Becker's Hospital Review

9 To strike the right balance when stocking medical supplies, healthcare providers should begin by examining the most-recent inventory report, according to Barbara Giacomelli, PharmD, Vice President of Strategy, McKesson RxO. "Typically, healthcare organizations will do one to two inventories a year," she said. "e report can show you where you potentially have too much inventory and where you have inventory that is at risk of expiring and being obsolete." Aer examining the inventory report, the next step is to use data and an- alytics to help ensure supplies are being replenished in a more efficient, less costly way. For example, McKesson offers a subscription service that gives customers access to a robust data analytics tool that looks at pur- chasing, reimbursement and other trends. "ere are many sources of data in a healthcare organization, and pull- ing that data together in an easy-to-use fashion is important when you're trying to manage your inventory and your supply chain process," Dr. Giacomelli said. e use of aggregated data offers health system leaders visibility into uti- lization and spend and enables them to make more informed purchasing decisions and track performance. is insight is critical for creating a more efficient supply chain. It's also crucial for healthcare organizations to have a distribution model that enables them to order the exact quan- tity of supplies they need. is is especially important for clinics and medical offices with limited storage space. "Over 75 percent of what we process for our primary care customers is in low unit of measure," Mr. Hilton said. "at allows them to not tie up inventory … and to really hit the right quantity that they need to take care of their patients, while not occupying too much valuable real estate in the supply room and too much working capital in inventory that they don't need." Dr. Giacomelli noted there is more than one way to improve inventory management, and providers will need to use a variety of strategies. For example, she said effectively managing high-cost therapies that have un- predictable demand requires a different inventory management strategy than other types of pharmaceuticals. She recommended a consignment model to help improve inventory efficiencies for high-cost drugs. "Consignment is a strategy … for when you want to have a drug avail- able, but it's expensive," she said. "A distributor provides the drug, but the hospital doesn't pay until they're actually used." Standardize products across care sites Standardizing medical and surgical supplies is an important part of driv- ing down supply chain costs because product variation pushes inventory costs higher. However, as health systems expand their reach by adding new physician practices and other facilities, they struggle to standardize products across care sites. Product standardization can be a daunting task for health system supply chain leaders, who are trying to manage the process at both acute and nonacute facilities that are spread over a large area and use disparate operating systems. However, it must be done to create a more efficient supply chain and to knock back costs. "Without standardization you can't begin tracking metrics to know where the outliers are," Mr. Hilton said. "Without standardization it's very difficult to use automation." In nonacute facilities, it is highly likely that a clinician is managing the supply chain. Standardizing products means less inventory for that cli- nician to manage. It also reduces clinical variation. Consolidating prod- ucts into fewer SKUs means that clinician has less to manage, leaving more time for patient care. Because the process is so complex, health system leaders may feel defeated before they even begin. To overcome the inertia, Mr. Hilton recommends taking the process slow and being strategic about which changes to make. Recommended steps include reviewing purchasing data across care set- ting by specialty. Decide on a product cost strategy — will products be standardized based upon cost source or through clinical usage. Aer evaluating products, be sure a formulary is loaded into purchasing pro- grams to lock in the approved items. Finally, track compliance across all care settings and specialties. "It sounds pretty overwhelming, but you've got to chip away. Pick one, two or three areas to standardize and build on that," Mr. Hilton said. Conclusion A large portion of a hospital's operating budget is dedicated to supply chain, making it a prime target for cost-cutting initiatives. Creating a more efficient supply chain is challenging for both acute and nonacute providers, but they don't have to tackle the problem alone. Many health- care organizations are partnering with experts, such as those from McK- esson, to maximize savings in this area. n 1 HFMA's Value Project: Phase 3 Strategies for Reconfiguring Cost Structure. June 2015. Healthcare Financial Management Association, 3 Westbrook Corporate Center, Suite 600 Westchester, IL 60154-5732. "Without standardization you can't begin tracking metrics to know where the outliers are...Without standardization it's very difficult to use automation. - Brad Hilton, Senior Vice President of Customer Experience, McKesson

• Cover