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Management & Operations
Global supply chain disruptions were one of the many unfortunate side effects of the COVID-19 pandemic. And while the public health emergency is no longer in effect, health systems continue to face multiple challenges. These include obtaining lab supplies, reagents, and equipment.
Today, inflation keeps driving supply costs to new heights, with no relief in sight. A report prepared for the American Hospital Association (AHA) reveals that all health system expense categories will remain 20% to 25% above prepandemic levels for 2023. Drugs and supplies will increase the most.1
As a result, running a hospital lab is costlier than ever before. AHA data show that lab services are 27.1% more expensive to administer than they were in 2019.2
These factors leave health system leaders and lab directors scrambling to find systemic approaches. Ones that will help them contain costs, maintain quality, and obtain much-needed supplies. One potential—and often overlooked—option is to explore an outsourced approach to lab supply chain management.
Unlocking a hidden opportunity
In the past, a health system researching lab partnership models would look at reference testing alone. Yet reference testing is just one of many cost drivers that impact the typical health system lab.
Data from Quest Diagnostics® estimates that total lab spend in the United States is about $47 billion annually.3 Reference testing makes up about $4 billion to $5 billion of that total cost. The remaining $35 billion to $40 billion is dedicated to equipment, supplies and reagents, and labor combined.
"Supply chain collaborations are already allowing health systems to drive down costs and improve operations. Organizations that invest in such partnerships experience a 10% to 15% reduction in lab spending across staffing, reagents, and capital equipment."
Lab procurement: insourcing vs outsourcing
In the past, health systems experienced several advantages by keeping equipment, supplies, and full-time employees in-house. But each of those perceived advantages also brings risks.
For example, health systems that want to own their own equipment also carry the burdens of maintaining, servicing, repairing, and replacing those devices. Then, when margins get tight, health systems are left with two difficult choices. They can ask for increasingly limited capital expenses or continue to use outdated equipment.
What’s more, hospitals that insource lab supplies and reagents may lack the purchasing power they need to keep their costs in check, especially during supply chain crunches. And organizations that keep all of their lab employees in-house must compete for talent on their own amid a national clinical lab staffing crisis.
In contrast, outsourcing offers a modern approach that helps health system leaders and lab directors tackle their biggest lab costs and reduce their risks. For example, in a supply chain partnership with a strategic lab partner, health systems will benefit from the partner’s purchasing power and economies of scale. A chosen partner can source lab supplies, negotiate contracts, and obtain the best possible price. This can deliver savings directly to a hospital, so health system leaders can allocate funding to other needed areas.
It is also beneficial to build equipment replacement into supply chain partnership agreements. This approach empowers health systems to invest in state-of-the-art technology and replace aging equipment at a lower price than if they negotiated pricing on their own. It also allows organizations to invest in their laboratories without having to compete with other departments for a decreasing smaller share of the capital expenditure budget.
Health systems may even want to consider a strategic partner that provides staffing assistance. When partnering with Quest, organizations get an expert processor who works on-site at their lab to manage inventory and maintain appropriate stock levels. This allows in-house staff to focus on patient care.
Supply chain collaborations are already allowing health systems to drive down costs and improve operations. Organizations that invest in such partnerships experience a 10% to 15% reduction in lab spending across staffing, reagents, and capital equipment.
The power of collaboration
As a former lab director, I understand the push and pull health system leaders and lab directors face when it comes to outsourcing. When health systems partner with Quest for supply chain management, it’s not a takeover. Instead, it’s a true collaboration. We’ve designed our governance process to ensure hospitals will always have a say in their lab’s operation. We’ll work on the organization’s behalf to obtain supplies, reduce costs, and help build an innovative lab that’s ready to handle whatever comes next.
- Kaufman, Hall & Associates, LLC. The current state of hospital finances: fall 2022 update. American Hospital Association. September 15, 2022. Accessed July 6, 2023. https://www.aha.org/guidesreports/2022-09-15-current-state-hospital-finances-fall-2022-update
- Costs of caring. American Hospital Association. April 2023. Accessed July 6, 2023. https://www.aha.org/costsofcaring
- Data on file. Quest Diagnostics; 2023.