my previous blog post, I described how the healthcare industry has yet to tackle standardization and automation of so-called “advanced” supply chain transaction sets. These are processes around contract pricing alignment and reconciliation that go beyond the basics of placing an order, delivering the products and billing for those products. The manual management of price changes in healthcare is complex, challenging and costly, placing a significant burden on all parties to a contract (e.g. manufacturer, distributor, provider, GPO).
Essential to supply chain, and the key to keeping an organization stocked with the supplies needed to operate is the procurement of goods and services. The importance of this process can’t be understated in the case of healthcare, where lives are literally on the line and depending on the right supplies when they are needed.
Traditionally, the procurement process has lagged behind other business processes in advancements relating to efficiency and automation, but that is changing. Cloud-based technology is enabling procurement to make progress along the lines of data interoperability, and visibility and agility in transactions.
Two decades ago, a few healthcare supply chain partners decided to automate basic transactions so that they could improve efficiency and accuracy and reduce costs – and the GHX Exchange was born. Today over 10 thousand supplier divisions and 19 thousand provider facilities use GHX standards to automate the four core supply chain documents: The purchase order (850), purchase order acknowledgment (855), advance ship notice (856) and invoice (810). These “basic” supply chain transactions encompass the processes around placing an order, delivering the products and billing for those products.
If you are in anyway involved in the healthcare contracting process, you know the tremendous challenge that providers, manufacturers and distributors face when attempting to manually align data for pricing accuracy. With thousands of price changes happening each day, all parties to a contract spend an enormous amount of time and money trying to keep up with them.
With the healthcare industry experiencing such a large volume of mergers and acquisitions, many hospitals and health systems are dealing with disparate technologies and its impact on efficiency, data management and cost containment. These obstacles can create an even greater burden on supply chain with misaligned contract pricing and increased supply chain exceptions.
Supplies in the category of maintenance, repairs and operations (MRO) can be particularly challenging – and costly - for healthcare providers to manage. While the products may cost only a few dollars each, the overall cost to procure these items can equal - or exceed – the cost of the products themselves.
In many cases, hospital maintenance staff will go out and shop at local stores for these items using their purchasing cards. Not only are the products procured this way often more expensive than those from suppliers with which the hospital has contracted, there are also the added labor costs and other expenses associated with staff members shopping at various local stores. It is clear that gaining visibility into and control over these items presents a significant opportunity for cost savings.
The healthcare industry is notable for complex contracting process, but recent trends in payment models and the continued volume of mergers and acquisitions are bringing new challenges. Overall, these developments emphasize the need for a holistic view of healthcare and for identifying a total cost of care, which is critical for success with a bundled-payment model. These external forces are driving changes internally for supply chain earlier in the process in managing contracts.
Managing contracts and compliance data is a challenge for healthcare organizations today. The process often involves people and departments across the organization requiring a secure but nimble system for tracking negotiations and approvals. Current regulations require healthcare providers to know more about who they are doing business with and to manage their vendor population with consistent scrutiny to maintain accurate data. Adding to the complexity, with mergers becoming more common, hospitals are seeing an increase in the number of local contracts along with contracts that fall outside of med-surg that need to be maintained as well. As a result, organizations need to interact with contracts in new ways, with more flexibility while maintaining even more data and security.
Healthcare providers need visibility into vendor contracts across the entire organization in order to drive contract compliance, consolidate vendor spend and reduce supply costs. At the heart of improving transparency and visibility is an effective contract management strategy. Without it, organizations lack the ability to obtain and access the data necessary to make smart purchasing decisions and maximize cost savings opportunities.
Healthcare contracting is a highly complex, multi-step process and cutting costs in contracting is directly attributed to pricing alignment. The lack of pricing synchronization across supply chain constituents creates pricing errors that result in significant rework between providers and suppliers. In addition, suppliers and distributors require numerous back office personnel to support the highly complex rebate and chargeback process necessary to support group purchasing contracts.
By Ronda Wirth, Procurement Operations Manager, Supply Chain Management, Northern Arizona Healthcare
At Northern Arizona Healthcare (NAH), we believe paying any price for a product other than what has been negotiated with the supplier is a disservice to our customers. But doing so is easier said than done.
I had the pleasure during GHX’s recent Supply Chain Summit to participate in one of the conference’s most heavily-attended sessions: a four-way conversation among manufacturers, distributors, GPOs, and providers about what needs to be done to better align pricing in the healthcare supply chain. Joining me in the session were some industry heavyweights: Del Jackson, Vice President of Contract Operations with Premier; Debra Gelman, Vice President of Channel Operations with Care Fusion; Dena Jackson, Director of Supply Chain with Anne Arundel Medical Center; and Steve Inacker, President of Hospital Sales & Services with Cardinal Health, along with Jan McCue, Vice President, Corporate Accounts from GHX.