The Healthcare Hub

The Shift to Non-Acute: Opportunity for IDNs to Improve Supply Chain Processes and Savings

posted by: Dave Anderson, Sr. Market Manager, GHX
Friday, March 29, 2019

The movement of care from the acute to non-acute settings is undeniable. Far from just traditional primary care, the activity taking place in outpatient (OP) settings is including more complex surgical procedures than ever before. By as early as next year an estimated 64% of surgical cases will be performed in the OP environment, with 60% of those cases being done in Ambulatory Surgical Centers (ASCs). Some service lines, like Spine and Orthopedics have projected growth in OP locations of 35% or greater over the next 10 years. These numbers will continue to grow as the Centers for Medicare & Medicaid Services (CMS) approves more and more procedures for reimbursement in OP and ASCs.

We recently took a look at integrating academic and non-acute supply chain in several previous posts, exploring the broad value gained and considerations for choosing a technology partner. This is a shift that is projected to continue with momentum and we will continue to dive into the progress.

The potential impact to Integrated Delivery Networks (IDNs) is measurable, as reimbursement rates for the same procedure in an OP setting can be significantly lower than that of inpatient (IP), especially in ASCs. Since CMS set the ASC reimbursement rate at 65% of that of a Hospital Outpatient Department (HOPD) in 2007, these rates have been continuing to fall to an average of 49% in 2017. In response to lower revenue, hospital systems must become more efficient. With med/surg supply spend typically being the second highest spend category behind labor for most providers, there is opportunity to find these efficiencies in the management of supply chain activities across the sub-acute network.

GHX is working with many IDNs looking for opportunities to improve their supply chain processes and capture savings in their OP practices. Though providers are taking various routes, there’s a general pathway of activities we’re beginning to see emerge. These activities include:

  • Spend Analysis
  • Spend Capture and Contract Optimization
  • Automating procure to pay processes
  • Analytics for identifying improvement opportunities

Spend Analysis

The first step of any process improvement initiative should be to identify the problem and extent of the challenge to fix it. In the midst of the recent frothy M&A market, many IDN executives have found themselves with a network of diverse and dispersed facilities that in many cases extends beyond familiar markets and service lines. Servicing these locations presents an unfamiliar challenge in logistics, purchasing, and day-to-day operations.

Since it takes time to integrate new locations onto the corporate Enterprise Resource Planning (ERP) system, supply purchases are often being made at the individual practice level. The result is off-contract spend that isn’t leveraging corporate contracts and discounted pricing. In lieu of these practices being integrated with the corporate systems, providers are utilizing basic reporting based on purchase order history. An analysis of purchase order history by location can quickly uncover opportunities to capture spend that’s not being made under current contracts. Armed with this information the IDN can educate the OP practice on the economic impact of their purchasing decisions, laying the groundwork for a candid conversation about the importance of spend management.

Spend Capture and Contract Optimization

Gaining an understanding of this activity and performing simple analysis can enable a provider to quickly identify opportunities for savings by assuring sub-acute purchasing is done under the contracts the organization has worked hard to negotiate and establish. The next step is to capture this sub-acute spend purchasing through approved vendors under the terms of corporate contracts. Some providers are using the 80/20 rule to capture a meaningful amount of savings through a manageable number of items being purchased through specified vendors.

Automating Procure to Pay Processes 

After spend savings opportunities are identified and initial purchasing compliance begins, the next step providers are taking is to work on improving the efficiency of how their sub-acute locations are managing their purchasing to pay operations. Adding new locations to the corporate ERP systems can be costly and time-consuming. Most of these practices are being managed by personnel who are doing these activities while managing multiple other responsibilities, often including clinical support. They’re not trained in supply chain management, nor familiar with corporate ERP systems. In order to achieve adoption and utilization, technology employed must be simple and efficient for time-strapped multitaskers to access and use. If the solution is too complex, users will resist.

The solution for an increasing number of providers is to utilize a procurement platform that serves as an “ERP-lite” system, automating and simplifying many of the procure to pay activities of the practice. These systems, offered by 3rd party vendors, have features such as a consumer shopping experience, integration to GPO contracts, punchout to vendor catalogs, inventory management, PO to invoice matching, and reporting that provide powerful functionality in a format purpose-built for the sub-acute environment. Using these systems can translate to efficiency improvements while giving the IDN increased visibility to the purchasing operations of the practice.

Analytics for Improvement Opportunities

An output of the procure to pay platforms described above is measurable data about what is being purchased, by whom, from where, and for how much. This data can be delivered through reports generated directly out of the system or fed into 3rd party analytics systems the IDN is using, allowing for comparative analysis to other practices of the IDN. This analysis can inform deeper operational improvement based on trending information over time. 

The flip side to lower reimbursement rates in the OP setting is that these are generally less complex operational environments. With a fewer number of items purchased, through a fewer number of vendors, sub-acute locations present the opportunity to consolidate spending and improve supply chain operations outside the complexities of the acute processes and systems. IDNs see an opportunity to leverage this more controllable environment to inform value-based care initiatives and reimbursement strategies.

Rather than taking a "big bang" approach, waiting to fully integrate the OP locations under the complexity of the IDN umbrella, prudent IDNs are recognizing the opportunity to make incremental improvements applying simple strategies and lightweight technology available to them now.

In the next post, I’ll begin to dive deeper into best practice methodologies for each of the activities touched on here. 

Questions or comments? Let’s connect Dave Anderson