How Supply Chains Function in Healthcare

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A medical device delivered via a supply chain.Supply chains are the backbone of every industry that works with tangible goods, whether those items are fruits and vegetables, clothing, or — in the case of the healthcare sector — medical devices, supplies, IT equipment, and much more. In basic terms, a supply chain consists of the logistical infrastructure that enables something to go from a manufacturer to an end-user or consumer via a network of transporters, distributors, and other vendors.

The Unique Nature of Healthcare Supply Chains

However, healthcare supply chains are unique. Whereas a retail supply chain revolves around principles of supply and demand (e.g., more stock of a toy is needed to keep up with purchases), these concerns are less central to healthcare.

Certain essential supplies, like prescription drugs and syringes, will always need to be on hand. Plus, patients are not really consumers in the conventional sense, as they frequently require particular services and treatments, such as emergency room care, that may be selected for them by healthcare professionals.

For many providers, supply chains are major cost centers, with significant overhead stemming from unoptimized processes. A 2017 Premier survey of healthcare executives found that supply chain cost reductions were one of the top two priorities. An earlier survey by the same firm had found that a majority of these decision-makers expected their supply chain investments to increase through the end of the 2010s.

Streamlining healthcare supply chain management (SCM) is an ongoing challenge, especially as providers look to align costs with outcomes in the context of the industry-wide move toward value-based care. What can healthcare leaders do to improve supply chain performance and reduce their expenses in an increasingly cost-conscious and value-minded industry?

Why Healthcare SCM is Such a Significant Challenge: The Prescription Drug Example

Supply chains are inherently complex. In healthcare, such complexity is paired with the high stakes of preserving patient health and ensuring survival. Issues with drug shortages underscore how these two issues often intersect.

The U.S. Food and Drug Administration maintains a list of drugs that are in ongoing short supply, many of which are life-saving and have no ready alternatives. Inadequate drug supplies lead to higher rates of medical error, worse health outcomes, and increased mortality rates.

Securing enough of a particular drug can be difficult. Many medications, especially generics, are manufactured overseas, while others require specialty ingredients, such as the pig pancreas parts used in pancreatic enzyme replacement therapy. Sometimes, initially minor interruptions within these complex webs of production and transportation can snowball into major issues that slow down deliveries.

Even without such unexpected problems, regularly footing the bill for the initial purchase, insurance, transportation, duties, and taxes on drugs along with other medical supplies is often one of the biggest non-payroll expenses for healthcare providers. Hence, there is ample incentive to reduce these costs while also stabilizing the flow of vital goods from supply chains to patients.

What’s Being Done to Reimagine Healthcare Supply Chains: 4 Notable Trends

To address a wide variety of issues with SCM, providers have resorted to a mix of technological, operational and patient-centric solutions. Here’s a quick look at four approaches that have found some success in transforming healthcare supply chains into more reliable and economical infrastructures.

1. Taking the warehouse in-house

Warehouses are supply chain fixtures, so it’s no surprise that some providers have looked to assume greater control over these key facilities. The University of Pittsburgh Medical Center took this route in the wake of the enactment of the Patient Protection and Affordable Care Act in the early 2010s. It rented a space, installed a warehouse management system and other infrastructure, and hired its own workers, en route to quickly recouping its investment in the form of savings over its previous setup, which had involved navigating multiple vendors.

2. Betting on blockchain technology

Blockchain is the simple database tech underlying cryptocurrencies such as bitcoin. It also has potential uses in SCM, due to the fact that it’s difficult for anyone to tamper with or corrupt its entries. In healthcare, this could help ensure that the right medicines are being transported and that everyone in the supply chain can trust one another. The Center for Supply Chain Studies piloted a blockchain setup with pharmacy stakeholders, finding potential for creating a “trusted network of information that both industry partners and regulators can rely on.”

3. Analyzing real-time analytics

How are SCM costs tracking over a three-month period? Or over the course of a year? Having real-time analytics is usually the quickest, most effective way to get an answer to these types of questions. Healthcare providers can implement business intelligence software that fuels analytics dashboards, allowing them to get clear, actionable insights into trends across their operations. This helps pull information from multiple systems and track issues such as short- and long-term cost increases.

4. Customizing customer service for each patient

Telehealth initiatives offer a creative solution to some SCM issues. Instead of requiring a patient to visit an office and potentially undergo costly diagnostic procedures that require particular supplies, providers may be able to conduct an accurate diagnostic via technology such as video conferencing. A 2019 study found that telemedicine could save between $19 and $120 per visit for many patients. In addition to these savings, providers can better conserve some of their supplies and reroute resources.

What You Can Learn About SCM in The GW HCMBA Program

In the fully online healthcare-focused Master of Business Administration (HCMBA) from the George Washington University (GW), you will explore advanced topics in both the managerial and health-related aspects of the industry. Courses in regulatory affairs, accounting and healthcare quality, among others, will prepare you to navigate common SCM issues in a senior role.

To learn more about how you can get started with the GW HCMBA, visit the program overview page, where you can also download a copy of our brochure.

Recommended Readings:

How Data and Decisions Work Together
The Top Costs Associated With Running a Hospital


Cost Savings for Telemedicine Estimated at $1 to $120 per Patient Visit
3 Ways to Understand Healthcare Supply Chain in a Changing Market 
Exploring the Role of Supply Chain Management in HealthcareSurvey: Top healthcare supply chain priorities in 2018
Managing Healthcare Costs, Data Analytics Top C-Suite PrioritiesPharmacists warn of a ‘surge’ in shortage of common medicines
Drug Shortages: Additional News and Information