How Orthopedic Companies Can Leverage the Changing Role of Hospital Purchasing

Between COVID’s widespread and often unpredictable impacts on healthcare and the growing influence of purchasing departments within hospitals, orthopedic companies work in a landscape markedly different from just two years ago.

Owens & Minor, in partnership with the Association for Healthcare Resource & Materials Management, surveyed hospital purchasing leaders to better understand the current state of procuring and managing supplies. According to the survey’s findings, “A staggering nine out of 10 leaders report that their strategy for managing and procuring supplies has changed in the past two years. The COVID pandemic has touched everything related to hospital purchasing: staffing, onboarding, transportation costs, increased patient demand, inflation and global supply disruptions.”

Hospital purchasing leaders noted increased costs as their top challenge, followed by material scarcity and inventory management. They are responding to these challenges by working closely with suppliers and distributors and using on-site space to increase their volume of supplies. These trends create opportunities for orthopedic device companies to further invest in their relationships with and provide solutions to hospital purchasing leaders.

Jane Torzewski, Director of the Category Management Medical Device Team at Mayo Clinic, said that the mission for hospital supply chain leaders at the start of the pandemic was to procure supplies to care for patients and staff. However, supply chain priorities shifted as purchasing leaders took stock of the long-term complexities that emerged due to the crisis.

“Throughout the last few years,” Ms. Torzewski said, “hospital supply chain leaders have managed through significant supply chain disruptions on key products, expending resources to source alternative products, working with suppliers to find suitable substitutes and engaging closely with clinical stakeholders to ensure patient care is not disrupted due to products being unavailable.”

Ms. Torzewski concurred with the survey’s findings that showed orthopedic companies and hospital purchasing leaders are tightening their relationships in response to pandemic-related obstacles that continue to transform and complicate the delivery of care.

“Supply chain leaders are looking at supplier relationships differently,” she said. “We are asking our key suppliers deeper questions about their manufacturing locations and redundancies to build some assurances into product supply. Category management teams are also contemplating multiple vendors for certain supplies rather than focusing on standardizing with one supplier, as we may have done in the past. We are looking for value creation in new and different ways, with shared risks and rewards, and we’ll look to partner with suppliers to realize mutual benefits. Distribution and logistics are also being reviewed for efficiencies and cost-savings options such as self-distribution.”

Although maintaining close relationships with orthopedic companies is more important than ever for purchasing leaders, they’re diversifying their products rather than relying on single suppliers. This could create opportunities for orthopedic companies.

“Category management relies on the principles of supplier segmentation, which creates three distinct buckets: transactional, strategic and partnership,” Ms. Torzewski said. “The vast majority of suppliers have a transactional relationship with hospital supply chain leaders, and fewer resources are expended on them. Strategic suppliers are a small core group that account for a key segment of spend, and hospital supply chain leaders value collaboration and strong partnerships with these suppliers.”

Ms. Torzewski listed the critical attributes of a thriving hospital and device company relationship: open, honest and proactive communication; reliable data sharing; interest in creating mutual efficiencies through inventory management and product utilization; and a willingness to be inclusive with the supply chain when communicating with physicians and clinical leadership.

Ms. Torzewski predicted that hospital purchasing leaders will continue to focus on supply chain resiliency and the assurance of the continuity of product supplies in a post-pandemic world.

“There will be deeper investments in digital platforms and tools to increase efficiencies in procurement, product information management (PIM), AP functions, contract compliance, warehouse management, asset management and tracking, and inventory optimization,” she said. “There will be a continuing reliance on revenue cycle activities and a focus on reliable and accurate case coding, including understanding the ROI and revenue generation that certain procedures create.”

Mr. Torzewski acknowledged that many healthcare providers are under tremendous financial pressure and expect supply chain leaders to help cut non-labor expenses.

“Supply chain leaders will be looking for methods to reduce case costs through a combination of device price reductions, shifting utilization of products and enhanced inventory optimization of expensive devices,” she said. “Device companies must provide realistic solutions to reduce supply expenses. They must also work internally to ensure supply disruptions are minimized and communicated proactively when they do occur. Provider supply chain leaders need partners that are willing to engage in efforts to orchestrate value creation rather than relationships that are based only on action and reaction.”