Aligning Supply And Demand

Industry Leaders Look For Ways To Reduce Volatility That Can Lead To Shortages And Waste

As ski resorts gear up for fresh powder, healthcare providers know what’s coming: a lot more injuries.

While experiencing a serious fall comes as a surprise to that skier, local hospitals and their suppliers have usually prepared ahead of time for the predictable spike in emergency room visits, so the products used to treat fractures, dislocations, and other common injuries are at hand when needed. Still, too often suppliers and providers fail to plan and communicate effectively for expected changes in medical supply usage. Preventing those surprises – and mitigating the impact of truly unpredictable events – is the focus of a new industry initiative focused on improving visibility in the healthcare supply chain. The initiative’s goal is to better align supply and demand, reducing both shortages and waste.

“We live in an industry where everyone likes to save lives and come to the rescue,” said Chief Commercial Officer Steve Kiewiet of Intalere, a group purchasing organization. “So we tend to believe that everything done inside a hospital is unpredictable. But in reality about 90% of what happens in a hospital is predictable if we put the right processes in place and listen to what the data is telling us.”

A major new effort to identify the right processes – for predicting demand, adapting to utilization shifts, and responding to shortages when they do occur – began at the Healthcare Supply Chain Collaborative’s new Supply Chain Visibility Conference in April 2019. Participants included supply chain and operations leaders from distributors, manufacturers, health systems, group purchasing organizations (GPOs), and information technology firms. They agreed that the industry has a long way to go to achieve true supply chain visibility, but also identified steps that trading partners can take now.

Collaborate To Reduce And Respond To Backorders

Michelle Clouse, Vice President of Customer Experience with Concordance Healthcare Solutions, co-presented with customer Ron Collins, Vice President of Supply Chain with the University of Tennessee Medical Center. “We’re all in this ship together to get product from the point of manufacture to the point of use,” explained Clouse.

The two organizations did a rapid improvement event to get at the root causes of back orders. They found that certain factors often lead to “surprise” demand spikes or shortages, such as:

• A hospital hiring a new surgeon
• Doctors attending a major clinical conference and coming back with requests for new products
• Members of a regional GPO signing a committed-volume contract with a single supplier

The speakers said such changes can and should be better anticipated, and that expected shifts should be communicated through the supply chain. Still, stock-outs can’t be prevented entirely. They recommended that providers collaborate in advance with their distributor on an approved substitution list. “You even need to have a sub for the sub,” said Clouse, because if you move from one product to its sub, demand for that second item will spike and may exceed supply.

Collins asked suppliers to proactively identify the best subs when a product is back-ordered. “We have to take care of patients, so please tell us what alternative products will work, even if they’re from your competitor.”

Build Clinical Support And Trust

Russell Royer, Director of Heart and Vascular Services for Loma Linda University Medical Center, agreed that while there is a mystique around the unpredictability of healthcare demand, it’s really not that much of a surprise: “We can predict the length of a procedure, the supplies that are needed. Almost everything is algorithmic – if not A, then B.” The challenge, said Royer, is convincing clinicians to trust the system. If they don’t have faith that the right products will be available when needed, they will work around the system through behaviors like over-ordering and hoarding.

Make Demand More “Forecastable”

The more volatile your demand is, the harder it is to forecast for and prepare for, according to forecasting expert Mike Gilliland. The “surest strategy for improvement is to make demand more forecastable by reducing volatility.” He noted that while some demand spikes are unpredictable, a considerable among of demand variation is “artificial volatility” caused by business practices. To make demand more forecastable, he recommended:

• Rethinking practices like end-of-quarter promotions that lead to a spike in buying followed by a big drop
• Avoiding SKU proliferation, because the fewer stock-keeping units you have, the less forecasting you have to do
• Forecasting and preparing for a demand range rather than a single point of expected demand

What’s Next

Participants at the Supply Chain Visibility Conference were enthusiastic about addressing supply and demand issues through an ongoing industry effort. Priorities they identified included:

• Turning up the volume on this issue: define the pain, and establish a “maturity path” to help organizations improve their practices
• Creating event response guides built around specific scenarios such as hurricanes or epidemics
• Agreeing on standard definitions for common metrics such as rolling back order or fill rate
• Developing standard substitution lists

Tired Of Chargeback Rejections? Use Standard Customer Identifiers

Industry Workgroup Recommends Including All Available Third-Party Identifiers To Increase Customer Matching And Reduce Rework

Making sure healthcare customers get the correct contracted price for products they buy is a daunting effort. Pricing contracts between suppliers, group purchasing organizations (GPOs) and provider organizations are complex, and making sure pricing information matches across all trading partners is an ongoing challenge.

What makes it even harder is that companies don’t all identify the customer the same way. Typically, each organization (manufacturer, GPO, distributor) assigns their own account numbers, and their partners create elaborate cross-references to try to ensure customer matching.

To address this challenge, HIDA’s Pricing Accuracy Steering Committee is recommending that common customer identifiers, such as the GLN, HIN, or DEA number, be adopted and used in all contract communications.

The committee based its recommendation on findings from its Customer Identification Workgroup. The workgroup recently completed a pilot project to measure the impact of using these identifiers in actual transactions. They did so by examining real-world data; sampling from their own stored information about customers and providers. Participants then added all available third-party identifiers (GLN, HIN, and/or DEA number) and sent the transaction information a second time. Adding these identifiers increased customer matching by an average of 20%, and led to a 72% average match rate.

Importantly, the workgroup opted not to pick one single standard, and instead recommended that trading partners using any and all customer identifiers in each transaction. “If you get multiple hits, there is more likelihood that you are talking about the same customer,” noted workgroup leader Daniel Watts of Johnson & Johnson Health Care Systems.

Workgroup members presented their findings at HIDA’s recent Contract Administration Conference.

Participants noted that adopting and using third party identifiers could be challenging for many organizations, since it may require system changes and investments for set-up and maintenance of additional identifiers. However, the investment is likely to yield significant financial benefits as trading partners reduce the staff time spent on manual rework caused by customer mismatches, and the effort of maintaining elaborate cross-reference files.

“Creating a standard approach for the industry to help ensure accurate customer identification is what we’ve all been waiting for,” said Vizient AVP of Contract Data Management Glen Sample. “The recommendation for use of all available third party identifiers may be the catalyst to improving efficiency across the board.”

Pricing Accuracy Steering Committee Chair Nancy Montemarano of BD agreed, saying: “This is going to move the dial.” She and other steering committee members expect to have success stories to showcase at next year’s Contract Administration Conference, Feb. 4-5 in Miami. Added Montemarano: “Anything that reduces errors and rework and increases accuracy – that’s a no-brainer.”

Executive Briefing | July/August 2019

View Current Executive Briefing View All Issues (Members)