The Healthcare Hub
As healthcare systems seek to build resilience, industry leaders are looking to technology as the primary source of innovation. This in-depth analysis of current challenges and future trends explores the role of AI, value-based care, DEI and sustainability in the future of healthcare supply chains.
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The healthcare industry supply chain system flows behind the scenes in most health systems. It’s not until there is a disruption to that flow that healthcare supply chain comes front and center.
The risks are high: When clinicians do not have the critical medical/surgical supplies they need to deliver patient care--because of a shortage, stockout or missing inventory--it can disrupt or delay treatment.
Looking to research on healthcare industry trends : in a survey of 400 nurses, physicians, service line leaders and supply chain administrators, more than half (57%) of respondents could recall a time when a physician didn't have the product required for a patient's procedure. On top of the clinical impacts, the costs of the healthcare industry supply chain are staggering – and growing.
Vizient is forecasting a 2.9% estimated supply chain rate increase for January to December 2024, while Fitch Ratings predicts U.S. health systems and hospitals will continue to struggle financially in 2024 because of “labor shortages and salary/wage/benefit pressure that is still compressing margins for a sizable portion of the sector.”
Heading into the new year, healthcare executives are looking for ways to increase procedural revenue and cut costs where they can. Overcoming supply chain challenges with targeted supply chain advancements can help them achieve both goals.
The evolution of the healthcare supply chain over the past 20 years has been substantial, driven by technological advances, regulatory changes, and shifts in healthcare practices. The pace of advancement grows even more rapid in the face of cost and quality pressures resulting in a more complex, technology-driven, and globally interconnected system.
This evolution has brought about efficiency improvements and cost savings, but also new challenges and vulnerabilities. Key developments include:
The healthcare supply chain is critical to high quality patient care delivered with efficiency and cost effectiveness. A health system or hospital supply chain team’s responsibilities encompass a broad scope of activities – from strategic to tactical – and require coordination with both internal and external stakeholders.
Beyond healthcare industry logistics, there are many other parties that impact the healthcare industry supply chain system in some way – and the associated costs. Here are just some of the key players in healthcare supply chain:
A note on functional players
Within the healthcare supply chain are specific groups of stakeholders who work across organizations to facilitate supply procurement, delivery, management, and payments. Here are a few examples:
When looking at healthcare industry supply chain as just that, a “chain,” the vulnerabilities and challenges become clear. The journey to get a product from the point of manufacture through to a clinician’s hands requires the efforts of multiple stakeholders each doing their parts efficiently and effectively.
Gaps at any point in the healthcare industry supply chain system increase the risks to availability– from the supplier producing the product, to its distribution to a healthcare facility, to hospital supply chain and clinical personnel managing that item down through to the point of care at the patient bedside.
Supply chain challenges, such as inventory management and distribution, that spiked during the COVID-19 pandemic continue today. In March 2023, the Health Industry Distributors Association (HIDA) reported that 93% of healthcare provider organization executives say they are still experiencing product shortages. They noted how shortages are not only more widespread than they were during the pandemic, but also more difficult to predict.
Beyond the COVID-19 pandemic, there are various other global events that have an impact on the healthcare supply chain and the availability of supplies needed for patient care, including geopolitical and climate events.
For example, the Russia–Ukraine war has restricted the supply of key metals and raw materials imported into the U.S. from Russia, which are used in the manufacture of semiconductors, surgical instruments, orthopedic implantable products and durable medical equipment. The war has also impacted trade route operations, disrupting the flow of electronics, raw materials, and parts supplies out of China.
A report from the Yale School of the Environment detailed how climate change is impacting global supply chains. The authors cited two specific climate related events in the U.S. - the “Texas Freeze,” which forced three major semiconductor plants to close and forced the closure of railroads that serve as “heavily used supply chain links between Texas and the Pacific Northwest” - and Hurricane Ida, which “damaged vital industrial installations that generate an array of products, including plastics and pharmaceuticals.”
While healthcare supply chain stakeholders can’t predict or prevent most global events that cause disruptions, they can employ strategies to minimize the risks.
Recognizing the tremendous impact the healthcare industry supply chain system has on costs, patient care quality and financial outcomes, industry stakeholders have made substantial investments in supply chain advancements to secure the future of healthcare supply chain.
Visibility and control are two critical components in successful healthcare supply chain management. Healthcare organizations need access to accurate, complete and actionable analytics on supply status – from the time of product purchase through to its use on a patient – so they can make informed decisions to help improve care and reduce costs.
Healthcare industry trends reveal today’s most impactful supply chain advancements aimed at operational and financial improvements. As with many industries, healthcare is undergoing a digital transformation. Per the Harvard Business Review, “Digitally transforming the supply chain has been shown to reduce process costs by 50% and increase revenue by 20%; hospitals are no exception.”
Migrating healthcare supply chain processes and data into cloud enterprise resource planning (ERP) systems drives speed, agility, scale and visibility. As Deloitte stated in its recent report with Workday on the future of healthcare supply chain, “to truly take control of their supply chains, leaders will increasingly rely on the total upstream visibility provided by cloud-based management tools.”
Digital transformation is driving greater process automation throughout the healthcare industry supply chain system, from procure-to-pay to healthcare industry logistics. With a single, ERP- integrated, cloud-based inventory management platform to digitize and automate product tracking throughout this continuum, healthcare supply chain leaders can truly take control.
The transition from manual to digital supply chain management was accelerated by the COVID-19 pandemic and continued to advance rapidly. The growing implementation of cloud-based enterprise resource planning (ERP) systems among healthcare organizations is fundamental to this transition.
In a recent GHX survey, 45% of health system and hospital leaders said they are already using cloud-based supply chain management technologies, and 24% said they plan to begin using these technologies within the next two years. This suggests that nearly 70% of all hospitals are likely to have adopted a cloud-based approach to supply chain management by 2026.
With digital systems, processes and data in place, healthcare supply chain leaders can employ advanced analytics capabilities powered by artificial intelligence (AI).
When asked which technologies are most likely to be implemented by 2025, 92% of healthcare chief information officers (CIO) surveyed by Gartner selected artificial intelligence (AI)/machine learning (ML).
Transitioning healthcare supply chain processes to the cloud opens vast new opportunities for supply chain advancements, including the ability to leverage digital technologies like AL, ML and blockchain.
For example, through AI-enhanced inventory control and end-to-end supply chain management software and services, healthcare organizations have been able to identify errors, opportunities for greater efficiency, and potential risks to patient safety (e.g., recalled or expired products).
Here are some examples of where AI-enhanced inventory management is supporting healthcare supply chain advancements:
Digital transformation of the healthcare supply chain, including the move from on-premise to cloud-based IT solutions, system integration, process automation and real-time data collection, has established the foundation for predictive analytics success. Health systems and hospitals with these capabilities in place can proactively manage their supply chains by predicting demand and matching inventory levels to support it.
For example, the supply chain team for Corewell Health, a 22-hospital Michigan health system, established an early-warning score for approximately 12,000 SKUs. Through this proactive planning process, the team monitors backorders and recalls, and has reduced the disruption of critical items. It has led to a 38% decrease in supply stock-outs. And the supply team for Stanford Healthcare in Stanford, California, leverages analytics to actively adjust inventory levels based on hospital trends, for demand planning and forecasting, and to project when inventory will run out.
According to McKinsey & Company, analytics is the backbone of supply chain excellence. Predictive analytics is the key to healthcare supply chain resiliency. In a 2023 survey, one quarter of health system executives and supply chain leaders selected data and analytics capabilities as their number-one investment opportunity.
Health systems and hospitals are transforming all aspects of their supply chains through digital technologies and advanced analytics. Here are three examples:
Implant orders: Froedtert Health’s clinical and supply chain teams were engaging in a highly manual, time consuming process for implant orders. They collaborated with GHX and their suppliers to automate these orders through the GHX Exchange through the application of custom business rules. As a result, the health system increased its bill-only PO EDI rate by 54% and volume by 465% in just six months.
Cost of care: Wake Forest Baptist Health in North Carolina struggled to measure the actual cost of providing patient care because of incomplete and inaccurate point of use (POU) supply documentation. Using GHX Clinical ConneXion, they automated the process of capturing supply data in the electronic health record (EHR) at the POU. By marrying supply, clinical and financial data, they now have true visibility into the impact of supplies on cost and outcomes.
Supplier payments: The supply chain team for Illinois-based Northwestern Medicine automated supplier payments, eliminating paper checks and gaining real-time visibility into the status of supplier transactions, through the GHX cloud-based ePay solution. Today, 99% of payments are digital. The health system benefits from greater payment accuracy and increased savings capture, including a 133% increase in annual rebates.
Cybercriminals have increased their attacks on both healthcare organizations and supply chains – making the digital healthcare supply chain a prime target. A cyberattack on a health system or hospital’s supply chain could have significant consequences, including patient data breaches, operation disruptions and/or patient harm.
Healthcare organizations are increasingly integrating systems and digitizing supply chain processes both internally and externally. Inside health systems and hospitals, supply chain teams are leveraging cloud-based ERP and supply chain management (SCM) systems to connect clinical (e.g., EHR) and financial systems. Further up the supply chain, they are using cloud-based ERP systems to integrate with the systems of their suppliers and other business partners.
The greater the system connections and volumes of data exchanged, the higher the risk for cybersecurity attacks and data breaches. As noted by healthcare consulting firm FQHC Associates:
“The complex interconnectivity of healthcare software supply chains can make the source of a cyberattack difficult to trace. Healthcare organizations face the challenge of how to effectively oversee multiple vendors with overstretched IT resources at a time when good cybersecurity experts are hard to find.”
The Healthcare and Public Health Sector Coordinating Council (HSCC), a coalition of private-sector critical healthcare infrastructure entities, published its Updated Health Industry Cybersecurity Supply Chain Risk Management Guide (HIC-SCRiM) in October 2023. The coalition aims to help small to mid-sized healthcare organizations meet the National Institute of Standards and Technology’s Cyber Security Framework (NIST CSF) supply chain security practices.
Here is a very high-level overview of the HSCC recommendations to healthcare organizations in alignment with the NIST CSF:
The digital technologies driving improved healthcare supply chain performance also present increased risk for cyberattacks. Therefore, healthcare organizations must strategically deploy new technologies with adequate safeguards in place – keeping cybersecurity front of mind. Here are 3 healthcare supply chain cybersecurity trends for 2024:
Healthcare organizations face many challenges in navigating the complexities of their supply chains, from long-standing issues related to disjointed IT systems and data silos, to emerging pressures to engage in sustainable practices.
If a healthcare organization is running its healthcare industry supply chain system on outdated and disjointed legacy IT platforms that lack integration with the ERP and electronic health record (EHR), it will face significant supply chain challenges.
When healthcare supply chain systems cannot speak with other systems (aka share data), healthcare supply chain teams must manually intervene to move data from one system to the next, or manually key the same information into these multiple systems. This leads to a significant drain on already limited resources, increases the risk for error, and slows the speed of supply management.
In today’s world where supply chain advancements are a top priority for healthcare leaders, the inability to seamlessly share data between systems are major roadblocks to change. Supply chain teams can’t effectively manage inventory enterprise-wide if data on those supplies are tied up in different systems and they don’t have visibility to it.
Research has shown that the ability to perform analytics for data-driven supply chain decisions is a key priority for healthcare leaders in 2023. Among healthcare CIOs surveyed by Gartner, nearly half (49%) said their technology investments will go toward business intelligence/data analytics.
But without a single, digital source of real-time, accurate and complete supply chain data, healthcare supply chain leaders can’t perform advanced analytics, such as demand planning and forecasting, which are critical to resiliency.
Each year, the The U.S. Food and Drug Administration (FDA) receives several hundred thousand medical device reports (MDRs) of suspected device-associated deaths, serious injuries and malfunctions.
For healthcare organizations still relying on manual processes for inventory management, identifying affected products within their vast inventory of supplies and removing them to avoid potential patient harm can be a huge challenge.
If they do not have a single healthcare industry supply chain system that captures and stores item level details for supplies, a supply chain team will likely find itself piecing together information from various systems and/or manually searching through affected products in storage locations.
While the clock is ticking, the chances an affected item could be used on a patient grows.
In fact, nearly one in four hospital staff members (24%) have seen or heard about a recalled or expired product being used on a patient.
Another concern when it comes to healthcare supply chain is patient privacy. To help meet compliance obligations related to accreditation needs, healthcare organizations must have in place policies and procedures to manage facility access for vendor representatives and know which areas they are cleared for access.
Furthermore, they must decide which vendors are defined as “business associates” under HIPAA and put appropriate safeguards in place to prevent unauthorized use and disclosure of patients’ electronic protected health information (ePHI).
The healthcare supply chain is a tremendous generator of waste. The American Hospital Association (AHA) states that the “majority of the materials procured by a hospital ultimately become waste.” In many cases, the wasted supplies had never even been used.
Consider the following research findings on healthcare supply chain waste generated by U.S. healthcare organizations and its impact on the environment:
Healthcare industry logistics can play a central role in reducing wasted clinical supplies. But to do so, healthcare supply chain teams need visibility into what they are purchasing, the status of supplies within their inventories, and controls for avoiding expiry and other drivers of waste. This requires a healthcare industry supply chain system designed to overcome today’s supply chain challenges and pave the way for supply chain advancements, including optimized inventory management.
The primary focus of a healthcare organization’s supply chain operations is to ensure the right products in the right quantities are available at the right places at the right times. Then why does inventory management remain a challenge for many health systems and hospitals?
Below are 7 best practices in healthcare inventory management from Jeff Elmhurst, GHX Inventory Solution Specialist:
Cloud-based ERP systems have broken down barriers to healthcare supply chain data integration. Seamlessly integrating with EHR systems and financial systems, ERP applications in the cloud can establish a single, accurate and timely source of cost, quality and outcomes data required for value analysis and other activities at the core of today’s clinically integrated supply chain.
When asked to identify the most compelling benefits of using the cloud for supply chain management, 30% of health system and hospital leaders cited improved data analytics and reporting and 28% enhanced supply chain decision making.
Calls for a more resilient healthcare supply chain have been made since the COVID-19 pandemic began, but what exactly does “resiliency” mean in this context?
In their article, Key Determinants for Resilient Health Care Supply Chains, Deloitte analysts offer these recommendations to potentially help health care organizations achieve supply chain resilience and prepare for future disruptions:
Unleashing the power of data and analytics, stronger bonds between suppliers and providers, environmental and sustainability considerations as well as a focus on health equity are emerging as focal points for the improvement of healthcare supply chain operations.
Healthcare supply chain technologies that support the generation of advanced and actionable analytics are a key priority for healthcare executives when looking at the future of healthcare supply chain. When asked for one element they believed their supply chain function should invest in over the next year, strong data and analytics capabilities topped the list of U.S. health system executives and supply chain executives surveyed.
To generate valuable and credible analytics on which to make informed healthcare supply chain decisions, healthcare organizations will need to continue to invest in healthcare industry supply chain systems that facilitate integration, automation and collaboration among stakeholders. Cloud-based solutions check off all those boxes with their flexibility and scalability.
Speaking of collaboration, the future of healthcare supply chain will also be driven by increased communication and collaboration among healthcare supply chain stakeholders.
Historically the relationship between healthcare providers and suppliers lacked transparency and open communication.. This prevented them from sharing healthcare supply chain data with each other that could inform better decision making on both sides.
But the COVID-19 pandemic --which necessitated providers and suppliers to work closely together to facilitate the flow of supplies despite the many challenges that came their way -- has prompted new thinking. To build a more resilient healthcare supply chain across the board, providers, suppliers, distributors and other key players are learning the value of opening doors and sharing data on inventory levels, shortages, forecasting and demand.
Salil Joshi, a senior director, analyst, in Gartner’s Supply Chain practice, offers four steps healthcare providers must implement to build a resilient supply chain, one that includes supply chain advancements in provider and supplier collaboration and innovation:
As GHX’s Karen Conway recently explained, the COVID-19 pandemic shone a light on the longstanding problem of health disparities, resulting in much higher rates of chronic disease among poor and minority populations as compared to more affluent populations.
At the same time, the pandemic drove many healthcare organizations to diversify their supplier networks out of necessity – if their main supplier didn’t have the products they needed, they had no choice but to find alternatives. In some cases, they found these companies were in their own states, cities or neighborhoods.
An unexpected upside: the healthcare supply chain realized it could use “the power of procurement for economic development in low-income communities” by investing in diverse suppliers (women, minority and veteran-owned) in their own backyards.
It’s a win-win; instead of relying on a manufacturing plant on the other side of the globe and a vast healthcare logistics network at risk for disruptions along the way, healthcare organizations can access supplies close at hand from trusted sources.
And as Karen described, “Money spent with local, diverse suppliers and local community businesses can have a ripple effect, multiplying the economic impact through additional spending in the community by those businesses and their employees.”
Success stories are prompting more healthcare supply chain leaders to consider future investments in local small businesses. Take for instance Cleveland Clinic and University Hospitals, which introduced a Diversity Equity Inclusion (DEI) Supplier Accelerator last year. The program enabled five diverse-owned companies to learn more about what hospitals need from their suppliers, and for the hospitals to expand their supplier networks while supporting individuals in their communities.
“We spend over $3.5 billion a year, and we’re going to spend that regardless,” said Berlon Hamilton, Cleveland Clinic’s Supplier Diversity Director. “So why not spend it in our communities and make a bigger impact with those dollars by creating jobs and supporting economic stability? As an institution, we can make sure that our patients are not only physically healthy, but economically healthy as well.”
💡 Read more: 4 Best Practices for Healthcare Supply Chains
Disclaimer: The third-party contributor of this piece is solely responsible for its content and accuracy, and the views expressed do not necessarily reflect the opinion of GHX.