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10 What makes up 2% of health systems' spend yet 30% of their headaches? The non-acute supply chain — and there's a better way to manage it A bout 95 percent of patient visits occur in the outpatient space, according to e Advisory Board. 1 Urgent care, home health, long-term care, behavioral ther- apy, rehabilitation clinics and other alternate care sites increasingly represent the primary access points for patients. And although non- acute sites are at the heart of much healthcare M&A today, health system supply chain lead- ers are largely unfamiliar with how best to ser- vice and manage delivery to these settings. With such a large portion of patients seeking care in non-acute settings, health systems are looking to increase their touch points outside hospitals to better manage care in low-cost settings and cultivate more substantial, long- term relationships with patients. Some stake- holders estimate health system acquisitions of non-acute providers will represent 84 percent of total provider acquisition volume in 2018, according to Accenture. 2 Quickly integrating non-acute business op- erations into a health system's overall sup- ply chain is key to generating value for both parties. But compared to the acute space, the logistics and regulatory oversight involved in non-acute supply chain can be enormously complicated. Diversity of specialties, ongoing acquisitions, disparate operating systems and small facilities with low product spend spread over a broad geography all complicate manag- ing the non-acute supply chain. To unpack supply and delivery needs across unfamiliar non-acute sites, health system supply chain leaders can leverage supplier and distributor partnerships in more strategic ways compared to more traditional, transac- tional relationships. "Many [hospital supply chain leaders] have not even looked at long-term care or home care and other delivery models that fall in the extended care bucket," said Greg Colizzi, vice president of health systems marketing at McK- esson. "Supply chain leaders need a single re- source to tie together all these pieces across all these different care settings. Every setting has different product, delivery and technology re- quirements. ey need a resource to integrate that information and give them a view into their complete business to drive standardiza- tion, or whatever initiatives they have, across literally hundreds of locations." Distributors increasingly provide that compre- hensive, non-acute resource for hospitals and health systems. eir expertise in operations management, regulatory compliance and safe- ty controls can help health systems streamline efficiencies while alleviating many of the lo- gistical headaches that come with non-acute distribution. e greatest supply chain waste is productiv- ity — or lack thereof Hospitals and health systems have renewed their focus on reducing costs across the care continuum as new payment models emerge, reimbursement from payers shrinks and ex- penses rise. Supply chain costs are a big target for improvement, as they are oen providers' second-greatest expense aer labor. Cost-cut- ting in the supply chain today involves more than saving dollars and cents on purchase con- tracts; improving how health systems distrib- ute resources, labor and time is another major opportunity to enhance value, especially in the non-acute space. "When we talk to supply chain leaders, we'll hear that non-acute makes up about 2 percent of their overall spend, but 30 percent of their headaches3," Mr. Colizzi said. "Because it's only 2 percent, it's pretty hard to save mean- ingful dollars; the greatest waste is really in productivity or lack thereof." Logistical complexity is a major obstacle to productivity. Health systems have hundreds nonacute facilities, each acting as their own micro-supply chain. For every 100 physicians a healthcare provider has, there are roughly 425 different stocking locations, according to data from McKesson. But what makes the non-acute supply chain even more challenging is the fact that purchasing is typically managed by clinic staff or clinicians who are not trained in managing supply chain or in inventory principles, said Jody Dobson, vice president of business development, health systems for McKesson. "Everyone always wants a competitive price [on product], but when you start to assign a value to the activity and on the staff time in- volved in ordering, receiving [product], and the payment of hundreds of small orders — when you start to quantify that value, it's a dif- ferent story," Ms. Dobson said. "Managing all of those micro-supply chains can really create complexity." Regulatory oversight presents another serious challenge for health systems in non-acute dis- tribution. "It's harder and harder for health systems to be compliant and mitigate risk in the non- acute continuum," Ms. Dobson said. "If you think about how onerous the requirements are on any given topic regarding regulations in a health system, now multiply that by 200 facilities that are operating autonomously. You can see the risk is magnified proportion- ally." Partnering with a distributor to mitigate risk and reduce costs in non-acute space "If you partner with a distributor with our ex- pertise in an array of non-acute sites, you get a portfolio of supplies and services to meet spe- cific needs for different types of care settings," Ms. Dobson said. Non-acute distributors provide major strategic advantages in three areas: data transparency, product integrity/security, and operational efficiency. Visibility and transparency into purchasing data. Few health systems currently use data to drive their purchasing strategy, since it's diffi- cult to collect, organize and store the immense amount of inventory, cost and utilization in- formation on a centralized platform for a sys- tem's network.4 is data is critical, however. Reducing cost and improving patient care requires visibility into spend and the agility to quickly get the right products at the right time to the right place. Aggregated purchasing data offers supply chain leaders heightened visibility into spend 1. e Advisory Board, Healthcare Advisory Board interviews and analysis (2017). 2. Accenture, "Healthcare M&A: Mastering the 3D Chessboard" (2015). 3. ese statistics are not an actual measure of health systems' spend nor administrative burdens.