Will Reimbursement Pressures Drive Supply Chain Innovation?

A June 7 Forbes.com article quotes a “Healthcare Supply Chain 2015” report from McKinsey & Company and the Health Industry Distributors Assn. (HIDA), as saying, “indicates that provider organizations expect reimbursement cuts to force reductions in operating margins of up to 30% through 2015. The report notes that ‘while all costs are on the table, supply chain is universally considered the top priority.’

Forbes.com also quotes Ted Stank, Professor in the University of Tennessee’s Haslam College of Business, and the Bruce Chair of Excellence at Global Supply Chain Institute: “Developing new drugs and taking care of patients will always remain the top priority for healthcare companies. However, there is a daunting realization that they need to get their drugs to market and heal patients in a cost-effective manner.” Stank says these pressures will “force organizations to drive innovation.”

The HIDA/McKinsey report’s insights suggest that industry needs to aggressively strip away supply chain costs. It provided the following four key takeaways:

• The purpose of distribution is to make the transition of products from the factory to the point of use as efficient as possible and this focus will be even more important as reimbursement pressures increase.

• Seek out solutions to help customers reduce waste, avoid preventable events and improve the quality of care.

• Increase automation, standardize and simplify processes to reduce transaction costs between manufacturers, distributors and providers. Investments in technology and systems are likely to be part of the solution, but process improvements are equally or more important.

• Work with self-distributors to understand the role that the supply chain plays, and to determine ways to save money.