COVID's Impact on the Bottom Line

In the midst of COVID-19, healthcare providers are facing unprecedented financial struggles. With the need to increase testing capacities, rising labor costs, administrative challenges, and the growing demand for medical supplies, solutions within the healthcare supply chain are needed across the board. 

So what does the use of an effective supply chain strategy in an effort to mitigate disruption look like?

Unprecedented Financial Struggles on Rural Hospitals Due to COVID-19 

The COVID-19 pandemic has gutted the healthcare industry as it leaves hospitals, clinics, and other healthcare facilities in dire need of financial restoration. According to the American Hospital Association, U.S. hospitals are expected to continue losing billions for a second year with an estimated loss of between $53 billion to $122 billion in revenue in 2021, atop the $320 billion in lost revenue from 2020.

These financial struggles stem from a 17% increase in drug expenses, 14% increase in labor costs, and 13% increase in medical equipment. Unfortunately, the situation is more dire for rural hospitals. Their expenses outweigh their capabilities, leading to hospitals claiming bankruptcy. Since 2020, 19 rural hospitals have closed, leaving residents without dependable care. 

Rural hospitals bear the most significant financial burden due to the pandemic. People in rural areas are more susceptible to contracting COVID-19 due to underlying conditions such as hypertension, diabetes, or asthma. Moreover, rural hospitals are already cash-strapped facilities that struggle to break even - an issue since pre-covid.

COVID-19's impact on the bottom line has also affected labor costs, as hospitals seek part-time contractors to fill in for exposed or quarantined employees and battle increased employee turnover. In turn, the remaining staff work alarming overtime rates, costing the hospital double or triple their typical wage.

Another major impact COVID-19 has had on rural hospitals is the increased demand for necessary equipment and products since inventory is a core component of the supply chain. COVID-19 disrupted the entire healthcare supply chain, leading to increased prices on PPE, hospital beds, pharmaceuticals, and ventilators. 

According to the Society for Healthcare Organization Procurement Professionals (SHOPP), the cost of these medical supplies has increased tenfold from the start of the pandemic. Hospitals also report paying between four to fifteen times the usual price for standard medical supplies, like masks and gloves. This proves to be a seemingly impossible financial challenge for a hospital barely able to keep its doors open with current operating expenses.

The Solution for Healthcare Providers 

There's no one path to financial restoration as COVID-19’s impact worsens for healthcare organizations. And while the U.S. government, through congress, approved billions in federal relief funds for COVID-19 hot spots and rural hospitals, many hospitals are still struggling. 

At the beginning of 2021, many of these hospitals had negative balance sheets, which the federal relief fund slightly offset. However, the National Rural Health Association maintains that hospitals still suffered before the pandemic.

So how can these smaller clinics get the supplies they need to serve patients while staying in the black?

One of the best solutions is through Medical Supply Budgeting. The only way for rural hospitals and other clinics to remain afloat and deal with the rising demand for medical supplies is effective and efficient supply chain management. 

Medical supply budgeting entails managing demand surges and shifting bottlenecks to identify issues that need immediate attention. Budgeting requires developing a plan, creating cost estimates, and standardizing and optimizing your current and future supplies.

Healthcare Budget Development

Under budget development, the aim is to plan proactively for the hospital while managing the flow of patients to ensure every patient receives care. When COVID-19 began, many people neglected healthcare and sought home treatment to avoid exposure to the virus. In turn, revenue in these hospitals plummeted, as they could no longer serve people without funds. 

With budget development, you can plan for essential services and supplies needed in your facility to ensure you only purchase what is needed at that moment. You can use short-term forecasting to prepare for the medical supplies you need in the various departments that remain open and check your stock through a supply chain management system to ensure you stay on track.

COVID-19 also caused hospitals to forgo elective surgeries and non-medical procedures to boost their clinical service capacity and laboratory and testing capabilities. Using budget development for potential savings, you can plan and estimate how much you would spend on products for these services.

Cost Estimation for Medical Supplies

The other important factor in medical supply budgeting is cost estimation. According to Definitive Healthcare data from a 2018 report, U.S. hospitals spent $36 billion in medical and surgical supply costs, approximately $12 million per hospital. This is an average cost estimation for supplies, including pharmaceutical and medical devices, excluding overhead expenses. 

After the COVID-19 outbreak, these costs have risen by an outstanding amount to cater to the demand for disposable products such as masks, gloves, testing kits, and other Personal Protective Equipment (PPEs). The American Hospital Association estimates that the prices for PPE have increased by about $2.4 billion.

Facilities must be able to account for the additional cost of these supplies, as they remain critical in protecting your staff when treating patients.

Standardization of Medical Supplies & Vendor Relationships

Another crucial element of supply budgeting is the standardization of supplies. Standardization means conducting an audit of usage to ensure all the medical products purchased are utilized efficiently, noting frequently and infrequently used products, and adjusting stock levels accordingly.

Standardization allows the ability to identify supplies in the highest demand, which can be purchased in bulk for cost savings. Buying in bulk allows for reduced shipping and handling costs, as well as opportunities for volume discounts. Consider improving clinical accessibility by having relationships with multiple vendors. Taking the time to vet alternate suppliers can better prepare a healthcare facility during unexpected surges in demand. Organized vendor management is a critical step towards proper inventory management. 

Once you identify which products your facility is purchasing in high volumes, consider offloading infrequently used products. By liquidating your surplus, facilities can bring in additional funds to be allocated where needed. 

The Bottom Line for Healthcare Facilities

COVID-19 has financially weakened hospitals and healthcare facilities, especially rural hospitals, who already have access to limited resources. Even though the federal government has moved quickly to provide relief, it's up to the hospitals to use effective supply chain strategies to manage demand surges and find ways to optimize resources amid the pandemic. After all, the opportunity for improvement starts by effectively managing what you can control internally. 

At Surgical Product Solutions, we can help return money to your budget by liquidating your surplus products and provide discounts on high-volume surgical disposables. Reach out to us today for more information.

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