The Healthcare Hub

Supply Chain Priorities for High-Reliability Organizations in Healthcare

Friday, January 26, 2024

In today’s healthcare landscape, hospital leaders must actively seek innovative approaches to enhance financial performance by minimizing costs and reducing waste. Adopting a high-reliability mindset in supply chain operations is emerging as a strategy for ensuring long-term financial health and supporting Cost, Quality, and Outcomes (CQO) initiatives.

From airlines to emergency services, high-reliability organizations (HROs) are characterized by their ability to operate effectively and safely in complex, high-risk situations with a high potential for errors and catastrophic failures.

In the supply chain, areas of focus may extend into vendor relationships, community values, sustainability and social responsibility, including item-level details like packaging, waste management and eco-friendliness. This report reveals the six priorities for supply chains to build financial resilience and meet CQO goals.



Table of Contents



The Role of Supply Chain in HROs

The role of the supply chain in HROs extends beyond procurement; it plays a crucial part in maintaining operational reliability and compliance, serving as a safeguard against variability and unpredictability.

A well-managed supply chain minimizes variation by ensuring the timely availability of the right supplies and equipment, thereby supporting consistent adherence to patient care protocols.

Moreover, by diligently monitoring inventory, tracking product performance and promptly addressing potential disruptions, a high-reliability supply chain helps to anticipate and adapt swiftly to issues. This approach helps ensure clinical staff access to essential supplies in order to maintain patient safety and care quality.


Five characteristics of HROs

  1. Preoccupation with failure: Identify and address potential threats before they escalate.
  2. Reluctance to simplify: Recognize that there may be multiple factors contributing to a problem.
  3. Sensitivity to operations: Learn from the experiences of those directly involved in day-to-day activities.
  4. Deference to expertise: Base decision-making on expertise and experience rather than hierarchy alone.
  5. Commitment to resilience: Analyze failures and successes to extract lessons for future performance improvement.



The Intersection of Cost, Quality and Outcomes (CQO)

Supply chain operations play a pivotal role in CQO initiatives. Efficient management ensures that hospitals have the right products available when needed, minimizing waste, reducing costs and supporting optimal patient outcomes.

The CQO movement launched by the Association for Healthcare Resource and Materials Management (AHRMM) defines the three pillars as follows:

  • Cost: All costs associated with delivering patient care and supporting the care environment.
  • Quality: Patient-centered care aimed at achieving the best possible clinical outcomes.
  • Outcomes: Financial reimbursement driven by outstanding clinical care at the appropriate costs.

In response to recent healthcare events and disruptions, one way that health systems are actively seeking to mitigate risk is by adopting multisource contracts and engaging diversified vendors.

This expansion of vendor partnerships also entails an increase in contracts, items and prices to oversee. By integrating with clinical and operational processes, supply chain can:

  • identify and implement value-based purchasing decisions.
  • promote standardization of equipment and supplies.
  • negotiate better pricing and contracts with vendors.

Furthermore, a robust supply chain helps reduce product-related errors and ensure that safe, high-quality products are used.



Six Priorities for High-Reliability Supply Chains

These six priorities highlight areas where operating challenges can be turned into opportunities to foster a high-reliability supply chain. Underscoring the critical need for proactive planning, risk management and sustainable practices, they address the complex interplay of economic considerations, sustainability and social responsibility that extend beyond mere procurement.


1. Broaden Spend Under Management

Increased supply chain involvement in non-traditional spending procurement guarantees optimal control and oversight for a perfect order – the right item, from the right vendor, at the right price.

Hospital supply chain leaders are increasingly expected to play a more active role in a broader range of procurement categories. This expansion includes non-traditional categories, historically managed by consuming departments, now requiring supply chain involvement due to demand variability and the complexities of aligning contracts with invoice amounts.

Non-traditional procurement categories:

  • Pharmacy
  • Purchased services
  • Lab supplies
  • Durable medical equipment
  • Research
  • Capital

Challenges and Opportunities for Improvement: Expanding control empowers the supply chain to influence spending across various pathways and categories in multiple settings. The key objective is to instill discipline and drive savings across all spend categories, extending beyond finance to include considerations for supplier diversity, sustainability, risk, compliance and service levels.

Technologies for Greater Spend Under Management: Examining non-traditional spending categories necessitates adoption of new implementation models. Modern self-serve procurement solutions address workflow nuances, standardizing and centralizing control for services, pharmacy purchases and capital equipment. To streamline, the supply chain can define standardized forms for each purchase category, specifying data attributes and controlling vendors.


2. Shape Demand

Health systems typically purchase tens of thousands of items annually, with most requesters unaware of the supplying vendor or the contracted price. While a common practice is to store item details and prices in the ERP item master, this method covers less than half of the overall purchase volume across the industry.

Hospital supply chain management must direct preferred buying decisions on thousands of purchasing decisions being made every day, while at the same time helping requesters feel empowered with information that they are making the best choices for a compliant supply chain.

Empower Requesters to Make the Right Choices: The supply chain's value lies in guiding and influencing every purchasing decision. By coordinating demand, it aligns approved formularies with users based on role, location and permissions.

Requesters are presented with preferred options that align with clinical, operational, and financial objectives. This ensures users get an approved item, sourced from the contracted vendor, at the compliant price and terms.

Supply chain teams often need to swiftly redirect demand to alternative items or supply sources. Contract conversion is another scenario where more cost-advantageous or lower-priced items can seamlessly substitute at the point of service. This redirection is valuable in instances of discontinued or recalled items, allowing requesters to opt for approved, functionally equivalent alternatives.

GHX Marketplace can help: As a single purchasing gateway for all clinical and nonclinical supplies and services, GHX Marketplace directs users’ search and purchasing activity to the preferred sources at the right price, helping to drive perfect orders.


3. Ensure Rigid Formulary Control

Rigid formulary control entails standardization in supply chain management as well as standardization of suppliers, items and prices to ensure coverage limiting rogue options and centralizing purchasing channels.

Each dollar of clinically aligned and compliant spending channeled through the supply chain represents an opportunity to streamline healthcare, positively impact patients and families, and manage costs.

Eliminating manual sourcing workflows mitigates the risk of introducing unvetted or counterfeit items during patient care. This control is particularly crucial for swiftly addressing product shortages or supply disruptions, providing a streamlined workflow for contract conversions.

Simultaneously, it maximizes anticipated negotiated savings throughout the contract lifecycle, contributing to the overall efficiency and reliability of healthcare supply chains.

How Formulary Control Works: Formulary control allows supply chains to guide requesters through a directed buying journey, steering purchasing behaviors toward cost-saving objectives. Additionally, formulary control accommodates specific clinical preferences and ordering thresholds without compromising contracted commitments.

Once item formularies gain approval across clinical, operational, and financial functions, requesters need a unified procurement workflow to ensure they can easily order approved, preferred items from contractually compliant and cost-optimized product options in real time.

The Role of Value Analysis: Formulary control requires the active involvement of value analysis to assess the efficacy of products, sourcing professionals to manage supply channel risks, and contracting teams to align contract coverage across the demand footprint.


4. Improve Data Integrity

The supply chain serves as the entry point and gatekeeper for data flowing between internal and external stakeholders. The challenge arises from the substantial volume, velocity and variability of item and price data in healthcare, often leading to off-contract purchases during requisition and undermining the anticipated savings from contract negotiations.

The struggle to achieve accuracy or compliance in the requisition process can be attributed to:

  • disparate data storage
  • data not aligning with preferred vendors
  • frequent data changes

Data integrity is strengthened by improving master data management workstreams to ensure accuracy and completeness. Operational efficiencies are gained through end-to-end integration of the data and by enforcing data quality across the transaction lifecycle.

Prescriptive Actions. Despite these challenges, there are clear actions supply chains can take to help improve data integrity:

  1. Engage trading partners to be stewards of their own data – or, perhaps, even make it a contractual condition.
  2. Adopt standards by creating a common language with trading partners and GPOs to ensure that data can be matched and attributed.
  3. Operationalize contracts to enable dynamic price synchronization across the procurement workstream. Operationalizing a contract makes it purchasable and linked to activity in the vendor purchase transaction.


5. Drive Efficiency with Automation and Integration

Supply chain automation involves utilizing technology to operate, manage, and monitor processes with minimal human intervention. The goal is to complement human workers, informing their decisions and streamlining manual tasks without replacing them.

Given how fast and frequently supply chain data changes, it must be connected to a single source of truth. Supply chain data management proves challenging due to three key variables:

  • volume
  • velocity
  • variability

The limited availability of reliable data and the lack of interoperability between trading partners often result in gaps between reality and the promise of clinical integration.

Achieving operational efficiency hinges on the interoperability of supply chain data across external partners and internal clinical, financial, and operational systems. Maintaining data agnosticism and autonomy between data publishers and subscribers is crucial.

Embracing industry initiatives related to item identification (UDI, GTIN, etc.) and classification standards (UNSPSC and HCPCS) can be a critical enabler in this process.

Challenges with Integration and Standardization

  • Complex contract and item landscape: Healthcare deals with a multitude of contracts and items, surpassing other industry verticals and there is often no standard definition between physical and virtual items.
  • Technical Hurdles: ERPs systems are not data enablement platforms for mastering item and price data, presenting challenges in onboarding, transforming and sharing data.

To overcome these challenges, supply chains should use purpose-built technology to facilitate the seamless flow of data across systems. Furthermore, as suppliers are brought on board, supply chains need to be flexible in adapting to the capabilities of their trading partners, striving for harmonization without imposing rigid terms of engagement.


6. Become a Data-Driven Supply Chain

To drive necessary improvements, supply chains must deliver the right data to prompt the right actions. Transparency across organizational boundaries should reinforce positive behaviors and outcomes, while also prompting corrective actions when partners negatively impact operations, all backed by valid data-driven evidence.

One approach is to shape future demand and identify corrective actions based on past results. Supply chains should track trends over time to demonstrate progress and understand how myriad small decisions influence long-term performance.

Consider a common objective like improving contract compliance: By refining formulary management, supply chains can shape demand at the point of care, directing purchasing activity to preferred sources at the contracted price. The emphasis should shift from rectifying errors at the back end (invoice) to getting it right at the front end of the procurement cycle.

Aligning spending activity with ESG and diversity priorities requires informing purchasing decisions and tracking how enhanced transparency enables requesters to modify behavior for incremental change. Rather than seeking "big bang" solutions, the focus should be on every decision, influenced by available information, contributing to desired outcomes.



Engage Your Next Digital Transformation

The six priorities outlined for high-reliability supply chains provide a comprehensive roadmap for healthcare leaders and supply chain professionals and implementing them can be critical for building financial resilience ensuring sustainability and achieving success in CQO objectives.

The next step for supply chains to become an HRO involves a strategic focus on implementing these priorities. This includes investing in technologies that support greater spend under management, orchestrating demand to guide purchasing decisions, enforcing rigid formulary control, enhancing data integrity, embracing automation and integration, and fostering a culture of data-driven decision-making.

Collaboration with trading partners, adoption of industry standards and a commitment to continuous improvement are crucial aspects of the journey toward high-reliability supply chains.

As the healthcare supply chain evolves, GHX is a leader in digital transformation with solutions that span care points, spend categories and the procure-to-pay cycle for a next-gen supply chain.

GHX aims for 100% automation of invoices and payments, leveraging an AI-driven platform to dismantle data silos. The goal is to empower supply chains as strategic enablers focused on informed, cost-effective decisions tailored to each patient's needs.