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Ivey International Centre for Health Innovation

Health sector supply chain strategy and management

  • Alexander Smith, Kaitlin Saxton, David Barrett
  • |
  • Aug 13, 2018
Health sector supply chain strategy and management

Rising global health costs, the rapid growth in the medical device, pharmaceutical and health technology industries, and policy shifts focused on efficiency gains have made supply chain management a priority area for most health systems. However, existing supply chain research efforts have concentrated primarily on non-health sectors, particularly manufacturing industries such as automotive and electronics, with limited focus on the health sector. Despite this, the health care sector is an important part of most industrialized economies and often presents significant supply chain challenges. An Ivey Health study was recently conducted to research the benefits, challenges, and metrics of various supply chain models used in the United States as related to clinician engagement and product standardization. This study involved a literature review and environmental scan of academic literature and white papers and key informant interviews with procurement directors who identified challenges related to the research question. Challenges and issues identified in these interviews were translated into a survey which was distributed to 836 US-based procurement directors, receiving 115 responses (13.8% response rate). Most (83%) of the responding organizations were large in size (300+ employees), with purchasing (91.5%), procurement (88.7%), and contract management (70.8%) being the most common job functions of participants. The vast majority of participants worked in hospital purchasing departments (92.1%), with the remainder of respondents coming from shared service (6.1%) and group purchasing (1.8%) organizations.

Clinician engagement involves understanding how clinicians are engaged in various supply chain models at the hospital, group purchasing organization (GPO), and shared services organization (SSO) levels. In addition to improving clinician buy-in and support, clinician engagement helps to further educate procurement staff on clinical activities. For all clinician engagement activities, particularly building long-term relationships, the concept of goal alignment was raised by participants. Goal alignment of supply chain and clinicians helps to drive engagement, and is facilitated by focusing on patient outcomes, leveraging supply utilization data, and making cost data open and transparent.

Offering incentives to clinicians for participation in supply chain activities can also help to drive engagement. In the United States, many hospitals offer bonuses to surgeons for meeting cost reduction objectives. Additionally, co-management agreements are sometimes offered to physicians which give them more responsibility and provide monetary compensation. To avoid negative impacts of incentives on quality of care, incentives must be applied consistently across a system. In addition to traditional physician engagement, nurses were identified as a valuable resource to engage. Procurement nurses bridge clinical activity with commercial requirements and can assess the effectiveness of products in real-time.

Surveyed participants indicated that “voluntary selection/clinician interest,” (70.7%) “recommendation,” (66.7%) and “mandatory participation” (20.0%) were the most common ways clinicians were identified for engagement. Nurse managers and department or clinic managers were most likely to recommend clinicians to engage in supply chain activities, though senior hospital leadership also contributed to recommendations. Participants also suggested that furthering nurse leadership engagement in supply chain meetings and identifying physicians most likely to be impacted by specific product changes and requesting their involvement were two methods of selecting clinicians for supply chain involvement.

Product standardization involves understanding the implications, risks, and benefits of different approaches to reducing product and service variety. Standardization criteria should include cost considerations, but also other, more clinically- relevant criteria. The most recommended criteria are patient outcomes, cost data, and staff feedback. The greatest barriers to standardization are difficulty obtaining clinician consensus, difficulty obtaining clinician involvement, cost of standardization, and time required for standardization. One of the most popular methods of facilitating product standardization is by creating product evaluation and standardization committees (PESCs). PESCs are generally comprised of interdisciplinary groups of clinical, administrative and procurement staff, and they collectively make purchasing decisions for individual hospitals or SSOs.           

Centralizing procurement across a clinical department, hospital, SSO, or health system can give departments more control over product selection, bulk ordering and standardization. While trusts can be used to secure better pricing, finding the optimal size of trust is important. A recent UK report found that smaller trusts were able to obtain larger discounts than large trusts as medical suppliers are less willing to lower prices for entire regions. For innovative products, the PESC process is different. It is often clinical staff and other end-users that suggest new products for purchase through the work of partnerships, networking, and working groups. Furthermore, price is less of a deciding factor and clinically-relevant criteria become more important.

Surveyed participants found that obtaining clinician consensus (69.5%), obtaining clinician involvement (40.2%), costs (36.6%), and time constraints (32.9%) were the most common barriers to standardization efforts. When asked to rank criteria used to identify products and services to be standardized from 1 (least important) to 5 (most important), participants weighed patient outcomes (4.57 average score), cost data (4.45 average score), and staff feedback (4.03 average score). When asked about the membership makeup of PESCs, respondents indicated that procurement/purchasing staff (96.3%) and nurses (93.8%) were the groups most commonly represented.

Note: While only US-based procurement directors were surveyed in the final published manuscript, the original study also included survey on healthcare supply chain management practices in Canada, the UK, and Australia. Since American procurement directors tend to have more control over practices, and to aid in standardization of data, only data from American procurement directors was used in the final manuscript. Despite this, the answers collected from UK, Canada, and Australia-based procurement directors were consistent with those from American procurement directors.


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David Barrett is the Executive Director of the Ivey International Centre for Health Innovation. Alexander Smith and Kaitlin Saxton are both Research Associates at the Centre.