How Better Inventory Management Systems Save Health Care Companies Money
In 2012, healthcare spending in the United States hit $2.6 trillion, almost 10 times the $256 billion that was spent 30 years ago. Approximately half of this spending goes toward hospital care and clinical services. It is not uncommon for 40 percent of the providing care costs to be spent on supply chain expenses.
Inventory management is a complex process. It includes placing electronic orders, matching contract pricing to order pricing, maintaining current and clean data and validating trading partner and product information. Additionally, inventory management is critical when it comes to developing better end-to-end visibility for all health care products, supplies and devices.
When demand and inventory are better managed, we can see how inventory management systems save health care companies money. These savings can be anywhere from 6 to 13.5 percent of total health care costs. One of the best parts about pursuing lean management methods, such as improved inventory management, is that health care organizations don’t have to face layoffs and staff reductions. They get to keep their valuable staff members while improving the quality of patient care.
But how do health care systems put this into practice? In response to recent reimbursement declines, many hospitals are seeking partnerships or ownership structures that enable them to focus on the services that they can deliver most cost efficiently. While striving for efficiency, health care systems are also seeking out less profitable service lines that are ideal to outsource to service providers with the following expertise areas:
Driving contract price visibility and accuracy
Health care providers need better methods for managing item pricing for both contract and non-contract purchases. This process includes identifying the following:
- Products that a provider purchases on a regular basis and their prices
- Products that are purchased without a contract
- Deciding whether the off-contract purchases can be bundled into contracts for future purchases
- Moving off-contract purchases into a group purchasing organization (GPO) or supplier contract
Strategic alliances and supplier partnerships can be key for getting consistent product prices. It is important to keep in mind that a supplier partnership is not a genuine partnership but is instead a contract that details each company’s responsibilities.
Preparing for unique device identifiers (UDI)
One of the latest health care regulations are UDIs. UDIs make it easier, and as such, more accurate to capture data on particular items used at the point of patient care. In turn, providers have an easier time calculating comprehensive procedure expenses, increasing billing accuracy, and improving inventory management.
Both suppliers and providers are responsible for preparing for UDI requirements in order to capture and leverage data. These practices include the following:
- Developing new collaboration levels for suppliers and providers in order to identify new methods for capturing the data that their organizations need
- Developing requirements and pathways for sharing data
- Developing high quality data sharing processes that trusted business partners can use over and over again with ease
Creating insight into demand signals and forecasting
Suppliers must have information about the demands for their products. Currently, most manufacturers do not have much insight into their product once it’s out in the field. For any business, it is key to have a projected plan for the future in order to budget appropriately. For inventory management, companies must have the technology to forecast production, procurement and logistics.
A shared infrastructure is key for health care systems. Companies can focus on creating heightened visibility initially and then move on to tapping into aggregated data sources for better forecasting and demand planning. The Institute of Business Forecast and Planning has a couple recommended techniques for measuring forecasting advantages. The first method is to determine how much would have been lost if the forecast was inaccurate. The second method is to determine how much would have been saved or gained through heightened forecasts.
Ensuring accurate product data and inventory repositories
Providers need to be prepared to buy the correct product. In turn, supplies need to be prepared with said product. Best practices for this process include the following:
- Guaranteeing reliable product and product identifier data sources
- Enhancing a shared base of current details on a continual basis
- Tapping into a view of items that providers currently have in stock
- Offering tracking information for what the providers use and need
As provider organizations work to meet new business requirements, they should view inventory management as the backbone. This critical technology infrastructure component assists with capturing and sharing much-needed data. For example, a company that captures data pertaining to medical products and devices that are used during patient procedures can use this data to produce the same information in additional locations, such as the electronic health record. As such, a one-time data capture for multiple uses is much more efficient than current data capture methods.
About the author:
Don Amato is Vice-President, Sales of Chicago Tag & Label in Libertyville, IL. Chicago Tag & Label manufactures form labels, labels and tags that deliver solutions to a broad range of industries including retail, industrial, manufacturing, distribution and medical environments.