A new hope, or slippery slope, for supply chain?
By R. Dana Barlow
August 2024 – The Journal of Healthcare Contracting
Before the turn of the millennium many either feared or desired the term “alternate site” in the healthcare market.
Those who feared it generally worked in acute care settings, nervous that these non-acute care facilities would siphon all the revenue-generating patients away, which would leave the hospitals with only the sickest patients consuming resources that would place financial operations and jobs in jeopardy. Those who desired the term generally saw those facilities as a way to gain a competitive advantage and to control clinical pathways within the emerging integrated delivery networks (IDNs) that defined a reforming industry. Not surprisingly, the feared became economic prey for the desired.
For supply chain executives and professionals, the term represented an expansion of responsibilities, mindsets, duties and accountability – and a raft of inherent and ongoing challenges in terms of strategic sourcing with value analysis, contracting and distribution of products and services, regardless of their affiliation with or ownership by hospitals, hospital systems or IDNs.
For context, non-acute or remote care comprises ASCs, clinics, physician offices, diagnostic imaging centers, freestanding laboratories, urgent care facilities, retail clinics, home health programs and hospital-at-home programs.
Sidestepping the sin-bin
Not surprisingly, hospitals attach a greater importance to supply chain operations due to the volume and value of products and services brought in and recorded on the expense side of the balance sheet. But it needs to be standardized and unified for optimal budgetary and economic advantage, sources recommend.
“In the acute care environment, understanding and optimizing supply expense is a focus for most IDNs,” Paul Oppat, executive director, Supply Chain Services, at Phoenix-based Banner Health, told The Journal of Healthcare Contracting. “The preponderance of their supply expense occurs in their hospitals. However, outside of hospitals and ASCs, supply expense is often not a high priority. Optimizing the supply chain is a team sport and we are working to energize additional focus in this area.
“Outside the hospitals, logistics and administrative costs impact a higher percentage of the supply spend due to the nature of smaller and often frequent ‘last-mile’ deliveries,” Oppat continued. “With this in-mind, our challenge is to create supply chain replenishment models that are easy for people who are not supply chain experts, and balance service needs with transaction cost.”
Staffing/support model and ordering/item master management represent two key hurdles in the non-acute space, according to Atanas Ilchev, system director, Supply Chain Operations, UChicago Medicine.
“In our early stages of non-acute facilities expansion we had to figure out a staffing model that is flexible enough to support low-volume facilities,” he indicated. “This was a real challenge given the fact that neither hospital supply chain nor our partners/distributors were ready to assist with our staffing needs for non-acute facilities. The second challenge is related to ordering controls as the non-acute facilities are not on the main ordering platform/ERP (enterprise resource planning) system. This could lead to multiple non-approved products penetrating facilities causing supply expenses to continuously increase and potential compliance issues.”
Ian O’Malley, executive director, Strategic Sourcing, UChicago Medicine, points to non-acute care sourcing and transactions knotting the value analysis process as well as relationships with clinicians outside of hospital settings.
“In our VA process we incorporate revenue cycle and finance data into our total cost of care analysis before a device or technology is approved,” he said. “The different reimbursement models and acquisition cost models for the same technology across these sites of care has challenged us to refresh and update multiple models for each device/technology. While a technology may be approved for one site of care, it may not make financial sense in other sites of care, so we may have to work with our clinicians to identify alternative approaches to treatment that provide clinically equivalent outcomes. Our group does push back strongly where costs are different by site-of-care as companies need to adjust their pricing strategy to take into account the growth of this market segment, so organizations don’t have to maintain multiple price points that create item master and invoicing issues downstream.”
Cost and accounting pressures may ease a bit now that UChicago Medicine has converted all its non-acute care sites to the IDN’s unified ERP and inventory management system, according to Eric Tritch, senior vice president and Chief Supply Chain Officer. But geography inserts an additional wrinkle.
“Another factor that complicates the analysis is when you operate in multiple states, there are typically different rates from government insurance plans like Medicaid, so what might be financially viable in one region may lose money in another,” Tritch said. “Service providers are often also geographically located and cannot always service all sites, or many aren’t set up to support non-acute locations and certainly non-hospital at home, so as [Ilchev] mentions, our staffing models and partners have needed to evolve.”
Neil Allen, senior director, Spend Management and Administration, The University of Kansas Health System, Kansas City, Kansas, highlights the complexity behind supply chain operational planning when dealing with changing players, processes and procedures.
“It is challenging to establish the right long-term strategy in an ever-evolving landscape,” he acknowledged. “A strategy that is not scalable and does not evolve will inevitably introduce rising supply costs and inefficient operations. Standardization across all areas of care can also pose a challenge, particularly as the non-acute space continues to grow at a rapid pace. Without a structured approach, supply standardization and ease of operations become increasingly difficult. The impact of classes of trade can also be a struggle due to the added cost and the potential to create a more complex distribution network. As the non-acute space continues to grow, multifaceted operations and the rise of additional costs will greatly affect outcomes.”
Pursuing hat tricks
As roiling budget and labor/staffing issues mount, supply chain operations must bob and weave around hurdles and speed bumps to fulfill their expansive duties, sources concur.
For The University of Kansas’ Allen, supply chain needs to make it about the patients first and supported by technology second.
“Establishing clinically integrated teams that align with both the clinical and patient aspects is critical,” he noted. “These multi-disciplinary teams can help ensure strategies and decisions remain clinically focused. Another important aspect is establishing key metrics that can be used to improve operations, reduce supply costs and ensure off-formulary and off-contract supplies are visible and managed. Furthermore, ensuring value analysis and contractual opportunities are not confined to all discussions and negotiations across all areas of care is essential.
“Providing technology to support supply management allows clinicians to remain focused on patient care and less on supply chain activities,” Allen continued. “Automation and simplifying supply ordering, backorder management, sub-processing and other workflows is essential in reducing labor costs.”
Banner’s Oppat encourages supply chain to demonstrate as well as promote its importance.
“We need to educate stakeholders about the positive impact an optimized supply chain will have on their patients and their business,” he insisted. “To quote Doug Bowen, Banner’s Chief Supply Chain Officer, the ‘the supply chain is everyone’s business’.”
Eric Helliker, Supply Chain Area Director at Banner, recognizes the variation that non-acute facilities bring to operations.
“We need to be flexible with our customers and understand that different parts of the continuum require different service levels. There is not a ‘one size fits all’ in the non-acute space,” he indicated.
“We need to develop close relationships with business partners who can bring economies of scale to last-mile delivery where we may not be as efficient,” Oppat added.
UChicago Medicine’s Ilchev concentrates on the big picture of labor and the recruitment of service providers to assist when necessary.
“One creative method to address staffing needs at non-acute facilities that we have deployed successfully is partnering with a third-party vendor who is willing to adopt your standards and act as an extension of the supply chain department from the main acute facility,” he noted. “Also, we have partnered with our distributor to meet staffing needs as well. Both of these solutions come at a cost as flexible and highly trained personnel are needed at non-acute facilities. In addition to that, for a well-organized nonacute support program to work, one needs to address the overall departmental structure to maintain standards, service levels and meet the needs of clinicians.”
Structured process granularity likely will make the most difference, Ilchev insists.
“The best method to introduce control over supply ordering is by implementing formularies and regular review of supply spend for each of the non-acute facilities to ensure compliance to formulary and control over supply spend,” he added.
Still, UChicago Medicine’s O’Malley urges supply chain leaders to stand firm on departmental and organizational objectives, using technology as an enabler.
“Contractually we push our suppliers for one price point for our system regardless of site of care,” he said. “In rare situations where we can identify the need for disparate pricing our group can accommodate but this adds costs to the contracting and item master maintenance work long term, so a strong justification is needed. We have also partnered with IT to begin enabling more remote support capabilities from our suppliers – think ‘telesupport.’ These technologies allow the rep to virtually enter the room and provide support/guidance as needed, thus reducing the costs to support multiple sites of care and allowing them to patch into multiple procedures across the system-the same as if they would be on site at our large acute location.”
Such a philosophy drives the suppliers and vendors with whom UChicago Medicine chooses to work, according to Tritch.
“We are also cultivating partners that can be flexible for smaller facilities,” he said. “One resource needs to wear many hats, and the closer to the home, the more hats they need to wear. We are developing processes and technology that keep these flexible providers or caregivers from having to be experts in things outside their domain and focus on making things easy and automated to provide the supplies and services needed for care.”
Lighting the lamp
From dedicated teams to product formularies to standardization, IDN supply chain leaders have implemented processes to smooth out the kinks and rough edges that defined the boundaries between acute and non-acute facilities in the past.
“We have invested in a small team of talented supply chain professionals who focus on the non-acute supply chain full-time,” said Banner Health’s Oppat. “They ensure a positive customer experience while partnering with key stakeholders to improve supply chain performance.”
From people to products, supply chain sets and implements standards, according to Hollie Gallagher, Banner Health’s Supply Chain Services senior program director.
“Standardized product formularies help manage a seemingly endless catalog of purchase opportunities,” she noted. “Also, while some suppliers prefer to segment non-acute as a different business line, we focus on our ‘one supply chain’ model so we leverage the scale of our supply chain to benefit all parts of the continuum. This keeps supply costs down in a nonacute environment where reimbursements are low.”
Supply chain at UChicago Medicine strives to simplify the shopping experience for its clinical customers, according to Tritch.
“A good simple solution is ‘punch-out catalogs’ through our Oracle Cloud ERP,” he said. “We work to make the buying experience easy and controlled to formulary but also keep the data and process rooted in our ERP systems. This provides ease of ordering for providers [and] caregivers where needed and keeps within our standards.”
UChicago Medicine’s supply chain also dispatches special teams to facilitate processes, too, O’Malley reports.
“We have implemented VA teams by site of service to help align and standardize device utilization across the system,” he said. “Where standardization is not possible due to specific site implications (such as cost and reimbursement changes) we can help ensure we have the rationalization for the decision backed by clinical evidence, financial analysis and market dynamics. Our Strategic Sourcing team also partners with our Service Line leaders to understand their goals with regard to shifting sites of service so we can get ahead of equipment and technology needs to make this happen.”
Tritch stands behind the benefits of their team approach.
“Having some roving dedicated supply chain staff in the non-acute domain is fundamental to success and keeping things consistent and standardized and connected into the mothership to provide support where needed,” he added.
Ilchev encourages other organizations, regardless of size and variety, to implement any of the strategies and tactics that UChicago Medicine employs because they are sustainable all around.
“The risk of compromising care without having the right staffing model and/or non-approved supplies being used on patients is much greater than the cost to implement right organizational structure and ordering controls to ensure high quality care at the best total cost,” he concluded.
Caught in a Juggling Match
Why supply chain remains in the middle of non-acute care’s topsy turvy in clinical, financial, operational realms.
By R. Dana Barlow
Technically, the concept of “non-acute care” predates the debut of the first hospital in the United States as physicians practiced medicine on their own either in their own homes or offices or making house calls to see patients.
For the record, the National Institutes of Health (NIH) classifies Bellevue Hospital as the oldest public hospital in the United States and lists the facility as operating in the 1600s but “officially founded on the second floor of the New York City Almshouse in 1736,” several decades prior to the American Revolution.
Other sources, such as Penn Medicine, list Philadelphia’s Pennsylvania Hospital as the “nation’s first hospital,” founded in 1751 by Thomas Bond, MD, and Benjamin Franklin. Still others claim that Philadelphia General Hospital in 1834 officially was the first to be founded as an actual hospital because the other two started as an almshouse or poorhouse and a workhouse.
As the number of hospitals burgeoned in the 19th and 20th centuries, so did the number of “non-hospital” entities that wouldn’t emerge as competitors or competitive advantages until about mid-century. As hospital systems – whether state-owned, not-for-profit and investor-owned – formed at the time, followed by the advent of managed care and payer-driven diagnosis-related groups (DRGs) in the early 1980s to healthcare reform in the 1990s, tension between the components of hospital systems increased to a slow boil from a steady simmer.
During the mid-to-late 20th century the healthcare industry contextually categorized “non-acute care facilities” as “alternate sites” to hospitals and included such entities as ambulatory surgery centers (ASCs), clinics, physician offices, diagnostic imaging centers, freestanding laboratories and even home health programs for hospital-discharged patients and those with chronic care challenges. After the turn of the millennium, the healthcare industry also witnessed the rise of retail clinics and “immediate” or urgent care facilities as well as “hospital-at-home” programs. These relatively new players migrated “primary care” closer to the community comprising the population that frequented hospitals. Patients favored these more direct and remote options as useful and welcome, by and large, because of proximity and timing.
As components of a hospital, hospital system or healthcare reform-created integrated delivery network (IDN), non-acute care facilities affected clinical, financial, operational and even supply chain operations in different, albeit speculative, ways. What follows is acute care’s general, observational and paraphrased version of the “Speculative Six.”
1. During the healthcare reform-minded 1990s, non-acute care facilities represented both a play and a ploy to generate revenue, power and competitive influence among a coalescing provider industry that viewed mergers and acquisitions as one way to survive into the 21st century.
2. More hospital-based supply chain leaders were given accountability and responsibility to manage products and services to fortify non-acute care facilities, whether through their acute care contract extensions or through separate nonacute care affiliate contracts.
3. Acute care hospitals continually accuse(d) non-acute care facilities of attracting (e.g., luring, stealing) those patients that generate the highest revenue and leaving the those that generate the most expenses (e.g., the sickest, most injured, etc.) to the hospitals. Patients with longer lengths of stay consume more resources and can be more prone to infection exposure, which completes the circle of costs, they contended.
4. To serve these patients, acute care hospitals invest in more expensive diagnostic imaging, information technology, laboratory and surgical equipment in total, whereas non-acute care facilities can concentrate on clinical specialties and only have to invest in one or two types (e.g., ASC may invest in some surgical equipment but not in imaging or laboratory equipment).
5. Acute care hospitals continually accuse(d) suppliers (primarily distributors) of maintaining separate classes of trade for products going to non-acute care facilities (think the same products but going to different facilities and sporting different prices – higher outside the hospital). Suppliers cost-justify this disparity by arguing that non-acute care facilities are more numerous and geographically dispersed, and they buy in considerably lower units of measure. Translation: It costs more to service these facilities than the hospitals, which are fewer in number, more centrally located and generally buy in bulk.
6. Even though acute care hospitals are pushing into home health (directly or indirectly via third-party contracts and referrals) and via the contemporary hospital-at-home concept, they face turbulent competition from retail outlets, such as Amazon, CVS, Target, Walgreen’s and Walmart (even though Walmart recently decided to exit the market) that provide certain routine patient services administered by nurses, nurse practitioners and physician assistants “more efficiently.”
For some, it stands to reason that if non-acute care facilities are siphoning the revenue-generating patients from hospitals, then why should hospitals invest in expensive technology for low- and mid-range surgical procedures without an overnight LOS? Should hospitals merely cede those patients to nonacute care facilities and just handle the “sickest” patients requiring the most delicate surgeries with a minimum two-night length of stay? Should payer reimbursement reflect that disparity and be adjusted accordingly (e.g., akin to inflation? How does hospital-based supply chain operations realistically expand its accountability and responsibility to nonacute care operations as more patients receive some portion of their healthcare in ASCs or even at home with little to no oversight? How can/does – or even should – the hospital supply chain team handle it if they also must oversee an Amazon or durable medical equipment (DME) supplier delivery, for example?
Among all these moving parts, healthcare supply chain executives acknowledge the observations and resulting challenges and pivot as much as necessary and possible to provide services needed by clinicians for the patients. They also recognize the appeal of remote care options.
“If more efficient, less expensive and high-quality care could be provided at a non-acute facility, then it does make sense to balance care across the spectrum/type of facility to combat the ever-rising healthcare cost,” said Atanas Ilchev, system director, Supply Chain Operations, UChicago Medicine. “This balancing act should be reflected in the reimbursement for the different types of facilities as well. From a Supply Chain perspective, supporting a non-acute facility is somewhat different but the model is similar enough that fits the overall distribution strategy.”
UChicago Medicine’s Ian O’Malley, executive director, Strategic Sourcing, echoes Ilchev’s opinions and calls the “Speculative Six” observations “accurate and reflective of what we see in the market today in terms of growth of healthcare systems further into the communities where they are providing these low-complexity procedures at local clinics and surgery centers and even pushing the point of care into the patient’s home with H@H programs and telehealth technologies. The investment of advanced technologies to treat complex patients in the acute care setting remains a priority and in doing so the ability to treat the less complex patients outside of these expensive sites of care becomes a key component of that strategy.”
Either way, healthcare organizations strive for some type of clinical and economic balance, according to Eric Tritch, UChicago Medicine’s senior vice president and Chief Supply Chain Officer. “I generally see healthcare systems [and] IDNs expanding rapidly in non-acute settings to grow their networks of patients and to balance trying to care for lower complexity at lower cost sites, so those that require high-cost care come to the mother ship site, and those that don’t need that level of care be cared for at facilities closer to home, or even better at home,” he noted.
Paul Oppat, executive director, Supply Chain Services, at Phoenix-based Banner Health supports the validity of the “Speculative Six” that “results from a series of evolving and complex factors” in the healthcare industry.
“To many, healthcare is segmented by the location of care: Acute (hospital), non-acute, post-acute, home care, hospice, etc. In some cases, these services compete against one another, even within the same IDN,” Oppat acknowledged. “Indicators of success are not always aligned. Ideally providers, payers, suppliers and patients would all approach healthcare as a continuum of care, with the patient getting the care they need in a timely and efficient manner while transitioning seamlessly between levels and types of care as appropriate. From preventive care and community wellness all the way to complex interventional care, we need a unified system.”
Unity remains the key word, according to Oppat and Doug Bowen, Banner Health’s senior vice president and Chief Supply Chain Officer.
“Banner is focused on integration of all non-acute services to provide seamless care to our patients in any venue of care,” Bowen noted.
“Our goal is to approach the continuum of care under a ‘one supply chain’ model, but admittedly the priority of supply chain management varies widely depending upon the stakeholder,” Oppat said. “Stakeholder engagement is key to our success.”
Shaun Clinton, senior vice president, Supply Chain Management, at Texas Health Resources, Arlington, Texas, delineates the delicate balance between clinical decisions and operations from logistical supply chain priorities and how either developed over time.
“The movement to non-acute sites of care didn’t happen overnight,” Clinton indicated. “The challenge for me to understand is how our largest distribution players’ only answer to service this market was to increase the cost to serve. As providers, we have had to manage this shift as well, but many times we are pulling others along with us. It’s gotten better, but there needs to be an agreement that from [materials management information systems] to delivery mechanisms, many things were set up to take pallets to docks. I’m hopeful that as delivery locations grow exponentially with the advent of acute care at home programs, we see good viable solutions coming from established players out there. I’m more than willing to take a ‘best in breed’ philosophy but I’d rather see everyone have scalable solutions to just drive competition.”
Supply Chain in the Non-Acute-Care-Verse
Nowhere far from home.
By R. Dana Barlow
Assuming that in the near future the patient, rather than the facility or organization, becomes the central focal point of healthcare services, then that presumes the clinicians as well as supply chain may be more responsible for what happens to the patient – wherever he or she is – and not to the individual facility where he or she resides at any given time.
Depending on the facility’s organizational and operational framework that includes a hospital-at-home program, supply chain could have products delivered directly to the patient’s home but more likely will have the products delivered to the hospital or consolidated service center for supply chain to ensure delivery to the patient’s home. This raises the question of how much accountability, liability and responsibility a hospital-based supply chain department should have over what happens in a patient’s house – from delivery service to product functionality to patient use of the product. For example, who does the patient-at-home call if a product or device doesn’t arrive? What if the product or device is recalled? What if the patient doesn’t use the product or device properly, potentially leading to infection or injury? And how does the patient-at-home replenish inventory?
The concept intrigues Paul Oppat, executive director, Supply Chain Services, at Banner Health in Phoenix.
“The supply chain team is responsible, in most cases, for delivery to the patient’s point-of-use,” he assured. “Some of that responsibility may be delegated or handed off in certain care environments, but ultimately it is the responsibility of supply chain professionals to ensure efficiency and support appropriate clinical use of the products we source. That said, supply chain professionals rely on the caregiving team to be good stewards of resources when they order supplies as they are the ones who ultimately determine best use.
“A mobile or distributed patient model would have logistical cost challenges, particularly where last-mile delivery is concerned,” Oppat continued. “Cost and safety considerations would be similar to home-delivery medications that occur in many markets today. In the case of home medication delivery, we see delivery models that range from patient pickup at a local pharmacy, mail order, courier delivery or caregiver delivery such as in a home-health model. I think supplies could also be managed in that fashion, but at an added logistical cost that might not be supported by many revenue models. In some cases, the patient could ask for replenishment through an online portal or app, like they do with medications, but supplies would also need to be approved by the caregivers involved.”
Eric Tritch, senior vice president and Chief Supply Chain Officer, UChicago Medicine, remains skeptical about the extent stretch.
“I’m not sure ‘supply chain’ will be responsible independently for care in the home, but the health system or provider that is providing the care certainly will be,” he surmised. “We have a hospital-at-home program that we currently admit patients to [but] the scale is fairly small and so it is possible for us to pull things together with a number of third-party service providers on imaging, telemedicine, food, etc. In the future we are looking at solutions and partners that can help us scale so that supply chain and logistics don’t become a hindrance [or] rate limiter to scaling this model. I just had a discussion with one of the large drone providers, looking at future-use cases of stat deliveries to the home that could supplement this model if it made financial sense.”