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Think about the phrase supply chain. What do you picture in your mind? An actual chain, a pile of unmarked boxes, UPS? My guess is you’re not thinking about the healthcare industry. Yet, for many business owners, your healthcare supply chain could be the difference between a marginal and robust bottom line. In this article, we’ll examine what exactly the healthcare supply chain is, and how managing it can grow your company’s performance.
What is the Healthcare Supply Chain?
The healthcare supply chain, according to Employee Benefits Adviser, is the quality and cost of medical treatments. Managing this supply chain involves obtaining resources, managing supplies, and delivering goods and services to providers and patients, per RevCycle Intelligence. Through healthcare supply chain management, your firm can produce significant cost-reducing opportunities.
Healthcare Supply Chain Management
According to MarketsandMarkets, the total value of the healthcare supply chain management market will reach more than $2.2 billion by 2021. This would represent an increase of over 53 percent from 2016. This trend demonstrates the continued rise of healthcare costs overall, and the need for managing this industry’s supply chain.
So, we’ve established the importance of healthcare supply chain management. But what can you actually do to manage your healthcare supply chain? Well, there are several options to help reduce your healthcare supply chain’s cost. Important tools for positively influencing your healthcare supply chain include:
- Medical management
- Fiduciary PBMs
- Specialty Medical Cost-Mitigation Programs
- Bundled-price Surgery Centers
- Surgical Bidding
- Direct Contracting
- Reference-based Pricing
Each of these strategies focuses on the misaligned incentives that dominate the healthcare system. These tactics, all important for improving your health supply chain, are patient-centered. They work to guide and improve an individual’s journey through the healthcare landscape.
But they aren’t the end-all and be-all some may tout them as. Still, to maximize your health supply chain’s effectiveness, there are two facets your organization should focus on.
According to benefits consultant Bob Gerhart Sr., you need to double the amount of employee engagement and communication of a typical advisor. These two actions, employee engagement, and communication are crucial for improving your healthcare supply chain. Every solution listed above must be supported by employee engagement and communication.
As previously stated, these strategies focus on developing a more patient-centered healthcare supply chain. Similarly, employee engagement and communication both work to build a patient-centered supply chain. Without this support, it doesn’t matter how many of these solutions you implement; their effectiveness will be severely limited.
Benefits of Healthcare Supply Chain Management
The key to supply chain management savings lies in your firm’s EBITDA. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It’s likely, at this very moment, your company has a sizable chunk of EBITDA tied up in your benefits budget.
Mark Krogulski explained this scenario best in last year’s Breaking Through the Status Quo (featuring myself and TOG’s own Tim Olson). According to Krogulski, healthcare is like an iceberg. And most employers and employees only see what’s on the surface, the tip of the iceberg. This tip consists of the “discounted” cost of healthcare.
The problem is that the “discounted” cost, like the tip of an iceberg, is only a tiny fraction of the total. The total cost of healthcare lurks, like the body of an iceberg, below the surface where a majority of consumers can’t see. Luckily, focusing on the healthcare supply chain helps your firm deal with the body of the iceberg or the total cost of care.
Focusing on the total cost of care, as opposed to the discounted cost, can give your firm tangible and significant cost savings. Supply chains now account for 25 percent of Rx costs and more than 40 percent of medical-device costs. These two pieces of healthcare total $230 billion and $122 billion respectively in annual costs. The size of these totals makes, even minor gains in efficiency, potentially worth millions.
If the healthcare industry were to adopt better supply chain practices, both employers and employees would benefit. A 2013 article from McKinsey estimates the healthcare industry could save $130 billion if the sector adopted advances that are common in other industries.
Similarly, a better-performing healthcare supply chain assists individual companies. According to McKinsey, improvements to your health supply chain could boost profitability between 6 and 20 percent.
Healthcare might not be the first word your brain associates with the phrase supply chain. Still, your healthcare supply chain can have a huge impact on your firm’s bottom line. In fact, properly managing this supply chain could be the difference between drowning in healthcare costs and floating above the rest of your competition.