Big acquisition? Time to reevaluate your supply chain.

More hospitals self-distributing to physician offices

Health systems are finding innovative ways to integrate newly acquired non-acute centers and physician practices into their supply-chain distribution system, Adam Rubenfire writes for Modern Healthcare.

Hospitals supply chain officials seek to rapidly integrate new facilities into their distribution systems so that they can access bulk rates. To ease the process, some are creating their own distribution centers.

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Ohio-based Summa Health System created a centralized supply center for the system's five hospitals and several large outpatient centers. Last year, the health system integrated physician offices into its centralized system. It expects the change to save about $50,000 annually, according to Scott McCulloch, Summa's VP of supply chain.

McCulloch says geography is a key to success, noting that Summa excludes about 20 locations from its supply system. "You don't want to have your drivers going on unnecessary routes to drop off supplies because it will end up costing you," McCulloch says.

But for other systems, the upfront investments required to create a self-distribution system—including warehouse space, vehicles, and labor—don't make fiscal sense. MedStar Health contracts with a distribution company because it would be prohibitively expensive to lease warehouse space and purchase fuel in the Washington, D.C., metro area, where its 10 hospitals are located.

Changing distribution models

Many distributers, in turn, are revising their business models and overhauling their processes to fit the changing market. Henry Schein, a supply company based in New York, traditionally focused on dental and animal health. But as those markets declined, the company started to specialize in the growing non-acute market.

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In the past, about 10 to 15% of bulk orders to hospitals were packed in smaller units to send to other outpatient locations, says distribution company Medline. But now, more than 60% of Medline's orders are broken down into smaller shipments. To help meet this need, Medline plans to invest more than $500 million over the next year to 15 months to update its distribution centers with automation technology and to increase the number of delivery trucks (Rubenfire, Modern Healthcare, 1/30).

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