Hospitals Could Save $23 Billion Annually by Streamlining Supply Chain Operations, Product Use

Navigant analysis suggests 18% average supply expense reduction opportunity for hospitals while maintaining quality

CHICAGO – Sept. 13, 2017 – Hospitals nationwide could reduce annual supply expenses by approximately $23 billion in aggregate through improvements in supply chain operations, processes, and product use, according to a Navigant analysis of more than 2,300 hospitals. This represents a 17.8 percent average total supply expense reduction opportunity or up to $9.9 million a year per hospital – an amount equivalent to the annual salaries of 150 registered nurses, or the cost of 4,000 cardiac defibrillators or five Da Vinci robots.

The analysis also shows lower supply spending does not have to reduce quality, as hospital-acquired condition and value-based purchasing scores are slightly better at top-performing supply chain facilities. Moreover, the chance to realize savings may exist for all types of hospitals, with opportunities relatively equal across such characteristics as size, regional location, and whether the facility is urban or rural, for-profit or not-for-profit, or system-based or standalone. To view these results, visit www.navigant.com/SupplyChainAnalysis

“The pressure on hospitals and health systems to reduce costs and maintain quality will only intensify, no matter the outcome of healthcare reform,” said Christine Torres, system VP of supply chain management for Philadelphia-based Main Line Health. “The supply chain represents close to a third of the average hospital’s overall operating expense, and it’s predicted to surpass labor as a hospital’s greatest expense by 2020. Opportunities exist for all organizations, even top performers, to improve supply chain efficiencies while continuing to offer the highest levels of care to the communities we serve.” 

Provider Best Practices
The study found that the top 24 percent* of 2,331 U.S. hospitals analyzed spent $23 billion less a year than other facilities on supply chain products and related operations, processes, and procedures. Savings could be achieved if the remaining 76 percent of hospitals perform at the level of top performers for supply chain budget efficiency. 

Top performers consistently leverage evidence-based protocols and data analytics to reduce variation in pricing, product use, and clinical outcomes. This information better equips supply departments to:

“It’s clear that some hospitals have the appropriate strategies and processes in place to efficiently manage supply chain budgets while maintaining high-quality outcomes,” said Rob Austin, associate director at Navigant. “For example, we have found, somewhat counterintuitively, that the highest-performing providers are simultaneously able to decrease cost and improve quality, in part by reducing clinical variation. Lower-performing supply chain departments need to leverage these types of proven best practices to drive care delivery improvements.”

Benchmarking data is also essential, but providers must look outside their organization to obtain a true snapshot of performance.

“In-hospital benchmarks and year-over-year improvement goals are valuable in monitoring internal supply chain performance, but these measures don’t reveal an organization’s true improvement potential,” said Paul Weintraub, director at Navigant. “To accurately uncover efficiency opportunities, providers must look beyond their facility’s four walls and leverage industry-wide benchmarking data that compares their supply performance against that of their peers.” 

To access Navigant’s supply chain benchmarking calculator, visit www.navigant.com/supplysavings.

*Analysis Methodology
Publicly available data from Definitive Healthcare (2015-2017) was reviewed across four key performance indicators (KPIs) for supply expense: per case mix index (CMI) adjusted patient day; per CMI adjusted discharge; as a percent of total operating expense; and, as a percent of net patient revenue. Hospitals were divided into 12 peer groups based on CMI and adjusted occupied bed count, and 560 of 2,331 (24 percent) with savings opportunities of less than 5 percent of total supply expense across each KPI were designated top performers. 

Navigant’s Healthcare practice is comprised of more than 500 consultants, former provider administrators, clinicians, and other experts with decades of strategy, operational/clinical consulting, managed services, revenue cycle management, and outsourcing experience. Experts collaborate with hospitals and health systems, physician enterprises, payers, and government entities, providing enterprise-wide strategic development and performance improvement solutions. 

About Navigant
Navigant Consulting, Inc. (NYSE: NCI) is a specialized, global professional services firm that helps clients take control of their future. Navigant’s professionals apply deep industry knowledge, substantive technical expertise, and an enterprising approach to help clients build, manage, and/or protect their business interests. With a focus on markets and clients facing transformational change and significant regulatory or legal pressures, the firm serves clients in the healthcare, energy, and financial services industries. Across a range of advisory, consulting, outsourcing, and technology/analytics services, Navigant’s practitioners bring sharp insight that pinpoints opportunities and delivers powerful results. More information about Navigant can be found at www.navigant.com.

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