Friday, October 16, 2009

Provider Pain in the Healthcare Supply Chain

The State of Healthcare Logistics: Cost and Quality Improvement Opportunities is a worthy new study highlighting successes and challenges for the healthcare supply chain. Download it for free here.

As I summarize below, the findings highlight how providers struggle with missing data standards and stubbornly high inventory costs.

The report got me thinking about the future of the specialty pharmaceuticals distribution channel. I see an emerging opportunity for manufacturers to use their supply chains as a new source of competitive advantage, especially as payers limit provider’s profitability for injection/infusion therapies under traditional buy-and-bill systems.

As you read the report, ask yourself: How could my company’s go-to-market strategy give me an edge with providers?


Two professors from the University of Arkansas’ Center for Innovation in Healthcare Logistics conducted an online survey of healthcare supply chain professionals. Oddly, the survey was conducted 11 months ago although the results were just released this week.

I’m going to focus my comments on the perspectives of 1,063 respondents working at healthcare providers. The other categories (manufacturer, distributor, GPO) each had less than 100 responses. I wrote to the study’s authors to get more details about the composition of the providers group—acute-care hospital, physician’s office, clinic, and so on. I’ll update the post if I find out more.

Unfortunately, there is no indication of how the findings vary based on product type, such as pharmaceutical versus med-surg products.


The lack of data standards jumps out as a major pain point—and opportunity—throughout the survey. For example:
  • Providers cite “Lack of Data Standards” as the biggest barrier they face in collaborating with supply chain partners (page 11).

  • Most providers are *not* moving toward adoption of data standards such as GS1 (page 15). A majority (51%) didn’t even know the answer to this question!

  • A majority of providers have not improved product traceability during the past 12 years (page 12).
What’s holding back adoption of data standards? No surprises here. The most frequently cited reasons by providers were “Lack of Resources” and “Information Technology.”

Hard to see how bright ideas like serialized track-and-trace will ever get enough traction within provider organizations given these results.


The traditional buy-and-bill model for outpatient injectable/infusible medications is under pressure as payers limit the profitability of specialty drugs for providers. See my discussion of provider cost-plus reimbursement methodologies in the U.S. Pharmacy Industry: 2009 Economic Report and Outlook.

This development will level the playing field as reimbursement profitability becomes less relevant as a decision factor.

That’s why I think that the supply chain could be a major area of future opportunity.

This opportunity becomes even more intriguing when you consider that one-fifth of the average provider’s operating expenses were devoted to inventory management and order management. (See page 25 of the study.)

Think about this post as an idea-starter. If you are (or will be) a manufacturer or distributor of specialty products, gather the sales, marketing, trade, and brand teams to review the results of the survey and brainstorm on possible applications. What kind of competitive advantage is available by removing supply chain pains for providers?


Check out the best of health care blogging in the new Health Wonk Review being hosted at InsureBlog.


  1. Not your usual type of post, but very interesting. Thanks for pointing out this research.


  2. This is very valuable.
    Thanks for posting the link.