The Impact of Reform and the Recession on Supply Chain Management
An Executive Thought Leader Forum
A key objective of the Patient Protection and Affordable Care Act’s (ACA) new reimbursement and payment methodology is to shift the nation’s healthcare delivery system from one that is paid based on volume to a payment system based on value. To cross the chasm between a fee-for-service healthcare payment system to a value-based system hospitals are evaluating their appetite for risk and their operational readiness to manage it. A critical component to future success is the hospital’s ability to deliver high-quality care in the most cost-effective manner possible.
On August 6, 2012, the Association for Healthcare Resource & Materials Management (AHRMM) hosted an Executive Thought Leader Forum to discuss the transforming healthcare environment. The Executive Thought Leader Forum was sponsored by VHA, and held during the AHRMM 50th Annual Conference in San Antonio, Texas.
Seasoned healthcare supply chain executives began the session by reviewing the results of the 2012 Healthcare Provider Executive Supply Chain Survey conducted by business consultant Jamie Kowalski.
The survey discussion focused on the impacts of healthcare reform and the recessionary economy on supply chain management.
Following the review of survey results, Jack Shaw, a business technology futurist, discussed opportunities for leveraging technologies to streamline and increase efficiencies in healthcare supply chains.
The third presentation and discussion was facilitated by Natasha Goburdhun, vice-president of AHA affiliate Health Research and Education Trust (HRET). Goburdhun and the executive thought leaders explored the changing environment and its implications for hospitals and care systems of the future. The presentation included a new report from the American Hospital Association (AHA) outlining core strategies and competencies that will benefit organizations as they navigate a rapidly changing future.
Executive Thought Leaders Profile
The perspectives presented by executive thought leaders participating in this AHRMM event were derived from their many years of supply chain experience and a wide diversity of perspectives and experiences. More than 70 percent of participants have worked in the supply chain profession for over 20 years, and all have worked in the profession for more than ten years. Nearly 70 percent of the participants are vice presidents or senior vice presidents. Sixty seven percent work for single hospitals with an integrated delivery network of multiple sites of service.
Nearly nine in ten Executive Thought Leader Forum participants are responsible for budgets exceeding $100 million. Of those, a quarter of the executive thought leaders have budgets over $250 million, and three in ten are responsible for budgets exceeding $500 million. Nine in ten executive thought leaders consider themselves health care generalists, with expertise and experience that is used and valued across the enterprise, as opposed to being specialists whose focus is on a narrow dimension of the system.
Findings of the 2012 Healthcare Provider Executive Supply Chain Survey Reform and Recession - The Impact on Supply Chain Management
Jamie C. Kowalski, FACHE, FAHRMM, Jamie C. Kowalski Consulting, LLC
Jamie C. Kowalski Consulting, LLC, in collaboration with the Marquette University College of Business Administration, Center for Supply Chain Management, conducted the 2012 Healthcare Provider Executive Supply Chain Survey, “Reform and Recession - Impact on Supply Chain Management.” The survey, conducted since the 1980s, is designed to compare and contrast views on critical supply chain and healthcare issues, and prompt strategic discussions and action plan development.
The survey was distributed to C-level executives and supply chain leaders. A wide range of organization sizes and types (hospitals and integrated delivery networks) were represented by the 257 completed surveys, matching industry provider demographics.
The Executive Thought Leader Forum discussion began with a presentation by Kowalski, who summarized the survey’s findings and facilitated a discussion about the results. Below are some of the key findings included in his presentation:
- Reimbursement, capital, and revenue channels are leaders’ most critical concerns.
- Reform and the recession bring opportunities to advance the supply chain as a critical strategic resource and contributor.
- Supply chain leaders and C-level executives lack alignment on costs, and the impact of the supply chain on total operating expenses.
- A variety of supply chain tactics are important, including enhancing physician collaboration, key supply chain analytics, an organization-wide commitment to supply chain optimization, and integrating and mining data.
- Support for and understanding of the supply chain varies throughout organizations.
- Supply chain leaders and C-level executives disagree on best sources of supply chain savings.
- GPOs are one strategy, but not the only one.
- C-level executives commit their support to supply chain optimization.
- There is a lack of alignment about the impact of the supply chain on employee satisfaction and corporate performance.
- C-level executives rate the supply chain as more strategic than do supply chain leaders; supply chain leaders believe they have a greater impact on quality of care.
- Leaders support increased physician engagement to optimize the supply chain, but recognize that change may be slow.
- Written strategic plans for the supply chain are increasing.
- There is an opportunity to utilize supply chain metrics to measure performance.
- C-level leaders lack confidence in supply chain leaders’ preparedness for reform and the recession.
- C-level executives and supply chain leaders differ in their opinions of the necessary skills, attributes, and qualifications for supply chain leadership.
- There is an opportunity to elevate the importance of the supply chain and its impact on organizational success.
Reimbursement, capital, and revenue channels are leaders’ most critical concerns. Kowalski opened the survey discussion with a review of C-level executive and supply chain leaders’ key concerns. The two groups share the same top five concerns, which include: 1) Medicare reimbursement reductions; 2) avenues for rate and revenue increases; 3) capital access and cost of capital; 4) capacity to handle increased volume of formerly uninsured patients; and 5) adequate nurse staffing. In 2008, Medicare reimbursement was C-level executives’ number three concern but it was not on supply chain leaders’ 2012 list of top concerns. The importance of reimbursement has now become center stage for both groups, and is the number one concern for C-level executives and supply chain leaders alike.
In the same period, access to capital and its cost moved from number eight to number three on leaders’ list of top concerns. Kowalski projected that the shortage of physicians and/or the geographic distribution of physicians will soon join with the capacity to handle the increased volume of formerly uninsured patients and adequate nurse staffing in survey results as one of leaders’ top five concerns.
Reform and the recession bring opportunities to advance the supply chain as a critical strategic resource and contributor. Kowalski and the executive thought leaders discussed the overall impact of reform and the recession on supply chain management. Key findings included:
- Ninety five percent of C-level executives surveyed believe that the supply chain must be optimized.
- Ninety three percent of C-level executives believe that the scope of what is currently termed “supply chain” will broaden. These results were closely aligned with responses by supply chain leaders.
- More than eight in ten C-level executives believe that the supply chain will become a “Top 3 Initiative” or “Source to Improve Margins.”
Most importantly, the responses to these questions about the impact of reform and the recession on supply chain management represent an opportunity for advancing the supply chain as a critical strategic resource and contributor to organizations’ success.
Supply chain leaders and C-level executives lack alignment on costs and the impact of the supply chain on total operating expenses. Despite defining supply chain costs as all-inclusive (food service, pharmacy, engineering, and all employees engaged in supply chain activities, tasks, and responsibilities), more than half of the C-level executives and 40 percent of supply chain leaders surveyed believe that total supply chain expenses are less than 25 percent of their organization’s total operating expenses.
The executive thought leaders discussed possible reasons behind executive perceptions that supply chain expenses are such a small percentage of total operating expenses. Some leaders suggested respondents did not read the question closely and compared supply chain costs to revenue, which is the more common comparison and possible mindset of respondents. It was also suggested that the question of supply chain costs be posed as a comparison of costs from one point in time to another, to illustrate the growth in supply chain importance and value to the organization.
Kowalski noted that one purpose of the survey is educational, prompting respondents who don’t have information or answers to question why they don’t know the answers to the questions, and to consider the implications of not having key knowledge or data. He also noted that accurately capturing all costs associated with the supply chain is behind the perception that the scope of supply chain will broaden.
C-level executives and supply chain leaders are similar in their perceptions of whether their organizations can connect and analyze supply expenses as they relate to clinical outcomes. In both groups, approximately four in ten believe this connection can be made, although supply chain leaders’ belief in the connection is slightly stronger than C-level executives.
Which supply chain tactics are best? Kowalski presented a variety of areas identified as important supply chain tactics by both C-level executives and supply chain leaders.
- Enhancing collaboration with physicians is most important. Both C-level executives and supply chain leaders ranked enhancing collaboration with physicians on selection, utilization, and costs as the most important supply chain tactic (96 percent of C-level executives and 98 percent of supply chain leaders ranked this as highly important).
- Supply chain analytics tools are important, but information technology may be an impediment. The second most important tactic, ranked by more than nine in ten C-level executives and supply chain leaders, was obtaining and providing supply chain analytics tools. Kowalski observed that despite its importance as a tactic, in his earlier telephone interviews with C-level executives and supply chain leaders, nearly everyone advised him that they lacked the information technology tools to complete the analytics needed to link to and demonstrate clinical outcomes.
- An organization-wide commitment to supply chain optimization is needed. A high majority of C-level executives identified an organization-wide contribution to supply chain optimization as an important tactic, and most supply chain leaders agreed. An organization-wide contribution was defined as the engagement of clinicians, executives, and others as partners or participants who view the supply chain holistically and understand their role or contribution to collectively optimizing supply chain efforts.
- Integrating and mining data is important. Ninety three percent of supply chain leaders believe that integrating and mining data is an important tactic, and 87 percent of C-level executives identified it as important.
Support for and understanding of the supply chain varies throughout organizations. In response to the question “Do individuals in the organizations understand supply chain and their role as a positive or negative contributor?,” executive thought leaders observed that multiple cultures exist within an organization, and cooperation varies within the different cultures. Leaders also observed that often times supply chain leaders have not supported, or have not had the tools to be able to support their efforts with the evidence-based information needed to convince clinicians to change preferences.
Executive thought leaders commented that the supply chain competes with multiple clinical priorities and a scarcity of time for many individuals, which may lower its organizational profile and importance.
Supply chain leaders and C-level executives disagree on best sources of supply chain savings. According to the survey, C-level executives ranked the best sources of savings in the following priority order: 1) reduced product prices; 2) reduced product utilization; 3) increased use of GPO contracts; and 4) improved value analysis. Supply chain leaders, however, ranked reduced product utilization as the best source of savings followed by improved value analysis. They ranked reduced product prices as their third priority followed by increased use of GPO contracts.
Kowalski observed that improved value analysis dropped from its number one ranking by C-level executives in 2008, to fourth in importance as a source of savings. Price reduction, however, moved from third in importance to 2012 AHRMM Executive Thought Leader Forum first. Reduced product utilization also increased in importance, having previously been ranked sixth. GPO contracts were considered the second best source of savings in 2008.
In analyzing the discrepancies between current C-level executive and supply chain leader rankings, it was noted that “reduced” product utilization should really be “appropriate” product utilization. Even with the lowest possible price, if utilization is inappropriate the cost will remain too high. Supply chain leaders also noted that with commodities, there is a point at which the price is as low as it can possibly be, and they must look at reduced utilization to capitalize on further savings. Supply chain leaders also observed that in today’s environment, many C-level executives and CFOs are focused on reduced reimbursement and product prices; however, leaders with a longer-term outlook and greater financial stability in their organizations consider physician preference first and utilization second.
GPOs are one strategy, but not the only one. C-level executives indicated that use of GPOs are only one of multiple strategies in supply chain management and cost containment. In addition, C-level executives indicated that they personally participate with GPOs to access executive level information.
C-level executives commit their support to supply chain optimization. Early in the survey, C-level executives indicated that optimizing the supply chain is necessary. When asked the ways they might support the supply chain, more than nine in ten C-level executives responded that they will invest their own time and resources to provide support. Eighty eight percent indicated they will promote the supply chain as a critical strategy and 72 percent will advocate for investment in the supply chain.
To capitalize on this support, executive thought leaders suggested offering executives specific suggestions on how to best support the supply chain (for example, support supply chain efforts to manage physician preference items in meetings with physicians). Despite survey results, some executive thought leaders indicated that even with a demonstrated return on investment, supply chain initiatives are often not well supported by C-level executive leadership.
There is a lack of alignment about the impact of the supply chain on employee satisfaction and corporate performance. Nine in ten supply chain leaders believe that managing the supply chain positively impacts physician and nurse satisfaction; however, these factors received only a 71 and 75 percent C-level executive ranking of importance. Executive thought leaders commented that while they may not be credited with a direct correlation to physician or nurse satisfaction, the supply chain often tends to be a potential cause of dissatisfaction.
C-level executives rate the supply chain as more strategic than do supply chain leaders; supply chain leaders believe they have a greater impact on quality of care. Ninety two percent of C-level executives believe that the supply chain is a strategic aspect of the organization, compared with 82 percent of supply chain leaders. Conversely, only 82 percent of C-level executives indicated that the supply chain improves quality, while 92 percent of supply chain leaders believe they make a difference in the quality of care provided.
Leaders support increased physician engagement to optimize the supply chain, but recognize that change may be slow. Ninety five percent of C-level executives indicated their support for the engagement of physicians in utilization and spending reductions (up from 88 percent in 2008). Ninety five percent also recognize that physician preference items (PPI) are an influence on overall operating costs. Both C-level executives and supply chain leaders recognize that addressing PPIs will cause tension between physicians and supply chain representatives.
Despite the acknowledged influence of PPIs on operating costs, only a small percentage (five percent) of supply chain leaders and one third of C-level executives indicated that the supply chain is involved in their organization’s physician recruitment, negotiation, and orientation. And fewer than five percent of respondents indicated that physician compensation is tied to supply chain performance measures. Kowalski and executive thought leaders alike believe that it may be years before physician performance evaluations consider supply chain factors.
Written strategic plans for the supply chain are increasing. The use of written strategic plans is on the rise, with more than four in ten C-level executives and supply chain leaders indicating that they have a written strategic plan for the supply chain. Executive thought leaders suggested that C-level executives, supply chain leaders, customers, GPO representatives, and other supply chain partners be engaged as stakeholders in the supply chain’s strategic plan development.
The top initiatives, in order of ranking, that are reported as being included in written supply chain strategic plans include:
- Contracting, medical supplies - 98%
- Contracting, capital equipment - 95%
- Managing storeroom and warehouse inventory - 93%
- Distributing supplies - 87%
- Managing clinical department inventory - 85%
- Contracting, maintenance, and construction - 82%
- Managing expenditures on consumables - 75%
- Contracting for drugs - 70%
When asked about the key challenges that supply chains confront in executing their strategic plans, PPIs topped the list, with inadequate support from physicians ranking third.
A distant second was the need to transition from transactional supply chain management (“cut the purchase order”, “send it to the GPO”, “get the lowest price”) to strategic thinking and management.
Other barriers to the supply chain’s strategic success included a lack of supply chain technology tools and data; the need to reorganize the supply chain within a single consolidated model; lack of supply chain expertise in small hospitals; advancing medical technology devices; keeping pace with healthcare changes; and organizational structures which prevent organization-wide engagement.
There is an opportunity to utilize supply chain metrics to measure performance. Kowalski challenged executive thought leaders regarding the low number of C-level executives (53 percent) and supply chain leaders (56 percent) who indicated that they have the metrics needed to measure supply chain performance. Executive thought leaders believe that most organizations are concentrating their focus on new standards and quality outcomes measures that are driven by reform, but are disconnected from the metrics that the supply chain is measuring.
Executive thought leaders also indicated that although they know what they want to measure, they don’t always have the dedicated resources or processes in place to obtain the information needed. It was also noted that simply having the data or metric is not enough; supply chain leaders need to identify the “so what” of the data. They need to present the implications of the measures and why they are meaningful to the organization and its long-term success.
C-level leaders lack confidence in supply chain leaders’ preparedness for reform and the recession. Although 84 percent of C-level executives believe their supply chain leader has the skills and experience to address reform and the recession, they are less confident (73 percent) that the supply chain organization is ready for the impacts of reform and the recession. They are even less confident (67 percent) that supply chain leaders are ready to advance, which may be attributed to an indicated lack of programs and resources associated with supply chains. Only 58 percent of C-level executives and 65 percent of supply chain leaders indicated the presence of necessary programs and resources.
C-level executives and supply chain leaders differ in their opinions of the necessary skills, attributes, and qualifications for supply chain leadership. C-level executives and supply chain leaders generally ranked the leadership attributes and skills of supply chain in inverse order of importance. A big-picture vision, communication, and collaboration with physicians, delivery of results, and leadership capability were the attributes and skills most highly ranked by supply chain leaders (98-99 percent), but which received the lowest ranking by C-level executives (91-95 percent).
Supply chain leaders ranked negotiation and communication and collaboration with executives among their lowest in importance (95 and 93 percent respectively), yet C-level executives gave negotiation skills their highest score (98 percent) followed by communication and collaboration with executives (97 percent).
Supply chain leaders and C-level executives are in close agreement that 10 years or more of hospital experience and AHRMM membership and certification are the most important qualifications for supply chain leaders. At the same time, supply chain leaders place more importance on an MBA degree and non-healthcare supply chain experience than C-level executives do.
There is an opportunity to elevate the importance of the supply chain and its impact on organizational success. As discussed in 2011, C-level executives indicated that supply chain topics are rarely offered at ACHE meetings because the supply chain reports to a lower position than the CEO. Because the topic is someone else’s responsibility, there is a perception that the importance of supply chain management is not as high as other CEO issues. In 2011, executive thought leaders recognized that because the importance of the supply chain is often minimized, C-suite executives often fail to realize the critical role it plays, or to benefit from the significant strategic contributions supply chain management has to offer.
Executive thought leaders suggested that a future survey query the CEOs’ most important functions or responsibilities, and then link supply chain contributions to successful achievement of those functions. The executive thought leaders expressed that the most critical concerns for CEOs are margins, shrinking revenues, and the need for new sources of revenues. The challenge for supply chain leaders is to ensure recognition of the fact that each $1 million in reduced supply chain costs increases revenue by the same amount, and secure the approval to implement the strategies necessary to reduce supply chain costs across the enterprise.
Leveraging Emerging Technologies to Streamline the Healthcare Supply Chain
Jack Shaw, President, Breakthrough Business Technologies
Jack Shaw, President of Breakthrough Business Technologies facilitated a discussion among executive thought leaders focused on how implementing strategies for standardization, specialization, repetition, and automation can help supply chain leaders achieve success. Citing the Gartner Group’s annual assessment of top supply chain organizations, Shaw called thought leaders’ attention to the strategies used by the most successful organizations. Across all industries, those with the greatest supply chain success:
- Build resiliency into the supply network;
- Implement robust risk-management strategies; and
- Adopt complexity optimization strategies to eliminate low-value features, services, and network capacity.
They also use a globally architected, regionalized approach to improve customer responsiveness.
The three stages of supply chain collaboration. Shaw walked through three stages of supply chain collaboration with executive thought leaders, sharing information about the challenges in achieving successful collaboration.
- Stage One of supply chain collaboration is characterized as supply chain management and key suppliers’ recognition of the power of collaboration. It requires securing senior executive support and encouragement, and acknowledgment that it will take significant time and effort.
- Stage Two is represented by the parties having a supply chain strategy with collaboration as a core element, and working together to develop the trust required to openly share data and strategies, and mutually planning for sustained effort.
- Stage Three is achieved when parties mutually develop jointly agreed to key performance indicators (KPIs) to measure success against targets, and equitably shared savings from better fill rates, lower inventories, lower cost, and higher economic profit.
The majority of the executive thought leaders believe that they fall in Stage Two of supply chain collaboration.
Twenty nine percent of executive thought leaders indicated they are at Stage One, nearly two-thirds of the audience indicated they’ve progressed to the Second Stage, and only five percent indicated they have achieved Stage Three.
The benefits of supply chain collaboration. The outcome of strong collaboration is the recognition of demand-driven value networks and the complexity of data and information as opposed to the one dimensional supply chain. Shaw shared with executive thought leaders an example of a hierarchy of supply chain metrics developed for assessing and forecasting demand, and working through diagnostic and corrective metrics (See Figures 1 and 2).
After walking through demand forecasting methods, Shaw discussed with the group examples of structured methodologies for demand forecasting. One executive thought leader noted that his organization was collaborating with suppliers to map all “touch points” in the supply process, including shipping locations. Using the information, the collaborators are better able to find points of waste. Savings are shared back with the collaborating suppliers.
Shaw explained that demand forecasting can and should be used to improve responsiveness. As rates of responsiveness are improved, the need for increasing sophistication in demand forecasting is lessened because the system can respond faster.
Using algorithmic technique to optimize systems. Using General Mills, Church & Dwight (Arm and Hammer), and Coca Cola as examples, Shaw described how companies are using algorithmic techniques to optimize supply chain logistics management. Using algorithmic techniques, the companies have been able to increase shipping quantities per truck, space utilization, and more to reduce their costs by millions of dollars per year.
Shaw advised leaders that they cannot have a single supply chain. Supply chains should be segmented as a strategy. While they are coordinated and leveraged where possible with shared administrative resources and information technologies, each will have separate strategies based on whether they are clinical, nutrition, or another category. The various segments must also be prioritized.
It was suggested that the supply chain can better analyze distribution channels for improvement opportunities. One executive thought leader indicated his organization had assessed 7,000 of their distribution centers, categorizing them by volume, dollar, and frequency. Understanding those factors enabled them to determine the best means of managing the distribution component of the supply chain.
Managing supply chain risk. Shaw advised executive thought leaders that dynamic risk management requires systems that are capable of understanding plans and goals that can connect information from key sources to identify potential threats to those plans and goals, and which can recommend actions to either reduce or prevent predicted risks. These systems require continuous monitoring and planning.
Shaw cited risk management studies which show that the areas of risk that pose the greatest threat are those with little likelihood of occurrence, because plans can be and are made for things that are perceived as most likely to occur.
Hospitals and Care Systems of the Future
Natasha Godburdhun, HRET Schelling Point Action Research Alignment Results for the Association for Healthcare Resource & Materials Management,
Natasha Goburdhun, Vice President of Healthcare Innovation with AHA’s Health Research and Education Trust (HRET), shared [with executive thought leaders] key findings from the HRET/AHA survey about hospitals and healthcare systems of the future, linking those findings with the viewpoints of supply chain leaders.
Must-do strategies for success. Referencing the AHA’s September 2011 report, Goburdhun reviewed the environmental forces driving change, including the increasing complex tasks of demonstrating greater value, quality improvement, efficiency, and coordination across departments, hospitals, and the care continuum. She shared ten “must-do” strategies that have been identified to help hospitals cross the chasm from a volume-based system of care to a value-based system. Goburdhun expressly called executive thought leaders’ attention to the fourth strategy, “Efficiency through productivity and financial management,” as the strategy that most directly engages supply chain opportunities.
Goburdhun raised questions about how to best engage physicians in conversations about productivity, efficiency, and the supply chain, and the need to establish new relationships and trust to succeed in a system with global payments and changing reimbursement models. She echoed Shaw’s earlier message regarding the critical importance of collaboration in assembling a cohesive, coordinated system of care.
CEOs and AHRMM leaders are closely aligned with regard to the future environment and must-do strategies for success. In partnership with SchellingPoint, HRET conducted research to assess:
- Vision - what hospitals will look like in the future;
- Assumptions - where hospitals are now; and
- Barriers - what is preventing hospitals from reaching their desired vision.
One of the findings was the extreme like-mindedness among CEOs and AHRMM members regarding the survey statements. Specific to AHRMM leaders and CEOs, survey responses were closely aligned regarding the future environment and must-do strategies for success. The greatest divergence in alignment of responses was found in the section of statements regarding barriers to success, particularly in relation to hospital-specific statements. Goburdhun believes the lack of alignment results from a difference in perceptions of barriers from the front line staff to the CEOs. She recommends robust, open conversations be held to promote better alignment if hospitals are going to succeed in achieving their visions for the future.
Ideas to achieve more risk-bearing relationships. Goburdhun asked executive thought leaders what the survey results mean for the supply chain, and how they believe they’ll be able to achieve more risk-bearing relationships. One leader stated their tactic has been to repeatedly ask “What are we doing to improve quality? What are we doing to improve patient satisfaction? What are we doing to reduce supply costs?” The questions have helped to clarify the organization’s position and identify actions.
Intermountain Health Care has made a commitment to the finance markets and their health plans to cap their health plan rates for five years. To achieve the promised limits, the organization’s executives have developed a detailed plan that has required greater senior level support for clinical and physician integration.
Most organizations are half-way to volume-based economics. Goburdhun described the necessary transition that hospitals must make from being volume-based to becoming value-based organizations (See Figure 3). When polled for their views regarding their own organization’s progress from the volume-based first curve economics across the chasm to the value-based second curve, one in five thought leaders believe they are just starting to emerge out of the first curve. Nearly two thirds of the executive thought leaders indicated that they are half-way between the two curves, and ten percent indicated they are approaching the second curve. None of the executive thought leaders believe that they are fully into the value-based second curve.
In response to the question “What will it take for the supply chain to support the organization’s success into the second curve?”, executive thought leaders had the following observations about requirements for moving to the second curve:
- Clinical integration, defined as an integrated team, includes the supply chain, and requires working together to address population health management.
- A “different seat at a different table,” which will require greater assertiveness by supply management to demonstrate how supply management contributes to key performance indicators.
- Improved data tools that will assist supply chain leaders to link costs to critical outcomes and find variations and waste in processes.
- Supply chain and clinical team collaboration to achieve common goals; as supply chains delve further into analytics and quality outcome data, clinicians will be key to accurate interpretation of the data.
- Forward thinking leadership, which will invite and include the supply chain in senior level strategic discussions and efforts.
- Potential consolidation by small or rural hospitals to access the resources required to advance.
- A monthly “clinical close,” comparable to a monthly financial close, at which clinical indicators and organizational progress are reviewed.
What can AHRMM provide? Executive thought leaders had the following suggestions for ways AHRMM can assist supply chain management:
- Provide education and information. The supply chain needs a deeper understanding of the industry’s clinical component. They need detailed clinical information to be able to map the clinical people, equipment, and other resources into supply chain processes.
- Education is also needed to close the gap between C-level executives’ perceptions of the supply chain, and what the supply chain actually does.
- Develop means for capturing total supply chain expenses, including tools for measuring outcomes and for accounting for acuity.
- Assist in equipping suppliers and the supply chain to respond to the continuum of care.
- Facilitate a collective forum, bringing together supply chain leaders with key hospital leaders representing various functions to promote cross-functional understanding, collaboration, and alignment.
- Continued gap analysis by AHRMM to ensure the availability of literature, programs, tools, and other resources that address cost and quality, outcomes and reimbursement, and continuum of care.
- Share information and tools that link supply costs with revenue and decision-making.
- Raise awareness of the need to strengthen the quality and accuracy of data in EHR systems, including recognition that the high percentage of freeform text prevents its quantifiable reporting, and thus its benefit to supply chain.
Responding to Reform: Questions and Issues to Explore
Larry Walker, President, The Walker Company Healthcare Consulting
Following the three presentations and discussions, Larry Walker, President, The Walker Company Healthcare Consulting, posed nine questions to the executive thought leaders. Participants responded to each question anonymously, using audience response technology. An overview of the key themes identified is outlined below. When appropriate, a comparison to the results from the 2011 Executive Thought Leader Forum is included.
Executive Thought Leaders agree that reducing costs is the area that the supply chain has the greatest opportunity to play a significant role. In both the 2011 and 2012 thought leader participants identified the two areas where the supply chain has an opportunity to play the most significant role. In both 2012 and 2011 the most-selected areas were “reducing costs through smarter decisions,” and “reducing costs through greater efficiency.” In both years improving quality and patient safety was the third-highest selected opportunity for the supply chain to play the most significant role. Few selected improving reimbursement or advancing clinical integration.
Improving the value analysis process and reducing product utilization have the greatest potential for supply chain savings. Half of the 2012 executive thought leaders selected “improving the value analysis process” as the greatest source of supply chain savings. The majority of the remainder identified “reduced product utilization” as the greatest source of savings. Few selected reduced product prices, and no one selected an increased use of GPO contracts as primary sources of supply chain savings.
The most significant issue facing executive thought leaders’ organizations is the need to eliminate organizational silos, and engage the entire organization. When asked which two challenges amongst a list of nine are most significant in their organization, more than sixty percent selected “engaging the entire organization and eliminating silos.” The second-most selected challenge is a lack of supply chain technology tools and data, followed by physician support and the shift from a transactional to strategic view of the supply chain.
The most important C-suite relationships for supply chain executives are with the COO and CFO. When asked which level in the C-suite is most important for supply chain executives to have the closest relationship with to maximize the contribution and value of the supply chain, thought leaders identified the Chief Operating Officer and the Chief Financial Officer. Few of the executive thought leader participants believe the relationship with the CEO is most important.
Most executive thought leaders believe they engage effectively with senior leaders on strategic issues. More than eighty percent of the executive thought leader participants believe that they engage either “effectively” or “very effectively” with C-suite senior leaders on strategic issues. The remainder indicated that they engage with those senior leaders “somewhat effectively.”
Executive thought leaders effectively engage senior leaders by developing innovative ideas, and by becoming a member of the senior team. Executive thought leader participants who indicated that they have engaged senior leaders very effectively or effectively were asked how they have done so. The majority of the executive thought leaders indicated that they have developed innovative ideas for cost reduction or other efficiencies. The second-highest reason for effective engagement was supply chain executives becoming a member of the senior team. A few of the executive thought leaders characterized their engagement as driven by requests from senior management.
Supply chain leaders are not highly involved in their organizations’ physician practice development. Most executive thought leaders indicate that they are not highly involved in their organization’s physician practice development; the polling results indicate that supply chain leaders are less involved now than they were a year ago. In 2011, fifteen percent of the respondents indicated that they were highly involved and half of the respondents indicated that they are somewhat involved; in 2012 five percent indicated that they are highly involved, and less than one quarter indicated that they are somewhat involved. The majority of the 2012 respondents selected that they were either not very involved (providing little input), or not at all involved in their organization’s physician practice development.
Supply chain leaders’ competencies that can most benefit other areas of their organizations are their ability to conduct a value/ROI analysis, and ability to plan, develop, simplify, and execute process efficiencies. In both 2011 and 2012 executive thought leader participants identified the two supply chain competencies that can most benefit other areas of the organization. In 2012, the highest rated area was value/ROI analysis, followed closely by the ability to plan, develop, simplify, and execute process efficiencies. While those were the two highest selected areas in 2011 as well, the order of importance was reversed. “Knowledge capital” that can be leveraged by others was selected by many in 2012, and only a few in 2011; and only a select few selected long range planning in either year.
Supply chain leaders would most like to delve more deeply into connecting the supply chain to clinical outcomes, and devise supply chain strategies to respond to reform and the recession. At the close of the Executive Thought Leader Forum, participants were given a list of eight items and asked to select which two areas they would like to delve into more deeply. The highest-selected area was “connecting the supply chain to clinical outcomes,” followed closely by “supply chain strategies to respond to reform and the recession.” The third-highest selected area was “transforming from a transactional to a strategic supply chain.” Less than twenty percent selected the remaining areas, including finding ways that AHRMM can support CEOs’ visions of hospitals and care systems of the future; supply chain optimization; supply chain as a resource to improve margins; supply chain collaboration; and supply chain risk management.
Executive Thought Leader Forum participants identified several initiatives or improvements they believe will assist them and their organizations in their ongoing responses to healthcare reform and delivery system transformation.
2012 Survey Results: Reform and Recession-Impact on Supply Chain Management
- Develop initiatives designed to advance the supply chain from a transactional program to a strategic resource and contributor to organizational success.
- Develop action plans to address misconceptions and mismatched views identified in the survey.
- Use well-developed business cases when presenting requests and seeking support of the CEO.
- Quantify the supply chain value to projects assigned to C-level executives.
Leveraging Emerging Technologies to Streamline the Healthcare Supply Chain
- Build resiliency into the supply network, including implementing robust risk management strategies, and “sense and respond” capabilities to recover successfully from disruptions.
- Adopt complexity optimization strategies, including eliminating features, services, and network capacity that are not adding value to customers.
- Improve responsiveness to customer needs, using a globally architected, regionalized approach to supply chain network design.
Hospitals and Care Systems of the Future
- Address gaps in alignment of thinking between supply chain leaders and C-level executives, particularly in relation to barriers identified in the AHA/HRET survey.
- Strengthen integration between the supply chain and clinicians, specifically in working together to address population health management.
- Promote supply chain and clinical team collaboration toward common goals, recognizing that clinicians will be key to accurate interpretation of the data as the supply chain delves further into analytics and quality outcome data.
- Assume a “different seat at a different table,” and demonstrate how supply management contributes to key performance indicators.
- Pursue improvement in data tools that will assist supply chain leaders to link costs to critical outcomes and find variations and waste in processes.
- Support forward thinking supply chain leadership in senior level strategic discussions and efforts.
- Evaluate implementation of a monthly “clinical close,” comparable to a monthly financial close, at which clinical indicators and organizational progress are reviewed.
Opportunities for AHRMM to Assist Supply Chain Leaders
- Provide education and information, including building a deeper understanding of the clinical component of the industry. Supply chain leaders need detailed clinical information to be able to map the clinical people, equipment, and other resources into supply chain processes.
- Work with C-level executives and supply chain leaders to close the gap in perceptions between what executives believe the supply chain does and what it actually does.
- Develop a means for capturing total supply chain expenses, including tools for measuring outcomes and for accounting for acuity.
- Assist in equipping suppliers and the supply chain to serve the full continuum of care.
- Facilitate a collective forum, bringing together supply chain and other key hospital leaders representing various functions to promote cross-functional understanding, collaboration, and alignment.
- Conduct continued gap analyses to ensure that literature, programs, tools, and other resources needed by AHRMM member are readily available.
- Share tools that link supply costs with revenue and decision-making.
- Raise awareness of the need to strengthen the quality and accuracy of data in EHR systems, including recognition that the high percentage of freeform text prevents its quantifiable reporting, and thus its benefit to the supply chain.