Is Healthcare Purchasing Going Green?

In the United States, the health care sector is responsible for 8.5 percent of total greenhouse gas emissions and emissions increased 6 percent from 2010 to 2018. U.S. hospitals generate more than 4.7 million pounds of waste annually, which equates to roughly 27 pounds of waste per staffed hospital bed in America per day – and they dispose of 2 million pounds of unused supplies each year, at a cost of $15 million annually. Further, more than 70% of a health system’s greenhouse gas emissions are embedded in the products and services they buy (we call this scope 3 emissions).

On this background, is healthcare purchasing adopting rules for preferring environmentally friendly products? Most of us think so, given the level of attention given to battling climate change – in healthcare as well as across industries. However, when looking closer, it seems that the healthcare supply chain has succeeded in insulating itself from any such considerations. In fact, supply chain professionals in healthcare will tell you that even though hospital leadership is pushing for this, they will default to an uncompromised focus on cost – the cheapest product wins, whether it is green or not. In fact, supply chain professionals directly told us at a recent roundtable in Scottsdale that only green initiatives that are cost neutral or reduce costs are considered.

For the past decades, the healthcare supply chain has been focused solely on one thing: Driving down costs. This came with efforts to negotiate single-source contracts and pushing for just-in-time inventory policies. With this sole task, healthcare purchasing has played a less-than-glorious role in the hospital, which has increasingly struggled with severely strained bottom lines. The pandemic changed that – for a minute. Supply chain shortages in vital product categories like gloves and face masks shone a light on the healthcare supply chain and suddenly made the purchasing and inventory function of the hospital the arguably most important function in healthcare. Healthcare purchasing, having lived a life out of the limelight, became critical in the acquisition and availability of products. In this way, the pendulum shifted from just-in-time inventories to just-in-case inventories, and the cost focus shifted to a focus on resource availability. Sole-source contracting in some cases were abandoned and changed to dual-source arrangements to enhance the resilience of the supply chain. During the pandemic, in other words, the sole focus on price faded – and opened up for other procurement criteria such as environmental considerations to play a role.

 

Healthcare purchasing, having lived a life out of the limelight, became critical in the acquisition and availability of products.

 

However, since the pandemic, the pendulum has swung right back to where it started, with the healthcare supply chain solely focused on cost savings. We are back to single-source contracting and procurement decisions made to reduce costs.

Of course, the environmental and resilience discussion has not completely disappeared, and hospital leaders are eager to demonstrate that their hospital is making an effort to combat climate change – to comply with political signals, to build the hospital “brand”, and to strengthen their hiring and retention efforts. Most hospitals have hired “Sustainability Directors”. Given the pervasiveness of this theme and the focus of hospital leadership, why is the healthcare supply chain still struggling with notions such as environmentally preferred purchasing? There are two main reasons why:

  1. Supply chain executives do not drive all procurement decisions. Specifically, physicians and nurses often have the clout to insist on buying new or preferred technologies – for clinical reasons and otherwise. Some have suggested that physicians’ incomes and the fact that physicians direct most health care spending (80% is a frequently used number) are the real culprits in rising health care costs). We call this "physician-induced demand, a documented phenomenon that results in overtreatment and contributes to high health care costs.” So, for some of the most expensive products, supply chain staff is left to simply execute – not question.
  2. When supply chain staff does drive procurement decisions, they are focused on their main task: To drive down costs. In the minds of supply chain decision-makers, the environment is considered when the environmentally friendly alternative is cost neutral or reduces costs.Otherwise not. And in many cases, the environmentally preferable product is also the more expensive one. A noteworthy exception is single-use device reprocessing, which reduces the carbon emissions footprint by up to 50% and reduces costs by at least 40%. When hospital leaders ask the supply chain to demonstrate effort to combat climate change, they are essentially giving hospital supply chain executives conflicting instructions, since environmentally preferable purchasing often runs counter to the standing instruction to reduce costs. As a consequence, supply chain executives will ignore hospital leadership’s calls for greening the hospital.

Given the importance of costs, what can supply chain executives in US hospitals do to reduce their hospital’s environmental footprint? It has to be recognized that they have to apply a common-sense approach – costs cannot be ignored. However, some basic initiatives would help:

Vendors typically don’t provide information about the environmental impact of their products. Why? Because the hospital does not ask… Simply asking for sustainability performance metrics for every supplier, contract and product, to appear alongside price would go a long way towards creating the conditions for balanced or “common sense” decision-making. Preferably such sustainability metrics are based on Life-Cycle Analyses (LCAs).

 

Vendors typically don’t provide information about the environmental impact of their products.

 

More fundamentally, while most hospitals have Value Analysis Committees, designed to balance clinical, operational, and financial considerations in contracting, they do not play the role they should in showing environmental stewardship. Simply bringing together the right people and providing sustainability metrics is well within the power of the supply chain professional. As usual, knowing the facts helps.

A joint platform for decision-making that considers – among other things – climate impact can be the foundation for supply chain leaders to “democratize” the procurement decision and create shared responsibility and accountability among different hospital functions. It may be time to re-write the charter of the Value Analysis Committee.

 

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