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Solving healthcare procurement challenges

by Claire Campbell

The healthcare industry has progressed in leaps and bounds over the past few decades. In the 1960s, innovations in technology brought us the computer, which led to doctors standardizing and sharing medical records. In the 1980s and 1990s, laparoscopic surgeries became widespread in hospitals, eliminating many of the complications that often occur with invasive surgery. At the turn of the 20th century, the development of body imaging brought us x-rays, followed by ultrasound, angiography, computed tomography and magnetic resonance imaging.

Today, patients are able to book healthcare appointments online, consult with doctors via video calls, order repeat prescriptions via pharmacy apps on their cellphones, have microscopic surgery to repair minute blood vessels, wear sensors and other medical devices to monitor their vitals, and can get medication specially made up for their genetic makeup to combat disease.

However, healthcare procurement processes have not progressed as rapidly. In many healthcare facilities—hospitals, consulting rooms, pharmacies, and research or analysis laboratories—procurement remains a manual process, with paper-based systems being carried out in back rooms or by consulting firms. This, in turn, creates unnecessary silos in the approval process of essential items, as well as bottlenecks when it comes to ordering, receiving and distribution of inventory to the necessary departments. This gridlock leads to a delay in vital processes, increased costs, and can even impact negatively on the treatment and care of patients.

Procurement challenges in healthcare

The healthcare industry faces several challenges, due to the specific nature and diversity of their business and market segments.

In an article published early last year, SpendEdge, a procurement market intelligence company, discussed the four most common challenges in the healthcare sector

Supplier preference leading to cost variation

Many healthcare companies and practitioners have preferred providers. The industry is saturated with sales representatives offering kickbacks for health workers and specialists who are willing to dispense their drugs or make use of their equipment, but these preferences are hardly cost-effective. Instead, they result in a wide range of cost variation, with results in higher overall spend.

Wasteful spending due to lack of price control

If organizations are unable to analyze procurement data due to outdated, manual processes and lack of access, spending cannot be adequately controlled.

Chris Holt, the leader of global healthcare at Amazon Business, wrote a guest opinion piece in Healthcare Dive in November 2018. In the article, he stated that non-strategic or unmanaged supplies cause significant costs for the healthcare industry each year, preventing simplicity and transparency.

Waste in spend is a significant problem in the USA, for example, where an estimated $760 billion per year is wasted, or 20-25% of the total spend in this sector (based on research published in the Journal for the American Medical Association in October, 2019). The study identified six domains of waste, of which two are partly the result of poor procurement processes: administrative costs (the largest source of waste, at $266 billion per year) and pricing failure (wasting $231-241 billion annually).

Hidden costs

In the healthcare industry, spend does not only entail the unit cost of the product during the procurement process. There may be several hidden costs which ultimately cut into an organization's bottom line, including distribution, urgent deliveries or holding inventory for specific customers.

Specialized medical equipment

The healthcare industry purchases supplies that are produced in large volumes and according to standard industry specifications. However, this sector also requires pieces of equipment that are highly specialized, urgently required, and likely with a high cost attached to them. One of the challenges faced in this industry is that customization of these particular products is time-intensive and costly, leading to increased expenditure and the risk that equipment may not be delivered within the necessary time frame.

Strain on the workforce

Holt also states that out-of-date and manual healthcare procurement processes not only negatively impact patient care, they place additional strain on the morale of the workforce and its outcomes. In spending up to 25% of the day trying to source supplies and equipment for patients, doctors with lack of access to data are unable to move away from labor-intensive procurement processes, thereby placing teams under pressure when departments are unable to decrease their costs.

Benefits of e-procurement for the healthcare industry                                           

As early as 2004, Alan Smith and Frank Flanegin published an article on e-procurement and its benefits to the supply chain in the healthcare industry, in the International Journal of Electronic Healthcare. In their article, they discuss the overall strategic aspects of e-procurement, such as process savings and reduced costs across three broad categories, as well as benefits of implementing e-procurement processes and the challenges in doing so.

Marketing and purchasing benefits

The advantages of using e-procurement software are immediately visible in the purchasing life cycle, and include a much shorter buying process, a highly-visible and easy purchase-to-pay cycle, elimination of bottlenecks and silos due to empowered employee requisitioning capabilities, and even discount opportunities for marketing possibilities. E-procurement also provides automation of spending, including built-in spending controls and approval escalations.

Finance and accounting benefits

Finance and accounting teams also see clear advantages when utilizing e-procurement, most demonstrably in the bottom line. E-Procurement provides for costs savings, which lead to increased revenue, greater returns, and ease of use through integration with accounting systems or enterprise resource planning (ERPs).

Operations benefits                                                                                                                                                                                         

Advantages in overall operations are obvious in increasing efficiency, which leads to lower procurement costs, less unauthorized purchasing, and a faster procure-to-pay life cycle. These benefits are due to greater ease of order to invoice matching, elimination of paperwork and the associated costs, improved audit trails, faster delivery, decreased inventory levels and a more streamlined approach to the entire procurement process.

In a 2014 article by a UK-based e-procurement vendor, the authors stated that the benefits of e-procurement cut costs by 5-7%, which actually led to an increase in profits across hospitals by at least 30-40%.

Using a cloud-based spend management solution                                                                     

According to an article by Synoptek, an IT consulting and technology management company, about $3.73 billion was spent on cloud computing in the healthcare industry during 2018. This figure was predicted to reach almost $9.48 billion by this year, due to a demand for secure, cost-effective access to data.

This necessity for cloud technology is not only driven by the need for security and reduced costs; it is also due to the healthcare industry's specific requirements in providing value-based healthcare for patients.

Value-based healthcare, a concept that measures the cost of patient care against treatment results, has led to value-based procurement, which is a specific methodology carried out in the procurement process in the healthcare industry. In an article on value-based procurement, auditing and financial advisory giant Deloitte states that procurement in healthcare has shifted focus from lowest-price procurement strategies, and now focuses on a combination of quality, services and solutions.

In this regard, using a cloud-based, end-to-end spend management system makes perfect sense for all stakeholders in the healthcare industry.

Reduced costs

Integrated, automated spend management solutions provide an opportunity to optimize and streamline the supplier base, eliminate paper-based procurement processes, and save time.

Less complexity

Purchases in the healthcare industry are multifaceted, and may pose a challenge during the procurement process. One of the benefits of a cloud-based spend management system is the ability to "punch out" directly to vendor websites, and view their catalogs in real time. The increased accuracy that PunchOut functionality brings will assist in providing up-to-date pricing, stock availability, estimated delivery times, automated purchase orders, and a significant streamlining of the procurement life cycle.

Some of the vendors that provide this functionality in conjunction with cloud-based spend management software for the healthcare industry include Thermo Fisher Scientific, Henry Schein, McKesson Corporation, VWR International, Life Technologies, Sigma Aldrich, Cole-Parmer, and Medline Industries.

Fewer risks

By utilizing cloud-based spend management software, the transparency, audit trails and spend analysis will enable you to reduce your organization's risk of over-spending, fraud and even device compatibility (compared to legacy technology or hosted procurement products).

Improved supplier relationships

With increased transparency and clear cost breakdown from requisition to payment, cloud-based spend management solutions enable the building of trust in approved suppliers. In turn, suppliers are able to offer high-quality goods and services that are tailored to the specific needs of the healthcare industry.

Quality, safety, compliance

Healthcare professionals and organizations are obligated to adhere to strict regulatory requirements, which include compliance regarding the procurement of goods and services from suppliers. Spend management solutions provide the basis from which this compliance can be ensured, including the adherence to specific tax laws worldwide.

Categorization of spend

Healthcare organizations have budgetary requirements around capital expenditure (capex) and operational expenditure (opex). These categorizations of spend are necessary for reporting and contractual purposes, particularly since many organizations in this sector need to adhere to budget constraints. Spend management technology provides this distinction, in addition to the creation of specific budgets across various financial periods, departments, or even projects and programs.

How can we help you?                                                                                                                        

Fraxion has a true cloud-based spend management solution, with remote deployment capability and a comprehensive, powerful suite of tools to deliver in-depth spend management functionality. Fraxion can be deployed as a standalone solution, or it can be integrated with your existing accounting system or ERP. With Fraxion's spend management software, you can proactively manage purchase requisitioning, expense management, procurement processes, vendor PunchOut and spend analysis.

Fraxion is focused on ensuring that stakeholders in this sector achieve the best procurement solution, at affordable levels, in line with value-based procurement.

Drive accountability and change spending behavior across your organization—contact a Fraxion representative for more information or to book a customized demo.

Claire Campbell

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