By Connor Smith

Introduction

The U.S healthcare system has undergone unprecedented levels of consolidation over the past decade. The largest health system (HCA Healthcare) now has 214 member hospitals and the 25 largest systems collectively manage almost 20% of all hospitals in the U.S. A recent study by Definitive Healthcare found that, in 2019 alone, there were 294 hospital mergers and acquisitions, a slight decrease from 330 the year prior. It goes without saying that such high levels of consolidation have a massive impact on medical supply chains. However, whether these changes result in a positive or negative financial impact remains a heatedly debated topic in the healthcare community. Some argue that consolidation allows providers to leverage economies of scale and reduce costs. Yet, some evidence suggests this may not be the case and that consolidation can actually increase cost of care by up to 40%. In this article, I aim to briefly explore the driving forces behind hospital consolidation, how it is affecting medical supply chains, and the role technology plays in managing these increasingly complex supply chains.

A Brief History of the Driving Forces Behind Hospital Consolidation

The passing of the Affordable Care Act (ACA) in 2010 was a momentous juncture in U.S history, and arguably the most sweeping change to the nation’s healthcare system since the institution of Medicare & Medicaid. While the goal of the plan may have been to make healthcare more affordable and accessible to U.S citizens, the bill incentivized large scale consolidation across the entire industry that permeates to this day. Providers became incentivized to shift care delivery to an outpatient setting and work towards a value-based care model. As a result, health systems began rapidly acquiring and investing in facilities like ambulatory surgery centers, clinics, and physicians groups. This vertical integration caused health systems to evolve from mere collections of hospitals into fully fledged Integrated Delivery Networks (IDNs) that provide and coordinate patient care across the continuum. Similarly, health systems began consolidating horizontally by merging with other IDNs to improve access to capital, increase market share, and improve efficiencies. Constant external pressures to reduce costs and lower the price of treatment have exacerbated this trend and caused consolidation to persist at an accelerated pace, since integrated provider networks can more easily share physicians across facilities to reduce overall headcount and negotiate bulk supplies discounts.

Impact of Consolidation on Medical Supply Chains

Theoretically, these new, ‘mega-systems’ should be able to use these economies of scale to procure supplies at a lower cost and coordinate care more efficiently, thereby reducing costs. Traditionally hospitals have relied on Group Purchasing Organizations (GPOs) to leverage the aggregated buying power of multiple facilities and negotiate lower costs for medical supplies from manufacturers, wholesalers, and other vendors. As IDNs acquire more hospitals and grow in size, they can often negotiate near equal prices with manufacturers without these middlemen and realize greater cost savings. However, savings from such mergers are, unfortunately, often negligible, and they oftentimes actually cause supply chain costs to increase.

A study of 1200 hospitals done by researchers at the Wharton School found that the average supply chain savings for a target hospital in a merger of equal sized systems was only about $176,000. Moreover, the acquirers are often left spending more on supply chain due to complexities that arise from an acquisition like managing physician preference items. The researchers found that, while an acquirer saved an average of 6.4% on inexpensive commodities in the supply chain, these savings were more than offset by a 1.1% increase in costs relating to physician preference items. As more and more hospitals are integrated into an IDN, it becomes increasingly difficult to standardize purchasing decisions across a growing number of physicians unless the system has a robust digital infrastructure and inventory tracking system. Unfortunately, 64% of providers lack dedicated supply chain management systems and 80% still rely on manual processes in some capacity to manage supplies. Consequently, consolidation oftentimes leads to less efficient supply chains that procure similar products from a myriad of suppliers, lack transparency as to where products are located in a system, and have excess supply stocks that are often wasted or expire. 

How Technology Can Break the Cycle

Prior to the pandemic, consolidation was already among the top trends to watch in healthcare for 2020 and experts are speculating that the financial effects of COVID-19 are likely to accelerate this phenomena in the post-pandemic era. Pending any drastic regulatory or political actions, it is therefore unlikely that hospital consolidation is going to decelerate anytime in the near future. Hence, IDNs must leverage digital technologies if they want to properly manage their increasingly complex supply chains and control costs. One of the easiest solutions they can implement are supply chain management platforms. Manual systems are inefficient and error prone, whereas digital supply chain management systems enable automation, reduce error, and can be coupled with advanced analytics to drive further efficiencies. 

Using supply chain analytics, IDN’s can track usage of supplies to help reduce sources of waste like purchasing physician preference items and maintaining expired products. The majority of healthcare executives and supply chain managers agree that supply chain analytics could positively impact hospital costs and even improve hospital margins by over one percent. Considering that hospitals, on average, realize net revenues in excess of $300 Million, a one percent improvement in operating margins can equate to millions of dollars saved. Moreover, these systems can be further integrated with technologies like RFID to enable real-time medical supply tracking within an IDN and help providers load balance supplies across the hospitals in their system based on demand to realize even greater cost savings.

Conclusion

I hope you enjoyed this article! If you are interested in ways healthcare supply chains are evolving, check out my series on the future of medical supply chains. Part one can be found here. Additionally, if you are looking for ways your medical supply chain can be improved, feel free to contact us at Consensus Networks, where our HealthNet technology is being used to reinvent medical supply chains for the post-pandemic era. Until next time!

By Connor Smith

Hello everybody! Welcome to the conclusion of my series on how COVID-19 is changing medical supply chains. In Parts I & II I talked about how the pandemic is forcing U.S medical supply chains of the future to embrace digitization and automation, rep-less sales models for high cost implantable medical devices, and the influence that domestic manufacturing and value-based healthcare are having on their evolution. Before I conclude this series, I’ll add the caveat that medical supply chains will evolve in a myriad of ways far beyond just the six I addressed. These are simply what I believe are the most profound changes on the horizon for these complex systems. Now, let me dive into the two final transformative forces that will reshape U.S medical supply chains in the post-pandemic era.

5. Sophisticated Risk Analysis & Disaster Planning Software

COVID-19 is far from the first environmental disruption global supply chains have faced in recent times. There was the SARS outbreak in 2003, the Ebola virus in 2014, and natural disasters like earthquakes and hurricanes that occur frequently and can have devastating economic impacts. In fact, as many as 85% of supply chains experience at least one major disruption per year. The reality of the modern era is that globalized supply chain networks allow us to consume goods and services at incredibly low  prices, but they are also riddled with ‘achilles heels’ that can shake global economies if perturbed.

As I mentioned in Part II, one way U.S based providers and manufacturers will look to mitigate such interruptions in the future is by ensuring geographic redundancies throughout supplier networks and logistics partners and leveraging domestic manufacturing. While this approach will be one core component of U.S medical supply chain architecture in the future, an overall proactive, strategic approach to supply chain design will be paramount. Hence, medical supply chains of the future will be designed using sophisticated risk analysis software that leverages predictive analytics and advanced simulations to model for possible disruptions like pandemics and natural disasters before committing to suppliers and plan accordingly.

Academics have been developing operational supply chain risk analysis models that leverage AI and advanced computational methods for well over a decade, and supply chain experts across all industries have known the benefits of proactive supply chain risk mitigation for some time. A 2017 study conducted by Deloitte found that taking a proactive approach to supply chain risk management can save firms up to 50% when managing major disruptions. As medical supply chains become increasingly transparent and digitized, investments into proactive risk assessment technologies will be one of the best ROI that medical supply chain management teams can make. Using tools like predictive analytics, supply chain management teams will be able to quantify the risk of using a particular supplier by modeling scenarios like the spread of a virus to a particular region, losing a key manufacturing plant to a natural disaster, and more. Some researchers have already started developing simulation based analyses for global supply chain disruptions resulting from the spread of COVID-19, and it is reasonable to expect that using such models for supply chain planning in the future will become the norm. 

6. Integrating Population Health Analytics 

Originally posited by David Kindig and Greg Stoddart as “the health outcome of a group of individuals, including the distribution of such outcomes within the group”, population health has become a fairly nebulous term used to describe the overall health of patient populations. ‘Pop health’ research encompasses everything from studying how socioeconomic factors like income levels, race, or education level influence the prevalence of certain conditions to the prevalence of various genes in communities and how that affects disease spread and more. Depending on who you talk to, they likely have a different view as to what population health is and the responsibility that providers and manufacturers have in improving outcomes.

Regardless of your thoughts around what population health ecompases, as healthcare continues to evolve towards a value-based model it is inevitable that population health will play an increasingly vital role in how providers deliver care. Value-based incentive structures are designed to drive healthcare towards what the Institute of Healthcare Improvement refers to as the ‘Triple Aim’: improving the patient care experience, improving the health of populations, and reducing the per capita cost of healthcare. An overview of the triple aim is pictured below.

Prior to the pandemic, providers were starting to integrate population health initiatives with supply chain management to combat the increasing strain they felt from over half of the U.S adult population having at least one or more chronic diseases. For example, Indiana-based Eskenazi Health extended its partnership with Meals on Wheels in 2017 to deliver healthy meals to patients discharged from the hospital at their home in an effort to reduce readmission rates. A recent analysis published by Providence Health System found that COVID-19 is accelerating this transition to a distributed care model in which patients receive personalized care from their homes or local clinics instead of at a Health System. They found that the use of virtual care technologies coupled with the desire to reduce unnecessary visits because of the pandemic is forcing medical supply chains to become more personalized. 

It is reasonable to suspect that the medical supply chains of the future will become increasingly patient-centric and account for the socioeconomic, genetic, and other key factors that influence a patient population’s well-being. The Internet of Medical Things market is growing at over 20% year over year and technologies and will likely increase due to the rapid adoption of telehealth & remote patient monitoring technologies because of the pandemic. These platforms will enable providers to gather more information about their patient population than ever before and construct truly personalized care plans. Medical supply chain teams of the future will integrate this information with predictive analytics models to not only ensure that patients receive the best possible care, when and where they need it, and at the lowest cost, but also make cost effective population-level interventions that improve overall societal health levels. 

In Conclusion
I hope you enjoyed the final installment of my series on the future of U.S medical supply chains! Interested in learning more or ways your medical supply chain could be improved? Feel free to contact us at Consensus Networks, where our HealthNet technology is being used to reinvent medical supply chains for the post-pandemic era.

By Connor Smith

Hello everybody! Welcome back to my series on how COVID-19 is forcing medical supply chains to change. In Part I I talked about how the pandemic is forcing the medical supply chains of the future to embrace digitization and automation and rep-less sales models for high cost implantable medical devices. If you have not checked out the first part of this series, you may do so here. Without further delay, let’s dive into two other ways medical supply chains will evolve.

3. Building Resilience through On-Shoring Production

It’s no secret that China is the world’s largest producer and distributor of medical supplies. Prior to the pandemic, China manufactured 48% of the United States’ personal protective equipment (PPE) and over 90% of certain active pharmaceutical ingredients (APIs). When factoring in other foreign suppliers, the U.S imports nearly $30 Billion worth of medical supplies every year, or roughly 30% of all its medical equipment. While this may seem like a fairly trivial portion of U.S total medical supplies, the pandemic has illustrated the profoundly negative consequences of relying entirely on foreign sources for particular items. There are over 25 drug shortages related to COVID-19 (17 of which are from increased demand) and critical shortages of PPE over six months into the pandemic.

Aside from the public health consequences posed by such disruptions, failure to make domestic supply chains more resilient pose a national security threat. Accordingly, shoring up medical supply chains is a priority for both presidential candidates for the upcoming election. President Trump recently announced an executive order aimed at increasing U.S domestic manufacturing and onshoring supply chains for pharmaceutical and medical supplies to protect against potential shortages. Similarly, Democratic Presidential Nominee Joe Biden put forth a 5 page plan articulating actions he will take, if elected, to rebuild domestic manufacturing capacity and ensure U.S medical supply chains remain resilient and geographically redundant in the future.  

Likewise, the commercial sector has expressed similar sentiments. A recent study conducted by McKinsey & Company found that 93% of surveyed supply chain experts listed increasing resiliency across the chain as a top priority with an emphasis on supplier redundancy and near-shoring production. The U.S medical supply chains of the future will emphasize  localization to mitigate as many disruptions as possible. Such regionalization will also make it easier to shorten the distance between suppliers and customers. As pointed out by Brad Payne of PCI Pharma Services, “Shortening the distance in the supply chain expedites deliveries and lessens room for complicating factors, like customs clearance”. 

Forward looking supply chain leadership on both the provider and vendor sides will be investigating ways to leverage these new logistics and distribution paradigms to reduce their bottom line and improve the quality of their services. For example, technologies like Predictive Analytics can be used to improve last mile delivery for medical supplies manufacturers. Other industries have leveraged logistical data analytics in this manner to reduce fuel costs and improve the quality and performance of their deliveries. Healthcare supply chains of the future will leverage these technologies and other tools like RFID to provide more efficient deliveries and optimize procurement strategies.

4. Use Value-Based Procurement Strategies

Historically, providers received payment through a fee-for-service model in which they are reimbursed based on the number of services they render or procedures they order. This strategy made sense when it was instituted as the reimbursement mechanism for Medicare & Medicaid in 1965, but it has perversely affected the way healthcare is paid for today. Physicians are incentivized to provide as many billable services as possible and take a ‘defensive’ approach to healthcare, ordering procedures and tests just to be safe. Consequently, they may order unnecessary tests and procedures without hesitation, as neither they nor the patient are financially responsible, increasing the cost of care. Over the past decade, insurers have started implementing ‘value-based’ payment models that link reimbursement to patient outcomes in an effort to reduce the overall cost of care and improve patient outcomes. Early results suggest that value-based reimbursement can reduce the cost of claims by nearly 12% and improve chronic disease management. The benefits of value-based models by stakeholder may be seen below.

Prior to the pandemic, pure fee-for-service was expected to account for less than 26% of all reimbursements in the U.S by 2021. Given the immense financial impact of the virus, the impetus to reduce costs by transitioning to value based care has never been greater. Hence, value based procurement, or ensuring that the right product is delivered to the right patient at the right time and at the lowest cost, will be the norm of medical supply chains of the future. As members of HIMSS have pointed out, the future of the healthcare supply chain will emphasize connecting cost, quality, and outcomes to help realize the Triple Aim and optimize provider  performance.  

Similar to the adoption of rep-less sales models I described in Part I, the foundational technology underlying value-based procurement will be clinical supply chain integration. Connecting supply chain and clinical data sources enables providers to redefine how they administer care. Once integrated, predictive analytics can be used to guide procurement decisions based on the cost of the material and its outcome for the patient. Some hospitals have already saved over $15 Million from clinical supply chain integration. Additionally, EHR integration with supply chain data allows providers to assess clinical variance in treatment with granular detail. Such functionality will be critical as providers look to minimize the impact felt by the pandemic, and continue playing a key role in how they operate into the future.

In Conclusion

I hope you enjoyed the second installment of my series on the future of U.S medical supply chains! I will be back next week with my final two insights as to what the future of these systems will look like. Interested in learning more or ways your medical supply chain could be improved? Feel free to contact us at Consensus Networks, where our HealthNet technology is being used to reinvent medical supply chains for the post-pandemic era. Until next week!

By Connor R. Smith, Originally Published March 14th, 2019

Blockchain saw significant interest from major corporations in 2018. IBM began deploying initial proof-of-concept solutions to do things like sourcing food throughout Walmart’s supply chain. Many other enterprise use cases were speculated on and announced for Blockchain technology, and the year culminated with Amazon Web Services announcing it would be deploying business-ready blockchain solutions. While juggernauts like IBM and Amazon making strides in the space may be a strong indicator for the future of blockchain, with the “Crypto Winter” in full stride, one cannot help but look back with 2018 with some disappointment. Blockchain was supposed to change the fabric of how modern society does business, but very few proofs-of-concept actually made it past a whitepaper. Healthcare should be undergoing a total transformation because of the Blockchain, but we instead received niche, unneeded solutions, such as a cryptocurrency for dentists. People were more focused on creating a killer dApp or cryptocurrency than focusing on developing solutions for the actual problems that healthcare faces. An examination of the alignment between what the potential uses for blockchain are in healthcare versus the immediate needs healthcare has for blockchain is warranted if the technology is to see growth in this sector. Before considering what healthcare could do to healthcare, let’s look back and assess what has not worked in healthcare so far.

What Blockchain Should Not be for Healthcare:

A Cryptocurrency for Medical Professionals

New altcoins keep popping up every day. There are literally thousands of cryptocurrencies, each claiming to be “highly scalable”, “more secure”, and “the fastest”! To make matters worse many of these have very specific use cases, that are oftentimes laughable like WhopperCoin or HempCoin. Obviously, not all altcoins are created equal and many are intentionally memes or get rich quick scams that will die out over time. However, when ‘legitimate industries’ create their own cryptocurrency for a solution that doesn’t need it, it has major implications for the crypto and blockchain communities if they wish to be taken seriously and see adoption. In healthcare, the most glaring example of this is DentaCoin.

Many of DentaCoin’s goals are fantastic. They want to shift dental care to a patient-centric model and make care preventative as opposed to corrective by providing continuous care, access to a dentist, and good dental hygiene tips through a mobile platform powered by DentaCoin. If successful they could significantly drive down the cost of dentistry and maybe improve a few smiles along the way. But can someone legitimately tell me why the platform needs its own cryptocurrency associated with it? Their use of blockchain and smart contracts is to track payments and establish financial incentives for both the patient and dentist is legitimate, but there is no reason it needs its own cryptocurrency. 

Projects like DentaCoin with a native cryptocurrency will only harm blockchain-enabled healthcare solutions in the long run. It is just shortcutting systemic issues like interoperability and regulation. There are already projects that are optimized for financial transactions like Bitcoin and Stellar, as well as conventional fiat payment systems. Each service we use does not need its own cryptocurrency with it. Are consumers really going to keep track of and maintain the wallets of tens or hundreds of cryptocurrencies? I don’t think so. For a more in-depth article on blockchain projects not needing their own cryptocurrency click here.

A Way of Storing Medical Records

Does the U.S healthcare system need to continue to improve its storage and management of patients’ medical records in pace with technological growth? Absolutely. Medical records are the number one target for hackers to sell for identity theft purposes. A single medical record can go anywhere from $10 – $800/record on the black market depending on the record compared to just $1/record for stolen info from a credit card. Is storing medical records on the blockchain the way to fix this problem? Absolutely not.

Regardless of the encryption and identity protections used to preserve anonymity on the record, if so much as one item could lead to a network member to identifying a patient, Health and Human Services would be all over you for violating HIPAA privacy and security standards for handling patient information. If you live in Europe, GDPR restrictions are even more restrictive for health data, as computer IP addresses classify as health information identifiers. Just because you can do something doesn’t mean you should. Yes, HIPAA can make sharing medical records difficult, but it’s important to remember too that these regulations exist to protect and ensure the rights of the patient. Violating these isn’t only going to get you fined, but is doing a disservice to the patient’s rights to their data.

Moreover, storing medical records on a blockchain just doesn’t make sense. Blockchain was never meant to fully replace databases. Electronic medical records can range anywhere from 1 MB to over 3 GB of data depending on the file. This automatically eliminates secure, proof-of-work networks like Bitcoin with block size limitations from being contenders. Even protocols like Ethereum and Storj that don’t have any block size limitations would be impractical choices. Yes, you could theoretically do it, but the sheer computational power and operating costs to do so would be entirely impractical. The U.S Healthcare system, which costs over 18% of the United States’ GDP ($3.5 Billion), is not going to pay even more money for sophisticated mining equipment so it can hash and store medical records on a blockchain.

Improving Electronic Medical Records’ (EMR) security and access isn’t going to be done by hashing medical records to a blockchain. It’s going to be done by innovating at endpoints of the system and improving secure IT infrastructure to reduce the likelihood of a malicious actor accessing the records. Yes, improved cryptography and distributed databases may play a hand in accomplishing this, but that is distinctly different then hashing records to a blockchain.

Wrap Up:

Blockchain can really have a transformative impact on healthcare, but tokenizing medical services and storing EMRs on a blockchain are not going to be the solutions that have a lasting impact. Blockchain will revolutionize healthcare by creating things like audit trails and digital identities for credentialing and care tracking. I will be following up in a future article on these blockchain use cases and more that could provide significant value to healthcare. Thanks for reading!

(Part II Coming Soon!)