By Pete Mercer
March 2024 – The Journal of Healthcare Contracting
Shift in distributor use?
An October 2023 report from Kaufman Hall based on responses from 106 hospitals found that 38% of respondents were moving to direct purchasing as opposed to relying on distribution partners1. This could be due to 71% of respondents saying they were dealing with distribution delays in their supply chain2.
Container spot rates rising (again)
After a dramatic slump in container rates post-pandemic, the spot rates for containers are again rising. 55% increase in rates from Asia to North America’s east coast starting mid-January3.
Here’s a change: Supply cost increases exceed that of drugs4
Year to date in 2023 versus 2022 there was continuing increases of expenses.
| Year-Over-Year | 3-Year Average | |
| 2023 vs. 2022 Supply Expense Increase per Calendar Day | 11% | |
| 2023 vs. 2022 Drug Expense Increase per Calendar Day | 10% | |
| 2023 vs. 2022 Purchased Services Expense per Calendar Day | 1% | |
| 2023 vs. 2020 Supply Expense Increase per Calendar Day | 24% | 8% |
| 2023 vs. 2020 Drug Expense Increase per Calendar Day | 22% | 7.33% |
| 2023 vs. 2020 Purchased Services Expense per Calendar Day | 19% | 6.33% |
Drug shortages in 2023 (data through Sept ‘23) remain high or plateau5
National drug shortages remained high in 2023 but plateaued a bit during the year. This is a small comfort for patients and their families who continue to see delays in treatment, rationing of medicines and less than optimal outcomes because of these shortages.
National Drug Shortages: Active Shortages by Quarter – 10 Year Trend
Resilience still an issue heading into 2024
The healthcare supply chain has a long history of transactional supplier relationships, fostered in part by a desire to get the best possible price. In addition, there has always been pressure to keep inventory low, which gave birth to “Just-in-Time” (JIT) and “low-unit-of-measure” (LUM) strategies to manage inventory, among others.
“The concept of resilience shouldn’t assume that you won’t fail, but rather that you should be able to get back up fast.”
— Deepak Mavatoor, Managing Partner, Tata Consultancy Services6
As noted earlier, according to the Kaufman Hall Survey, 57% of the 106 hospital respondents indicated that they were increasing inventory levels to mitigate supply chain disruptions7. While this is likely an advisable strategy, depending on the types of inventories that are being increased it is also important to remember that no one could have stocked enough PPE to cover their needs during the pandemic. Having the right inventory on hand at the right time is the name of the game, but the logistics and manufacturing challenges keep arising in an uncertain world.
So … what’s changed in the past 19 years?
I came across an article from 20059 recently that suggested there are many barriers to healthcare supply chain success. For those of you who have been in the industry for that long, and even those who have not, here’s a checklist of some of the barriers to success as you execute on your 2024 supply chain strategic plan.
- Lack of executive support
- Misaligned or conflicting incentives*
- Need for data collection and performance measurement
- Limited education on supply chain
- Inconsistent relationships with GPOs and/or other supply chain partners
*I might add an over-reliance on low-hanging price reductions versus the effective use of value analysis techniques, using more total cost of ownership (TCO) analysis, and revising what constitutes “value” beyond price in performance goals and objectives.
Recycling PVC is possible
Baxter announced on December 148 that it had successfully completed the first phase of its IV Bag recycling program pilot with Northwestern Medicine in Chicago. The results?
170,000 IV bags were recycled
6 tons of materials were recycled
Northwestern is planning to continue implementing the program. The recycled waste will be used for floor mats, dock bumpers and other materials, keeping these bags out of landfills.
Five big ASC chains to watch
Here’s a chart of five of the largest ASC chains in the country as we head into 2024, showing number of ASC sites10:
1 Kaufman Hall and Associates, LLC, “2023 State of Healthcare Performance Improvement: Signs of Stabilization Emerge”, October 2023, p.19.
2 Southwick, Ron, “Hospitals continue to wrestle with supply chain challenges,” Chief Healthcare Executive, January 4, 2024.
3 Bloomberg News, “Container Spot Rates Soar on Red Sea Threats,” January 4, 2024.
4 Adopted from Kaufman Hall and Associates, LLC, “National Hospital Flash Report”, November 2023, p. 11.
5 https://www.ashp.org/drug-shortages/shortage-resources/drug-shortages-statistics.
6 https://assets.appian.com/uploads/ebook-supply-chain-outlook_EN.pdf, Accessed January 7, 2024.
7 Kaufman Hall and Associates, Op. Cit. p.19.
8 Baxter press release, December 14, 2023, at www.baxter.com.
9 McKone-Sweet, K., Hamilton, P., and Willis, S., “The Ailing Healthcare Supply Chain: A Perspective for Change”,
first published March 24, 2005, at https://doi,org/10.1111/j.1745-493X.2005.tb00180.x.
10 Riz Hatton, “Where 5 ASC giants stand in 2024,” Becker’s ASC Review, January 3, 2024
Contributed by Access Strategy Partners, Inc.
accessstrategypartners.com