Supply Chain Council of European Union |
Supply Chain Risk

Hospitals waste $27.5B on bad supply chain management, Navigant says

Dive Brief:

  • Unnecessary spending on supply chain products and related operations reached $25.7 billion in 2018, according to a Navigant study of 2,127 hospitals.
  • Hospitals had an opportunity last year to cut their supply expenses by 17.4% on average, which translates into an average $12.1 million in savings, up 22.6% from 2017. That’s an amount equivalent to the salaries of 165 registered nurses or 50 primary care physicians.
  • The numbers vary significantly by region and hospital type, with for-profits and rural facilities tending to be more efficient than larger academic healthcare systems.

Dive Insight:

In the ever-competitive hospital business, facility managers are always trying to find an edge. Better supply chain management may provide it, but there is still much room for improvement, according to Navigant’s annual survey of the process. Just between 2017 and 2018, wasteful spending on supplies rose 11.8%, or $2.7 billion.

Some hospitals have begun turning to automation to make their supply chain more efficient, but that is often in response to potential supply shortages. And while Amazon has tried to make a big splash in that arena, it has had uneven performance to date.

While the average hospital in Navigant’s survey had the opportunity to slash their supply chain costs by 17.4% last year, there was wide variation among those that participated. Hospitals in the northeast had an opportunity to cut costs by 14.8%, while in the Midwest, the opportunity was 18.6%. Among for-profit hospitals, the figure was 16.6%, but 17.8% among government-operated hospitals.

For rural hospitals, it was 16.8%, but 17.6% for urban facilities. At non-academic hospitals, it was 17.2%, but 19.3% among teaching facilities.

“Our analysis does not point to aggregate improvement in hospital supply chain performance, with high-performing supply chains widening the gap as others tread water or lose ground,” said Rob Austin, director at Guidehouse, of which Navigant is an affiliate.

Navigant officials say hospital managers should not consider cutting costs on supplies that put them at risk for lowering the quality of care being delivered. Though the survey noted hospitals that are more efficient in their supply purchases tend to have slightly lower infection rates and a moderately better score on value-based purchasing.

“Physicians and other clinicians understand the significant savings to be had in decreasing variation, and they’re as frustrated as any stakeholder by the lack of progress,” Chuck Peck, a Guidehouse managing director, said.

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