by Peter B. Nichol

Synergies of supply chain management for healthcare

Oct 14, 2016
Consumer ElectronicsHealth and Fitness SoftwareHealthcare Industry

Advances in the past 50 years have transformed the manufacturing supply chain. Parallel advances are taking place in healthcare. Microsegmentation and servitization are creating new value for companies and patients.

healthcare cloud
Credit: Thinkstock

Industries are taking notice of the parallels between advances in manufacturing and advances in healthcare. The similarities are staggering.

Organizations utilizing supply chain management (SCM) are taking a serious look at digital for process improvement and enabling collaboration across suppliers. New synergies, fully engaged customers, the ability to scale with new offerings have become sources of renewed value. Does this sound familiar? Healthcare also needs new synergies between providers, a complete picture of patients’ health, and the ability to adapt to new payment and reimbursement models.

Virtually all supply chain optimization initiatives observe the same key lesson. The lesson is that collaboration between suppliers is essential for efficient and lean supply chain management. 

There are 12 areas where the synergies of supply chain management and healthcare management align. Today we’ll be covering the first six areas of alignment. In my next column, will expand on the remaining areas.

  1. Microsegmentation: Consumerization
  2. Point-of-sale: Point-of-care
  3. Servitization: Person-centered primary care
  4. Value-based supply dhains: Value-based reimbursements
  5. Reverse logistics: Patient readmissions
  6. Manufacturer list price: “Chargemaster” or provider list price
  7. Product volume discounts: Patient volume discounts
  8. Design of products: Design of care
  9. Cost-to-build: Cost-to-serve
  10. Product Commoditization: Population health
  11. Removing intermediaries: Cost-out initiatives
  12. Direct-to-consumer: Direct-to-patient

1. Microsegmentation: Consumerization

Microsegmentation uses technology to understand the needs of customers better. The objective is to divide a company’s customers into groups to better serve those customers. The organization can then target specific customers according to microsegments to maximize the needs for each group of customers.

In healthcare, we call this consumerization, which involves a new product, service or interaction design. It’s a reorientation of the patient experience using technology to focus on the patient and the spaces around a patient (life, the world, home, work).

2. Point-of-sale: Point-of-care

Cashiers and checkout lines all come to mind. Point-of-sale is usually where the final manufacturing transactions occur. Point-of-sale signals the tail end of the supply chain from buy, make, store and move to sell.

Point-of-care, is the time when clinicians deliver healthcare products or services, or offer interactions to patients at the time of care. Paper documentation and electronic medical records can be utilized or updated during this period. This is the most recent interaction of an episode of the care (“episode”) where services are provided for the treatment of conditions.

3. Servitization: Person-centered primary care

Servitization gives manufacturers the capability to bundle services and present new solutions to customers to supplement existing product offerings. Rolls-Royce today doesn’t only sell aircraft engines. It offers complete service solutions, including core operations and engine maintenance functions.

Bundled payments, of course, sound familiar with episode-based payment where payment is delivered for services from two or more providers. However, what about person-centered primary care? Person-centered primary care is about grouping services to be more flexible for patients considering their desires, family situations, values, social circumstances and lifestyles. Person-centered primary care groups services to meet the needs of patients. Doing things with patients, not to them.

4. Value-based supply chains: Value-based reimbursements

Value-based supply chains (VBSC) are about partnerships with producers, processors, distributors and retailers. These separate players in the supply chain together share an environment, or economic or social values. They all have common goals.

Ask anyone is healthcare, and they are there for a reason. They care. They want to make a difference and want to help. They provide care for our loved ones when all hope has been lost. They speak to us when we need that friendly voice. They care.

When you enter a provider office and consider the multiple treatments and procedures that could result from a diagnosis, it’s hard to find value alignment from each player in the healthcare supply chain. That’s about to change. Value-based reimbursement is a paradigm shift and will change the landscape of healthcare for payers and providers — and, yes, change the experience for the patient, too. The population health approach moves away from fee-for-services (charge per procedure, more procedures equals more income for the provider) and steps into a world of fee-for-value. In this model, reimbursement is conditional based on the value patients receive, not the number of procedures they endure.

5. Reverse logistics: Patient readmissions

A forward supply chain has five main phases: (1) buy, (2) make, (3) store, (4) move and (5) sell. The terms reverse logistics, aftermarket logistics and retrologistics all refer to the reverse supply chain. A reverse supply chain changes the direction of the phases: (1) sell, (2) move, (3) store, (4) make and (5) buy. A reverse supply is used for repairs or defects, field service, warehousing and recycling. Product returns or defects are the most common use.

Patient readmissions refer to the circumstance when a patient is admitted to a hospital within a certain period of time after an initial admission. For reference, Medicare defines readmissions as patient hospitalization within 30 days of the initial hospital visit.

Medicare recently ratcheted up its readmission penalties. A total of 2,597 hospitals — or half the nation’s hospitals — will be punished for poor readmission rates in a government attempt to curb the trend.

6. Manufacturer list price: “Chargemaster” or provider list price

The manufacturer list price is also known as the manufacturer’s suggested retail price (MSRP). This list price is commonly 2.5 to 3 times the wholesale price. Essentially it’s a manufacturer’s attempt to standardize prices by suggesting prices for goods, services or interactions. Often resellers don’t abide by these suggested prices. The solution has been the minimum advertised price (MAP). The MAP requires sellers not to sell for less than an agreed-upon price. MAPs help to establish price consistency.

There is some transparency in this approach. For example, if a candy bar cost 99 cents at CVS on Monday and then $12 on Friday, it would be obvious something was going on. While consumers don’t get a direct benefit from the transparency, anomalies are easy to identify. In summary, retailers get a discount from distributors — customers do not.

Most people have had a period in their lives when they had no insurance. It may have even been a one-day period between jobs when they were young. The price of candy bars does not vary that much. However, the “sticker” price of a medical procedure is harder to notice. What if Telnet Healthcare in Dallas increased the cost for a procedure from $1,000 to $5,000? When would you notice? Seriously, take a minute to think about that. Would you ever notice? Insurers never pay “chargemaster” prices referred to as “charges” because of bilateral agreements between insurers and providers to pay the “negotiated price.” Payers get a discount from providers — patients do not.

Better health from supply-chain management

Sliding revenues and creeping expenses have pushed payers and providers to lean out their organizations. In many organizations, staff reductions and budget reductions have impacted operations and clinical performance.

Individually, the silos of the healthcare delivery system have been “leaned for maximum benefit.” Re-evaluating your organization from a healthcare supply chain perspective and collaborating with supply chain partners may offer the last available reduction in the cost-to-serve.