Hospital Cost Savings and Waste Reduction Are More Urgent Than Ever In The Time Of Coronavirus
By Jason Pedaci
Chief Commercial Officer, Suture Express
As Covid-19 continues to sweep across the United States, setting daily records in some states and surging in others1, hospitals remain under constant pressure to adapt and respond to the ebb and flow of cases. Some surgeries have been paused in Florida, Texas and elsewhere, and even where the coronavirus has plateaued or is on the decline, hospitals are seeing patients delay non-emergency procedures out of caution or fear.
With the slowdown of surgeries, which account for 60 cents of every dollar in a hospital with $600 million in annual revenue2, and the enormous layout of costs necessary to treat Covid on top of this, we’re already witnessing the impact this financial strain is having on hospitals and health systems across the country. Many have announced furloughs and layoffs, and others, particularly in rural areas, are being forced to close.
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Even before the dust settles and hospital supply chain leaders have the chance to take a breath (and, at this point, no one knows when this may be), the situation will likely intensify the need to explore or revisit cost-savings and waste-reduction initiatives. Ways we could foresee this playing out include:
Physician Preference Item (PPI) tolerance: We may see the philosophy around physician preference items (PPI) soften because of the financial stress hospitals are experiencing. Every health system has some degree of tolerance for PPI — a standard of care that needs to be maintained. But we may see hospitals reel in PPI as they ask themselves, “Do we continue to drive the Mercedes when a different model can still achieve the same results without compromising quality of care and patient safety?”
Supply chain disruption: For a long time, health systems were beholden to their suppliers — they kept all their eggs in one basket for all the right reasons, primarily having to do with cost. But when hospitals are faced with a situation like Covid, and personal protective equipment (PPE) gets put on an allocation system, they’re finding themselves trapped with no option for a backup supplier. While some hospitals will hold on under the current structure, we wouldn’t be surprised to see an increasing number of health systems establish more than one distribution channel.
Raw materials suppliers: Increasingly, hospital decision makers are demanding to know where raw materials for medical supplies and finished goods are sourced from — a topic that’s come up more frequently in recent years. While manufacturers and the global supply chain will tell you that the most cost-effective way to source products is overseas, we’re nevertheless seeing economic proposals that include domestic manufacturing generally and with regard to medical and pharma supplies specifically. As all of this continues, health systems may in the meantime try justifying a pandemic storage if they have enough cash on hand. And that may be a big if. It was just recently reported that a large academic health system is now paying a domestic supplier $9 per surgical gown compared to 40 cents per surgical gown from a supplier in China – 20 times higher.3
Surgery center migration: In the 50 largest markets, the overall surgical procedure volume in ambulatory surgery centers (ASC) increased 22.9 percent nationwide, with 35.8 million outpatient procedures occurring in hospital-based outpatient departments and ASCs annually4. I think we can foresee this trend continuing, if not accelerating, both to reduce the risk of Covid and hospital-acquired infections and preserve the revenue line for hospitals.
Data exchange: Traditionally, most data exchange between distributors and health systems is one-way. If we want to learn from this, manufacturers, distributors and end users have to find better ways to communicate through data sharing so that we can better drive revenue, prepare for disruption and prevent hoarding. What if a distributor was tied into a health system’s Operating Room scheduling system, for example, as a predictive indicator of upcoming demand rather than a reactive indicator typically used in purchasing systems? I suspect there are a few out there who may have achieved this as the healthcare supply chain catches up to other industries, but generally speaking, we’re not there yet. Similarly, savvy health systems want foresight into manufacturing constraints (e.g., raw materials, transportation, etc.) that can cause delays.
New vendor policies and video conferencing: While this doesn’t relate directly to cost, we’re seeing updated vendor policies from many health systems that I suspect will continue. Rightfully so, vendor access is being restricted to what’s only medically necessary, and it’s reasonable to think this will continue. Our world, both healthcare and otherwise, rarely goes back to the “way it was.” Societal events create change, force adaptation and inspire new ways of thinking and doing things. We must adapt accordingly, and we’re already seeing this with the use of video conference meetings, which are filling the void of in-person interaction both professionally and personally. It’s reasonable to think that some degree of virtual workplace models, made possible by Zoom, Google Meet and other video conferencing tools, will remain beyond Covid.
Hospital supply chain leaders are in an unenviable position right now. On top of an already difficult job, they’re now being asked to do more with the same or less as they battle through layoffs and furloughs. Cost savings has always been a mainstay, but the bar’s been reset. Health systems aren’t skipping the $250,000 savings in lieu of the $1 million savings; they’re now picking up the $250,000 savings en route to $1 million. They have no choice.
Hospital supply chain leaders should consider partnering with third-party vendors with the expertise to help them reduce or eliminate the unknowns of the channel. Again, having two or three solid sources that health systems can turn to without running into contractual issues or suffering penalties may be where they need to be in this so-called “new normal.”
Our job, as a vendor, is to be part of the solution. If we can offer some degree of reliability in this chaotic healthcare supply chain environment rather than being another fire that needs to be put out, then we’re doing our job for healthcare providers. To that end, Suture Express’ value proposition is as resonant as ever.
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To learn more about what Suture Express may be able to do for you, visit us at sutureexpress.com or call 877-790-1873.
2 “Losing Revenue from Surgery, ED Operations? There’s an App for That,” Becker’s Health IT, August 8, 2019
3 “Pandemic shift to domestic medical suppliers is costing health systems more, Johns Hopkins VP says,” Becker’s Hospital Review, July 30, 2020
4 “10 Key Trends for ASCs and Outpatient Surgery in the Next 10 Years,“ Becker’s ASC Review, April 2, 2018