Healthcare Supply Chain: Opening the C-Suite Door

Several recent LinkedIn articles have highlighted the strategic vs. tactical approach to the healthcare supply chain environment by leaders and have asked “why” these leaders aren’t invited into the C-suite. Supply chain, especially in health care, is currently a high-focus topic and this question should be considered.

Do CEOs of the aerospace, automotive, energy, or technology industry sectors welcome their supply chain leaders into the C-suite? If yes, what might create the difference?

From research on job openings, and conversations with executives in these sectors, it appears their supply chain leaders have been brought into the C-suite. Their CEOs have demonstrated that supply chain is a required and necessary participant in C-level activities for maintaining competitiveness and meeting strategic and financial organizational goals. These CEOs seek out and invest in supply chain leaders with experience and acumen that qualify them to be highly successful as C-level participants.

What’s different in health care that may cause barriers to health system CEOs embracing supply chain leaders similarly? To this point, I’ll pose three questions:

First. Have group purchasing organizations (GPOs) displaced supply chain leaders in health systems as the “go to” for CEOs when it comes to strategic supply chain direction, change, or vision within health systems, and therefore does the GPO spend more time with the CEO than the supply chain leader?

Second. Do manufacturers and suppliers maintain sole or primary relationship strength with key physicians such as cardiologists, orthopedists, radiologists, neurologists, pathologists, and nursing staff, who are instrumental in selecting which implantable devices and what capital equipment will be used? Both are extremely high-cost categories that have C-suite interest, and attention.

?Third. At what point does the supply chain leader engage and influence the annual departmental budget processes where capitalized, high-cost clinical products, or equipment are concerned??

Considering these questions reveals differences between healthcare and the other sector examples and exposes barriers to our healthcare supply chain leaders’ ability to get a seat in the C-suite. Many other industry sectors are as complex as healthcare when considering their supply chain processes. In some cases, they may be even more so.

While the healthcare supply chain leader always has a GPO relationship, the pivotal relationships held by GPOs aren’t at the supply chain leader level, but at the C-suite and CEO levels of health systems. GPOs offer much more than strategic sourcing and contract outsourcing—where admin fees provide their primary revenue source. They now offer informatics and data services, advocacy, consulting, complete supply chain outsourcing, pharmacy services, networking, and education services, electronic tools for managing procurement and capital equipment, and more.

GPOs have spread themselves throughout the health system in a way that the CEO may find it difficult to operate without their participation. GPOs have also become the prime relationship participant with health system suppliers. They partner with the suppliers while linking themselves to the suppliers’ relationships with physicians/clinicians in key categories. This is often due to the outsourced strategic sourcing and contracting services the GPO provides and the physician/clinician input into products required to make the contracts successful from a utilization and revenue perspective. The supply chain leader isn’t often brought directly into the inner circles of these key processes in the C-suite, or with physicians and suppliers, but receives process outcomes reports through various committees. As a result, the ability for these leaders to be perceived by the C-suite as the designer of strategic sourcing processes and influencer working with suppliers and physicians is displaced by the GPO.

Manufacturers and suppliers have long been involved in strong working relationships with health system admitting physicians. Often the relationship begins in medical schools, and is nurtured through internships, fellowships, and proctorships. Suppliers create recruiting opportunities, helping graduating physicians get placed in various thriving practices, usually those that have high utilization of their products. Education, research, and speaking opportunities are offered to select physicians that allow income sources separate from how physicians get paid for their medical services.

Compare this to the aerospace industry as an example. Are aerospace engineers ingratiated by the providers and manufacturers of metals and other raw materials, specialty tools, various electronic navigational aids, landing gear systems, altitude warning systems, and much more in their industry, as physicians are in health care? Are they followed and helped from their education programs into their employment endeavors, given income opportunities through research and development, speaking engagements, etc. outside of their employment? Is this legal in the aerospace industry, or is it considered a conflict of interest? ?If the engineers are working for a Boeing, Northrup, or Lockheed-Martin, would we trust or have the high level of confidence in the manufacturing decisions and product selection processes used related to flight safety that we seem to have in healthcare surgical procedures? Additionally, if aerospace engineers had the kind of influence or interference in their engineering decisions that physicians have in health care, would this drive cost down or up?

Supply chain leaders in the aerospace industry have direct and primary relationships with aerospace engineers in the companies they both represent without the kind of influence and interference we see in health care by suppliers or GPOs. The activities and relationships in health care have been scrutinized by legislators, and parameters exist that allow them to survive, provided they are managed within the legal structure that has been established for supplier/physician relationships related to renumeration, and GPOs related to safe harbors and administration fees. Even so, is this prohibiting healthcare supply chain leaders from legitimately, and with credibility, engaging in the full supply chain process, including product selection processes, with physicians? ?Does this deserve consideration and evaluation? A health system supply chain leader must be able to create equally compelling relationships directly with physicians, their own CEOs, nurses, and with suppliers at high levels. Otherwise, the inability to directly influence the high-cost impact of devices and capital equipment will continue to minimize the perceived value their health system CEOs have of them.

Similarly, healthcare supply chain leaders are usually called upon long after the capital budgeting process starts. Physicians who desire high-cost and highly technical capital equipment—such as MRIs, CTs, hematology, chemistry machines, or cardiac robotics and minimally invasive surgical systems—have generally already worked with their department heads to explain to manufacturers exactly what their needs are, what installation may be required, what service agreements work well, and have received quotes for budget purposes. This pre-budget investigatory process has become a selection process that isn’t widely spoken about, and the missing participant is often the supply chain leader who’s invited usually only to learn what’s been accomplished to this point.

Usually when GPOs negotiate agreements with capital equipment suppliers on behalf of their health systems, suppliers have already been through a budget process with many of those health systems and know what upcoming sales they may benefit from for as much as two years in advance of the GPO agreements being executed. This allows them to price-model known and mostly already-captured market share and volume into those agreements. One must conclude that the result is higher prices than if market share and volume were unknown. When GPO contracts are complete in these categories, they collect the administration fee in what usually becomes an “all-play” contract environment.

The considerations related to health care supply chain C-suite participation have many facets, including:

• creating an environment where the supply chain leader rather than the C-suite manages the sphere of influence that the Performance Improvement Company, or GPO works within in the health system
• developing trusted clinical and physician relationships that displace supplier dominance and cultivating influence with key participants inside and outside the health system including maintaining primary influence and relationships with suppliers, and manufacturers?
• influencing key financial supply and capital equipment planning including budgets, and managing other strategic supply chain planning and sourcing processes

Essentially, this means owning the supply chain end-to-end with strategic vision, design, and creating partnerships with physicians, suppliers, and internal leaders to find the right collaborative, long-term solutions for the enterprise.

Is this a time for self-reflection as an industry to determine whether the supply chain leaders in most health systems today are comparable in acumen to the supply chain leaders in other sectors who have been embraced by their CEOs into the C-suite? We may not yet be at the evolutionary point in health system supply chains where leaders get a seat in the C-suite. The abilities of those leaders to drive and lead toward solutions to complex problems, influence and manage the health system environment with vision, and deliver results, could open that door. Those abilities and the processes that support them should be encouraged and developed.

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