The Healthcare Hub

GHX provides a wide range of perspectives on how greater collaboration and visibility across the supply chain can improve both clinical and financial performance in healthcare.

Tuesday, May 10, 2011

The Role of the Supply Chain in Reducing Healthcare Costs

David Blitzer, chairman of the S&P 500 Index Committee, appeared recently on CNBC, discussing the rising cost of healthcare. While the rate of increase is slowing, albeit slightly, healthcare costs continue to rise at 3 to 4 times the cost of inflation. Chairman Blitzer noted, accurately, that “Despite all the excitement about technology and drugs, healthcare is a very labor intensive activity, and people — labor — costs a lot of money, and that seems to be the key factor driving it up.” He’s right: labor is the single highest cost for most hospitals, but as I have noted in earlier posts, supply chain related-costs are the second largest expense and on a path, according to SMI

(, to surpass labor as early as 2010. As I noted in comment posted on the Corporate Research Group website, the supply chain continues to be left out of the discussion about how to reduce the cost of healthcare. The good news is, unlike clinical labor, we can reduce supply chain-related labor costs through automation and improved data accuracy and visibility without having any negative impact on patient care. In fact, improvements in the supply chain can actually free up nurses to do more of what they were trained for: patient care. In some hospitals, nurses report they spend nearly 40 percent of their time on supply chain activities. What has gone unnoticed is the amount of money hospitals and their suppliers are saving by automating supply chain processes. The nearly 4000 hospitals (approximately 70 percent of the acute care facilities in the US) and suppliers that currently use GHX, as opposed to handling purchasing transactions manually, documented more than $730 million in savings last year through connectivity, automation, and reduced order discrepancies. Using a model validated by the global management firm PRTM, those hospitals and suppliers are well on their way to take more than $5 billion out of the cost of healthcare over the next five years. While we continue to debate how we should pay for healthcare, the problem remains the same, we must lower the cost. The supply chain has proven itself in other industries. It’s time healthcare paid attention, too. I invite you to help raise the awareness of the role of the supply chain by posting your own comments on the CRG website or here at the Healthcare Hub.

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Karen Conway

Vice President, Healthcare Value