The supply chain in healthcare has evolved tremendously over the last two decades, shifting from purchasing management to integrated supply chain management, and in transition from traditional conventional model of demand–supply aggregation model to a smart, intelligent, agile, resilient, and sustainable patient-centric model.
The recent pandemic has exposed our structural weakness in healthcare systems, especially in supply chain, most notably the lack of system resulting in inability to obtain critical supplies on time like PPE kits, ventilators, oxygen, critical medications, etc., in hospitals. The pandemic has also challenged the most fundamental JIT (just in time) model. Prior to pandemic, the healthcare organizations focused merely on cost negotiations to minimize cost, and the supply chain was not built to be efficient and resilient. Covid has brought to light the previously unseen vulnerabilities. The pandemic has had substantial huge negative impacts on supply chains, and it has highlighted the significance and need for greater supply chain efficiency and resiliency.
In this world, no one can predict such disasters, but one can be prepared to face and overcome any such unknown crisis. An agile, efficient resilient system can help us tackle such situations and bounce back to normal state quickly.
Effectively managing supply chain
The major limitation of the current supply chain system practiced in most of the hospitals is that they are not linked with performance, outcomes, and patient safety. The current supply chain department focuses mainly on efficiency in delivering the items on time and on cost savings. They lack a key ingredient that could turn their supply chain operations into a powerful tool for better sustainable outcomes. In today’s evolving healthcare landscape, a successful hospital should have a patient-centric supply chain that aligns with the institutional strategy connected with performance, clinical outcomes, and patient safety.
A patient-centred supply chain is the one that can help us achieve the triple aim goals (better health, better care, lower costs), and the organization’s specific objectives around quality, clinical outcomes, safety, and cost and thereby, achieving the triple bottom line of any organization.
Overcoming the key challenges faced by hospitals
With declining revenues, the healthcare industry is under mounting pressure to drive down costs. And materials cost and manpower cost are increasing day by day. Moreover, recent price fixing by NPPA on products, such as drugs, stents, implants, etc., has reduced profit margins. If we look at our operating margins, it confirms the problem. Unfortunately, we find it difficult to revise the tariff in this competitive world. The only solution is to cut costs and the hospitals must develop effective procurement plans and supply chain strategies to maintain profitability.
Ideally, materials cost in hospitals should not be more than 25–26 percent of the revenue earned. But if we look at the P&L statement of many hospitals, the cost is more than the ideal figure. Cut costs is the slogan echoing in every nook and corner of the healthcare industry, and we need to develop effective supply chain strategies to reduce cost and maximize margins. In healthcare, five percent of cost savings in supply chain might result up to 25 percent increase in turnover.
One of the biggest factors in supply chain costs can be the physicians’ preferences on specific brands and products that might be mainly due to unawareness of the cost impact of the materials that they prefer. Value analysis meetings can be conducted periodically and that will be beneficial for clinicians to understand the costs associated with care. During such meetings, an accurate and validated data on standardization and utilization provide insightful information that plays a key role in decision making for clinical alignment and cost reductions. The standardization on products also helps achieve supply chain value by significantly cutting costs on overhead costs associated with multiple suppliers and multiple products.
We need to bridge the gap between supply chain and clinical stakeholders. It is essential to bring all hospital stakeholders together to understand available options for improving supply chain processes and to quantify the tangible benefits of these options. The decisions taken in a collaborative manner with all stakeholders often result in a higher adherence to them.
Healthcare supply chain management will evolve in the days to come foresee a paradigm shift in healthcare supply chain management in the days to come – from demand and supply aggregator approach to CQO (cost-quality-outcome) approach, fragmented system to an integrated system, technology driven to patient-centricity driven, efficiency-focused to resilience-focused, and profit-driven to sustainability-driven model. A holistic, end-to-end approach not only improves efficiency and reduces costs but also results in better healthcare at lower costs to the patient. The data-driven systematic approach toward intelligent consumption planning and spend management and smart intelligent processes like digitization, supply chain automation and analytics, integration with new disruptive technologies like artificial intelligence, Internet of Things (IoT), application of lean management and six-sigma concepts, health technology assessment (HTA) by conducting cost-benefit analysis, clinical effectiveness and utility analysis will be the future of supply chain in healthcare.
Circular economy is the future of healthcare
The circular economy is a model of production and consumption that strives to maintain the usability of existing materials as long as possible, and at their highest value through sharing, leasing, refusing, rethinking, reducing, reusing, repairing, refurbishing, remanufacturing, repurposing, and recovery. In a circular economy, products are used to maximum extent possible and thereby, waste is reduced to a greater extent and disposal is the last resort.
The healthcare sector can benefit tremendously because it revolves around three fundamental principles, such as sustainability, resilience, and inclusiveness. The circular economy is the future of healthcare, and this approach not only reduces wastes, carbon emissions, and pollution, it also makes hospitals more regenerative, resilient, and sustainable for the future. Thus, the circular economy can help hospitals to save resources and money, which will enable hospitals to invest in other patient care facilities. This also helps patients because it incentivizes hospitals to better use of medical devices and natural resources more efficiently and thereby mitigating climate crisis and making healthcare more affordable for everyone.
Ideal future-fit supply chain model in hospitals
An ideal future-fit supply chain should be a robust, agile, resilient, collaborative, clinically integrated, sustainable patient-centric model, aligned with institutional strategy connected with performance, clinical outcomes, and patient safety to achieve the triple aim goals (better health, better care, and lower costs) by adopting CQO (cost-quality-outcome) approaches across key intervention levers, such as price optimization, process optimization, and consumption optimization, covering all critical areas, such as clinical, operational, and supply chain performance to achieve the triple aim goals of any healthcare organization (better health, better care and lower costs).
A clinically integrated robust supply chain incorporates all appropriate stakeholders into its processes. It takes into consideration the roles of administrators, physicians, clinicians, finance, and allied departments to deliver high-quality, cost-conscious products and services that improve patient outcomes. It requires the involvement of physicians and clinicians because they are the largest consumers of supplies within the hospital. Engaging physicians and educating them will help to determine shared goals and understand the direction and processes of improving the supply chain and patient outcomes. The radical CQO approach helps organizations focus upon total value of care (TVC) as opposed to myopic focus on total cost of ownership (TCO). We must look at total value of care and not just the price of the equipment but across the entire episode of patient care, A robust, sustainable patient-centric supply chain results in integrating clinical and non-clinical stakeholders, improved visibility, eliminating risks, reduces errors, increased efficiency, significant cost savings, continual improvement, revenue growth, improved clinical outcomes and the highest level of patient satisfaction.
4D MUSIC methodology
Innovation and creativity can bring solutions to overcome the pressing challenges that the hospital industry is facing now.
The two major challenges faced in healthcare are the high cost of treatment, including surgical procedures, due to high expensive medical devices and the impact of huge medical waste generated daily that causes greenhouse gas emissions. The healthcare services are responsible for 4.4 percent greenhouse gas emissions. Most of the medical devices are very expensive, which in turn would make these complex procedures unaffordable for majority of the population, particularly in developing countries like India. This has prompted us to innovate a solution, i.e., 4D MUSIC methodology to achieve sustainable healthcare, an approach that addresses all the three elements of sustainability that constitutes the triple bottom line of any organization – (social sustainability (people), economic sustainability (profit or prosperity), and environmental sustainability (planet)). Moreover, it is a 4-dimensional approach that integrates the various functions of a hospital, such as finance, operations, stores, purchasing, and waste management.
The application of the innovative, novel 4D MUSIC methodology results in huge cost savings and significant reduction in the generation of medical waste in healthcare facilities. Thus, the healthcare organization is made more affordable and sustainable – social, economic, and environmental.