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In Real Estate, It's Location; In Healthcare, It's Compliance

This article is more than 6 years old.

Pointing out that hospital supply chain management (SCM) practice has left a lot to be desired is about as insightful as suggesting that President Trump reconsider the urgency of his tweets. Amid declining reimbursements, readmission penalties and a steady stream of “experimental” shared-savings payment arrangements, America’s hospitals must improve patient outcomes, and do it more cost effectively, or fall under the control of an acquirer that can.

Not to go out on a limb, but healthcare’s love affair with outsourcing its SCM is on the rocks. Current energies and resources are finally being directed at developing self-sufficiency. Data ownership in support of compliance has been accurately recognized as key. And that’s a huge directional change. SCM leadership is reexamining its grasp of supply chain fundamentals. As a result, long-term SCM partners (Group Purchasing Organizations, or GPOs) are being forced to defend their relevance.

In terms of making compliance a priority, Tony Johnson, SVP and Chief Supply Chain Officer at Baylor Scott & White Health, not only underscored the importance of C-Suite and BOD-level buy-in but, suggested that hiring from outside of healthcare is sometimes necessary to get it done. “No doubt, it’s an interesting trend that health systems are hiring SCM leaders from other industries and finding quick success teaming them with clinical advisors.” Jason Chynoweth, Purchasing Director at Intermountain Healthcare, said it a little differently, but no less emphatically: “Hospital systems have a diverse employee pool (administrative, clinical, operational, etc.). Left unchecked, these pools can grow to be fiefdoms. And with hospital acquisition activity at an all-time high, there’s simply no more room for it.”

And there’s the other end of the spectrum. In pursuit of compliance at Parkview Health, Donna VanVlerah, SVP Supply & Support Services, a 20 year Marine logistics veteran, has taken compliance to a new level. She has gone so far as to take ordering out of the hands of clinicians. Instead, her team’s efforts are centered on replenishment. By doing so, Ms. VanVlerah believes it supports more integrated relationships with a smaller number of suppliers. “For us, it’s about managing our inventory so well that our clinicians don’t have to buy anything. It’s a model that requires a central command approach, an intimate understanding of our customer and our ability to self-fulfill. When you have command of the data, you can do it.”

As large supplier relationships are typically governed by complex legal framework, as well as KPIs and separate service line agreements, to her point, compliance is even more critical. While future systems will machine-read these conditions and match them against continuous streams of invoices, supplier activity, and performance data, the song remains the same.  In healthcare, although dealing with the largest of suppliers and/or only those who have cross-category capabilities can also be limiting (from a cost control perspective), nevertheless, making it liberating is nothing more than a choice.

In yet another conversation with David Bueby, McLaren Health’s SCM Corporate VP, he pointed out an altogether different perspective, if not an interesting irony. Our conversation drifted toward Amazon’s move into healthcare and he said “…on the one hand, you’ve got Amazon promoting punch-out shopping which confounds compliance, but on the other, Amazon’s value in pharmaceutical distribution will be based on its ability to drive it.” He continued: “It’s not just a matter of redirecting internal staff. Our suppliers now know that if their sales representatives introduce a product that we use, but is not under contract, then we consider it a gift and account for it as such.”

The clinically integrated supply chain isn’t an ideal, but a vital pursuit grounded in an organization’s ability to drive compliance. When that ability is real, value analysis becomes a continuous improvement process and clinical integration becomes a standards-based plug and play activity. Speed and flexibility is gained, change management is a natural function of the same process, and healthcare SCM performance ceases to be an oxymoron.