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article imageQ&A: Minimizing waste in the medical supply chain Special

By Tim Sandle     Mar 6, 2019 in Business
Waste is a big issue in the medical industry where supplies are often bought in bulk and deemed useless prior to their expiration dates. The company H-source have designed a web-based platform to drive purchasing efficiencies.
With the medical supply chain, reports suggest upwards of $750 billion is lost in annual healthcare waste. To address such issues the company H-Source aims to change the way hospitals buy and sell supplies through its secure and trusted marketplace.
The H-Source platform combines a web-based marketplace with data, reporting and accounting features specific to software systems in hospitals. Member hospitals are able to display products they have in surplus for other hospitals in need to purchase as many as needed. All delivery packaging is handled by designated medical personnel so quality is never compromised.
John Kupice, CEO of H-Source, explains about the platform and its advantages.
Digital Journal: What is the extent of supply chain waste in relation to hospitals?
John Kupice: A Navigant study found that healthcare supply chain wastes around $25 billion a year, or about $11 million per facility. Profit margins have been steadily trending down from 4.2% in 2015 to an estimated 1.8% in 2018; that means $56 in revenue must be generated to earn $1 in profit ($1/1.8 percent), or $5.6 million in revenue to earn $100,000 in profit. At the same time, supply chain costs are set to overtake labor costs as the number one overall spend by 2020.
DJ: Why does waste occur?
Kupice: A variety of reasons. First, physician preferences. Often physicians are trained on different products at multiple teaching facilities and may require different devices, drugs or equipment than their peers or a “preferred product,” even if they are the same category of specialist (cardiac surgeon, radiologist, etc). When physicians leave a facility, they leave behind their preference items that eventually are thrown away.
Second is product outdates and conversions. Many products are ordered for a specific type of patient or procedure that often are rarely used and expire, or a “new” similar product enters the market and is converted to, leaving the older models as waste.
Third is product overstocks. Products are ordered in bulk to save money, or products are ordered and the usage drops significantly, creating overstocked items. Also, many facilities order for different departments which do not have a view into inventory across departments, causing overstock.
Fourth is restrictive manufacturers’ return policies. Manufacturers often have minimum order requirements (box of 10), then will only allow products to be returned for credit for 30 days (usually a 15% restock fee). After 30 days, no returns.
Fifth is product and equipment upgrades. New devices, drugs and equipment are introduced daily. A switch to a new product means the older ones are unused and will be discarded or expire.
Sixth is contract changes. Large contracting companies such as GPOs bid for hospital business on supplies and equipment based on usage. When a hospital switches GPOs or local contracts, often multiple products are wasted as a hospital converts to the new vendors on their new contract.
All hospitals have supply chain waste. Most do not know the value of what gets wasted.
DJ: Can collaboration between healthcare providers help?
Kupice: When healthcare providers collaborate, they can share inventory to recover costs and reduce spend. When a facility needs two of an item but is required to purchase a box of six, they can sell the overstock to other facilities at a reduced rate. The seller recovers costs, the buyer reduces spend, and the amount of waste is reduced. Likewise, when an MRI machine is upgraded to a newer model, the older machine can be sold to another facility; non-controlled pharmaceuticals can also be shared.
DJ: What is the H-Source solution?
Kupice: H-Source is a cloud-based platform that allows facilities to collaborate to buy and sell inventory directly with each other. H-Source handles all logistics, paperwork, tracking, and reporting. It is a one-stop shop that streamlines the loan-and-borrow program all hospitals use, making supply chain more efficient and sustainable.
For example, if you visit a Costco and they are out of item, they have the ability to look into the inventory of all the nearby stores for the product. Most hospitals or groups of hospitals have 5 different versions of the same legacy software and cannot see what their sister hospitals have in inventory. H-Source is bringing retail supply chain principles to the hospital and healthcare space.
DJ: How did you develop the solution?
Kupice: Murray Walden was a medical device representative for more than 10 years, and he saw first-hand the amount of perfectly good, unopened, unexpired items being thrown away. He started H-Source to develop a solution to the problem. Two years later Walden brought on me as CEO. I have a background at Ernst & Young and experience implementing ERP systems in hospitals, as well as a significant tech background.
With his background in the trenches, Walden was careful to build a solution that eased the burden for users. For example, buyers can purchase items from multiple different facilities with a single vendor purchase order, using H-Source as the vendor. While the transaction occurs directly between the facilities, H-Source manages the logistics including; collection and disbursement of payment, paperwork, and tracking, as well as detailed reporting and data visualization.
DJ: How was the solution received by manufacturers and health providers?
Kupice: Several hundred facilities across the country use the H-Source marketplace. Membership continues to grow steadily as more facilities learn about it. H-Source is such a common-sense solution to a problem every hospital has, hospital executives and supply chain professionals quickly grasp the value it offers.
Healthcare is a complex mix of contracts and interdependent relationships. H-Source cuts through all of that and allows facilities to easily buy and sell items directly with each other. It simply codifies the loan-and-borrow program hospitals have used forever, streamlining the process and making it easier and less burdensome for busy supply chain staff.
DJ: Are there any cyber security concerns?
Kupice: Cybersecurity is always a key concern, but the benefit of H-Source is we do not deal with any patient records or critical data. H-Source is simply a platform for helping hospitals collaborate to purchase, sell or exchange assets, driving down costs and supporting efficiencies and sustainability. Additionally, the platform has been built with FDA, UDI and DSCSA requirements in mind for track and trace, as well as recall alerts.
DJ: How do you plan to expand further?
Kupice: The H-Source platform has the potential for multiple expansion opportunities including OEMs, 3rd parties and pharmacy. The software platform that has been built is unique to anything the healthcare space has today.
More about Supply chain, Medical, Goods, Transport
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