HealthCare Business News spoke with Michael Darling, RN, VP Supply Chain, St. Luke’s Health System about his long tenure in supply chain management. Darling, who came to the field 25 ago years from the nursing side of operations, brought an especially timely perspective to the sector as the switch from fee-for-service to value-based emerged.

HCB News: How long have you been involved in hospital supply chain and how was the process different when you first started?
Michael Darling: I'm a nurse by trade. I got into healthcare in the late 70s and spent my first 15 years on the clinical side, primarily in the ICU and the operating room. Then I made the move to supply chain because of the rapid growth of HMOs, PHOs and MSOs.

So I've been in the supply chain side for the past 25 years. Three decades ago, supply chain was pretty much placing the order, making sure the inventory got moved, and if you had a warehouse, managing that. There was minimal interface with the end users of the product and almost none with the finance team.

There are some distinct differences today compared to three decades ago. For one thing, you need to integrate the supply chain clinically. With that comes the rapid expansion of what we call clinical quality value analysis or CQVA.

Three decades ago the best thing we could get was — if the sub-accounts were set up right — that you could follow where the expenses were on the monthly financials. Today we’re following cost by procedure, by physicians, by locations, and looking at the utilization difference and variations in practice. One of the things that we found is that we’re able to look at opportunity across the continuum of care.

If you’re evaluating the best quality outcomes and cost for the right products to improve patient throughput, sustainability is the key — and this is especially true when we’re looking at how the clinical pathways are set in the EMR. Sustainability and commitment in the marketplace drive total landed cost per procedure.

With the data we have today, we have physicians coming to my team asking for a review of their specialty area. You have to make it easy for your clinicians to participate. The data needs to be trustworthy to help physicians make decisions, and provide key performance indicators.

HCB News: Has hospital consolidation made supply chain simpler or more complicated?
MD: It’s more complicated. Instead of having one hospital and one opinion we have multiple opinions, because each facility is serving a community with its own unique needs. But it’s also an opportunity to bring those groups together to talk about what they’re doing, versus what someone else is doing, to identify best practices.

So that complication turns into an opportunity to manage total landed cost. Instead of being demand-driven, its velocity driven as to what channel (compliance, formulary and inventory control) we need to bring in. For the next four to five years channel selection is going to be where a significant amount of cost is going to come out of the system. The silver lining in all of this is that as we consolidate, we bring more groups together. We do a much better job in the marketplace to provide financial and clinical impact. This allows us to maintain 97 percent contract compliance across acute and nonacute locations.

We can decide what the best way is to get items to the individual locations. So instead of having physicians and clinicians try to manage the supply chain, we can do it and actually provide desktop delivery. By reducing inventory more efficiently, our costs go down because everything the clinician needs comes packaged together. The delivery can be sorted and packed by patients, practice or physician. We expedite specialized products, so the nurses don't have to order. It gives them that time back for patient care.

HCB News: What are some of the first questions a hospital should ask itself with regard to the efficiency of its supply chain?
MD: They need to move the chain supply on four major vertical fronts. These are data, procurement, advanced logistics, and procedure sourcing. With these four verticals, they need to develop key performance indicators. They should ask themselves, “How does what we’re doing — and why, and when — compare regionally, nationally and even internationally?”

St. Luke’s has a system for supply chain services, and there are 64 primary key performance indicators that we measure every month. That’s so all of our teams can see how we’re doing. It also gives us an opportunity to share that information with all the individual hospital and non-acute locations.

HCB News: To what extent is St. Luke's making data-based automated decisions regarding supply chain?
MD: We have a formulary, and because we set up inventories in our main storerooms, we're able to automate 84 percent of our procurement without human touch. Each of our products and services has a direct contract associated with it, which means the most current pricing is attached to the item. With automation, we also know which contracts are due for renewal.

We can also use prior year data, for example in October, to know what kind of flu product we’ll need for the coming months. We also need to be aware of recalls to know what product to pull, and that process is automated too. Automation is going to continue to be something on which we’re very focused.

We want our physicians and clinicians to understand what their cost basis is — even to the point that when they walk out of a surgery they know what the cost of surgery is. We're not there yet, but that's what we're striving for.

HCB News: How can a hospital determine what supply chain technology in which to invest?
MD: The supply chain technology journey is never done, and healthcare supply chain is still ten to 15 years behind when compared to Amazon or Alibaba or some of the others. As you’re looking at supply chain technology you also have to consider the rules and regulations, such as the Stark laws and vendor management, and looking at W9s and research FSA listings. It's very common in the healthcare supply chain that there are 10 or 15 other systems into which you have to integrate. At this time there isn't a single supply chain system that you can use.

There are three major technology considerations. One, we have to move to cloud-based systems so we can use more mobile technology for more real-time data. The second is to be very focused on working with a supply chain system provider to have full integration of the Materials Management Info System. The third, and most important consideration is reporting. You can get data from a lot of different places, but unless you can take that data and have meaningful outcomes and outputs from it, you're wasting your time on the front end.

HCB News: When you talk about making changes to supply chain protocols, which members of the hospital need a seat at the table?
MD: There are certain areas that we always go to get their input, such as finance, HTM, and biomedical engineering. All of our charge/revenue folks need to be involved because if we’re not going to get paid for it we have to consider that. Our legal department has to be involved too, to make sure our agreement templates are followed.

Then there’s the service line manager or the department leadership and physician champions in a given area. If you’re putting in something like a new MR then you need construction and facilities people involved to make sure you have the appropriate shielding in the room. In some cases, hospitality services need to be included. We don’t have these groups at every meeting, but these are some of the key areas to make sure our decisions are best for the entire system.

Sometimes bumps come up and you have to make changes, but if everyone knows how the decision was made it makes the process a whole lot easier.

HCB News: How will supply chain be different in five or ten years?
MD: At the end of the day, what drives supply chain — especially in the next five to ten years — is, “how do you use data to work with your clinicians and business partners to create best practices?” As we’re looking at equipment life cycle when do we need to replace? Or do we need to perform remote diagnostics to be able to set that up and automate that process?

Going forward, how do you measure use and outcomes? We’ll be moving away from needing as many staff members to manage that function. We’re going to be using more AI to drive true efficiency in these processes. It’s going to be exciting.