Patient-Centered Supply Chain

In thinking about interesting health care finance topics, the article here caught my attention.   The article discusses the concept of building a so-called "patient-centered supply chain."  The key is to understand what the incentives are, when the incentives push toward this type of arrangement, and how it can help a hospital or health care system particularly as the incentives for achieving better patient outcomes (and not simply providing care for the patient) are made stronger.

The most important thing to recognize is that, in theory, there may always have been incentives pushing this direction.  Specifically, one might ask "why wouldn't an organization want to set up a supply chain that reflects a focus on optimizing the outcomes of patients?"

There has always been a tradeoff between making sure that there is always an abundance of resources at hand for any patient anywhere in the system at any time (which has particularly high costs for inventory that is being held) and the idea of getting the right resources to specific patients just in time--while not being late.  That will lead to lower costs of holding inventory but it takes an investment to set up the information system and change the business practices that will drive the patient-centered supply chain.

Information systems can become more interlinked so that hospitals can link patient conditions and patient care to inventory systems that control where their supply is held and the companies that supply them.  Analytics can be used to predict and anticipate the resources that are needed to care for patients with specific conditions.  Inventory can be held in central locations that can then be sent to the patient care locations on an as needed basis.  As systems grow larger there is a greater opportunity to set up this type of system with centralized inventory control and distribution across the system.

A business must make a decision on the basis of the costs of the information system, the costs o the analytics, the costs of the changing business practices (how supplies are moved) against the savings from reduced holding costs of inventory and the potential savings from improved patient outcomes.  As health care financing changes to focus more on incentivizing the achievement of improved patient outcomes, there will be a stronger and strong incentive to adopt new practices.