In any industry there is terminology that is slow to be adopted but then becomes mainstream and functional. One of these mainstream terms that we use in healthcare today is supply chain management, which was created in concept in 1961 but not fully adopted by the healthcare industry until the late 1990s. Another one is healthcare value analysis which was created back in the late 1940s after World War II but did not transcend into the healthcare supply chain world until the 1970s and is not fully adopted as of yet.
As you can see, new concepts and terminologies take time to be adopted, and more importantly, to understand exactly what they are and what they are not. I remember people asking me what my title meant as a Materials Manager. Often, they would say, “It’s purchasing, right?” Well, materials management is not purchasing, inventory management, contracting, distribution, or logistics. It is a synergistic management approach that applies all these subsets into a cohesive system for streamlining the managing of supplies upstream and downstream to create maximum customer value.
In this same vein, we would like to help dispel the confusion about healthcare supply utilization management – what it is and what it is not. Therefore, we will attempt to clear the air on this topic once and for all.
What it is….
By definition, Supply Utilization Management (SUM) is “the management and control of products, services, and technologies’ consumption, applications, and use to ensure that they are being employed in the most efficient and cost-effective manner.” This is a new discipline for hospital supply chain professionals, but a mission critical one for your hospital, system, or IDN to survive and thrive in the new healthcare economy we live and work in. The reality is, it’s not good enough any longer to just obtain the best price on your commodities. You now must ensure that you have the best in-use cost, too, or your job is only half done as a supply chain professional.
What it is not…
Healthcare supply utilization management isn’t value analysis, strategic sourcing, standardization, price leveling, comparison shopping, cost management, or group purchasing. A supply chain manager shared with me that he first learned what supply utilization management was all about when his CFO asked him why his hospital’s I.V. set cost was going up when this supply chain manager had told this CFO that their system had the best I.V. set pricing in the region. That’s when the supply chain manager investigated how this could have happened. What he discovered was that his system had superior pricing on their I.V. sets as he thought. However, his hospitals were employing the highest priced I.V. sets in their I.V. set contract, when lower cost I.V. sets were available from the same contracted manufacturer. Now, he says that he realizes why supply utilization management is even more important than getting the best price on I.V. sets or any other commodity.
Why this distinction should be important to you
One of the mainstays of the Affordable Care Act is the reduction of the overall cost of healthcare. One way to do so is by reducing third party reimbursement to hospitals. The only recourse a healthcare organization has to combat these reductions is to lower its cost of operations by as much as 20%. Supply utilization management is a new source of supply expense savings that can really make a big difference in your hospital’s bottom line by as much as .02% to .05%. Don’t ignore this new source of supply expense savings because it could make the difference between a profit and no profit for your hospital in any given year.