Shortages inflate care delivery costs by $3.5M per health system

Health systems have been forced to delay care and forgo revenue as they manage device and drug shortages.

More than half of 102 hospitals, health systems and suppliers surveyed had to cancel or reschedule procedures multiple times last year due to product shortages, according to a poll conducted this spring by Premier, a consulting and group purchasing organization. Syringes, IV fluids, saline, aortic balloon catheters and surgical tourniquets are in short supply, providers said.

Related: What Biden's tariffs on Chinese medical supplies mean for industry

Health systems and suppliers expect shortages to impede operations amid inflation, geopolitical tension and labor constraints. In response, providers plan to broaden their supplier networks, work with more U.S.-based manufacturers and automate supply chain technology.

Here are five takeaways from the survey.

1. Supply chain challenges may worsen

Nearly 80% of providers expect supply chain issues to remain the same or worsen over the next year, up from 75% in last year’s survey.

The Israel-Hamas and Russia-Ukraine wars, new tariffs on medical products from China, and natural disasters have strained the supply of devices and drugs, as well as the raw materials used to make them, respondents said.

Inflation, backorders and higher labor costs were also among providers’ top concerns.

“Inflation in the form of higher energy, labor, materials, transport and logistics costs continues to be persistent,” said Kyle MacKinnon, senior director of operational excellence at Premier. “Providers are looking at ways to mitigate those pressures by leveraging technology, such as through predictive analytics and demand forecasting.”

2. Shortages disrupt care plans

More than 51% of providers canceled or rescheduled procedures multiple times last year due to shortages. Of that share, 15% reported weekly disruptions.

Roughly two-thirds of respondents said their teams were spending at least 10 hours per week mitigating supply chain shortages.

3. Shortages dent revenue

As a result of shortages, mid-sized health systems — defined as those with five hospitals or 650 beds — saw care delivery costs rise $3.5 million last year and lost about $350,000 in revenue on average, according to Premier data.

In addition, shortages perpetually tie up $1 million in cash via excess inventory costs, the survey found.

For instance, Sanford Health has been stocking up on antibiotics, anticoagulants, chemotherapy treatments and respiratory drugs, among others, said Nathan Leedahl, manager of the Sioux Falls, South Dakota-based health system's pharmacy operations.

“There are some lifesaving drugs that only one or two companies make,” he said. “We continue to build out our on-hand supply so we are able to respond faster to shortages.”

4. Providers seek U.S. suppliers

Nearly 90% of providers said domestic manufacturing is a key element of shoring up supply.

More than half of supplier respondents said they were increasing investment in domestic manufacturing.

Some providers, for instance, have invested in U.S.-based factories that produce personal protective equipment, MacKinnon said.

5. Providers streamline supply chain

More than 43% of providers reported using artificial intelligence, blockchains and other technology to better prepare for supply disruptions.

Providers are also augmenting disaster preparedness processes, reworking supplier contracts, securing multiple sources for certain products and tracking suppliers’ performance, according to the survey.

“As an industry, we need to look at diversifying our sources of supply and identify unhealthy sole-source markets for raw materials or finished products,” MacKinnon said.