Clinical Utilization: The Third Rail in Supply Chain Management

January 21, 2014
iVantage Health

John Whittlesey, Vice President

Supply chain management has been part of the healthcare lexicon for many years now.  The traditional materials management activities have broadened beyond just contracting, warehousing and distribution, and have resulted in tighter pricing, lower per unit costs, improved standardization, and better awareness of each individual’s role in the organization of managing supply costs. So far, so good, right?

With the supply spend ranging anywhere from 15% – 25% of a hospital’s total expenses, I’m puzzled why organizations are confounded by the fact that their supply costs benchmark well above their peers, and there is still so much savings potential across all supplies functions (e.g. surgical supplies, invasive cardiac supplies, blood products, imaging supplies, etc.)?

Clinical Utilization Blog Graphic

Typical Hospital Supply Spend

The next frontier for supply chain management needs to focus on managing clinical resource utilization, which is largely driven by the physicians.  It’s amazing that organizations will do everything in their power to avoid having to talk with, confront, work with, or put standards in place for their medical staff.  Achieving a 1-2% decrease in the cost of a product is great, but the real leverage comes from understanding individual utilization patterns that have real cost implications.

An organization that has higher costs for joint replacement, spinal fusion, or any other high cost diagnosis using expensive implants or devices, for example, will generally benefit more from developing an integrated approach based on demand matching criteria by working alongside the surgeons, than those facilities that try to negotiate lower capitated pricing or limit vendors.

So in addition to the standard performance improvement team working on supply chain management (materials management, surgery, six sigma/PI staff, analysts), I’d advocate including the vendors in the discussions about what product to use on which patient and for what purpose.  Trust me, the sales reps know a lot more about your costs and utilization of your supplies than you do—it’s how they get paid!TM  Bringing vendors into the equation to gain their commitment to your supply management goals is far better than letting them circumvent the system.  And monitoring compliance to the agreed upon criteria on a monthly basis and discussing cases that don’t meet the criteria will keep the group focused on costs with an emphasis on patient outcomes.  The same approach can easily be applied to drug utilization in identified DRGs, high cost imaging procedures using implants or contrast media, blood utilization, or invasive cardiac cases.

While we’re on the subject\”¦I’m always surprised to hear that case management isn’t involved in the OR—they typically only follow the patient post-surgery.  That’s hardly productive, since 80% or more of the clinical resources have already been consumed.  If their job is to manage the clinical care and utilization of the patient, why shouldn’t they be involved with the surgical team up front to monitor drugs, implants, blood, and other high cost items used?

Those facilities that work closely with their medical staff to develop and adhere to clinical utilization monitoring and reporting programs will generally have more effective cost positions and profitability for these high cost and high supply driven diagnoses.  Physicians love data and never like to be the highest cost or lowest quality physician among their peers.  So get over your fear and start working with your physicians!

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