Outlook 2014: Supply chain

Hospitals will continue to look for ways to reduce the costs of medical supplies, drugs and devices over the coming year.

Some large health systems have already reported successful cost-reduction strategies for medical supplies, which make up a hospital's second-largest expense after labor. Not all hospitals have been proactive drivers of cost-cutting, though, and ongoing pressure created by declining patient volume and reimbursements is expected to fuel efforts to reduce spending.

“We're going to see a lot of demand, I would even say assertive requirements, relative to Amerinet and other GPOs from their customers to help them reduce their costs as much as they much as they possibly can,” said Todd Ebert, president and CEO of Amerinet, a St. Louis-based group purchasing organization partially owned by the Intermountain Healthcare system.

See a slideshow of the people to watch in 2014

In recent years, hospitals have focused a lot of time and money on developing strategies that reduce supply costs. Some health systems have even begun challenging once sacrosanct categories like physician preference items—the pricey joint implants and cardiac devices—whose makers use their relationships with doctors and nondisclosure clauses in contracts to cloak their pricing in secrecy. These hospitals are also looking for ways to standardize use as a way to reduce costs and improve care.

But not every organization has the capacity to adopt sophisticated purchasing strategies that require data, buy-in from physicians and clinicians and investments in supply-chain staff and technology. In a recent report, Standard & Poor's analysts said the next level of savings for hospitals is “potentially unachievable.”

Some health systems will continue to look to greater economies of scale as their preferred method for reining in spending. Tenet Healthcare Corp., which recently completed a $1.8 billion acquisition of Vanguard Health Systems, is evaluating how to merge the organizations' supply-chain operations while at the same time maintaining cost-cutting initiatives already in place.

“It is up as us as stewards of the supply chain, which is a very large chunk of expense within Tenet, to make sure that we are driving costs out, maintaining quality and engaging our end-user clinicians,” said Richard Yonker, Tenet's vice president of corporate sourcing and supply chain management.

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