Three steps to integrate the healthcare system.

If your job is outside the sphere of managing supplies and inventory like mine you probably don’t spend much time thinking about supply chain management.  I wasn’t either until I heard a lecture on the topic that made me think about it in a broader context.  What I concluded is that the entire healthcare industry could be described as just a complex supply chain with countless smaller supply chains functioning within it.

Supply Chain

If you’re not familiar with the term or concept of a supply chain it is simply a term used to describe the nature of a relationship when two or more organizations, companies or individuals work together to develop a product or deliver a service.  The complexity of the supply chain increases with the complexity of the product or service and the number of companies involved.

Healthcare Delivery Supply Chain

The broadest chain in the healthcare industry is the healthcare delivery supply chain consisting of the payers and providers working together to provide healthcare services. The complexity of the healthcare delivery supply chain comes from the nature of the service and the number of providers involved.

Managing a supply chain this complex would be a challenge for most companies even industries leaders. However, some of the principles and best practices used in other industries by leading companies offers some insights into the problems with the current healthcare system and the initiatives underway to integrate the system so that it feels less “broken” to those that use it.

Best practices of supply chain management

1. The weakest link defines the chain.

Best Practices: Information sharing and knowledge exchange

When most think about the weakest link it is usually a company that underperforms and causes a bigger system to fail.  However, the weakest link in the healthcare delivery supply chain is not one weak link but rather the lack of links connecting  payers and providers. Other industries have found that errors happen and costs increase when everyone involved in the development or delivery of a product or service is not kept informed throughout the duration of the project.

The healthcare industry is heading the right direction with the initiatives underway to automate medical records and to establish standards that will facilitate the exchange and sharing of information. However, more needs to be done before we can check the best practice box for information sharing and knowledge exchange. This may account for why some healthcare executives are reluctant to jump onboard with other changes to integrate the system.

2. The customer requirements drive the supply chain integration.

Best Practices: Decision delegation, joint planning and collaborative design

As companies increasingly rely on third party suppliers to help develop their products and deliver services the need to collaborate and integrate with suppliers increases.  Studies have shown that leading companies that closely collaborate with their suppliers outperform comparative companies. The right suppliers can provide a strategic advantage if they have the ability to adjust their operations to changing market conditions.

The challenge is healthcare is that most payers and providers operate on a transactional or fee for service basis and few acknowledge the existence of the healthcare delivery supply chain.  However, the entire system would benefit if payers and providers embraced the relationship and worked collaboratively to eliminate redundant systems and to streamline the processes necessary to enable providers to be more responsive to their markets.

3. A win-win relationship has to be the cornerstone of supply chain success.

Best Practices: Shared extended performance measures, risk/cost/gain sharing

It might seem counter intuitive to think win-win when the industry is under pressure to cut costs but it can work.  Leading companies in other industries under pressure to make their products more affordable in increasingly competitive markets have found that partnering with their suppliers can make them more competitive.

Partnering is an extension of a relationship that enables the parties involved to share in the risks and rewards.  As an industry we are exploring the use of more integrated models again such as Accountable Care Organizations (ACOs) to finance and deliver care.  The main challenge of this type of integration is the industry talk of winners and losers.  Change will be hard won unless we develop win-win solutions that strike the right balance of risks and rewards.  To achieve the right balance we need to be looking at broader metrics for the system to understand the impact of the changes and to ensure the system is meeting the needs and expectations of patients.