How Allina Health Is Modernizing Its Supply Chain Strategy

The supply chain has long been a challenge for hospitals, with its complexity now intensified by relentless cost pressures and frequent supply disruptions.

In today’s world, about half of large health systems have a chief supply chain officer, reflecting the industry’s growing recognition of the strategic importance of the supply chain, said Tom Lubotsky, who serves in this position at Minneapolis-based Allina Health.

Allina is strengthening its supply chain strategy by moving away from a decentralized sourcing model and toward an approach that prioritizes governance and standard operating procedures, he said in an interview.

“We still have some of what I call shadow supply chains within Allina, but what we’re trying to do is insert more standard operating procedures around what good sourcing looks like, making sure that we’re addressing the way in which it should be performed across the entire organization. Regardless of whether they fall directly under the supply chain or not, we’re all going to be guiding the organization around better sourcing — that’s a big cultural change, and I think many organizations across the country are still working through that,” Lubotsky remarked.

He noted that the health system established a non-labor governance group of executives and senior leaders to oversee how money is spent systemwide.

For instance, purchased services more than $200,000 now require centralized review and justification rather than being approved at the department level. A change like this represents a cultural shift to align procurement with the health system’s overall goals, Lubotsky said.

Allina also uses physician-led clinical subcommittees, such as orthopedics or cardiovascular, to ensure contracts are being optimized for cost and service, as well as evaluate compliance with supplier agreements. 

These subcommittees help manage the impact of new technology purchases, too.

“This is where costs can get out of control within the health system quickly. Just to put this in context for you, in the first four months [of the year], we bought $23 million of new stuff that we didn’t buy last year. Now, we’ve discontinued a lot of stuff from last year, but we have to manage that difference,” Lubotsky stated.

Moving forward, the goal is to balance tech innovation with fiscal responsibility — and to work with payers to ensure new digital tools are reimbursed appropriately, he said. 

Having this mindset is important amid the AI-driven hype cycles that reverberate in the digital health world, Lubotsky added.

When it comes to AI, he highlighted that this class of technology can unlock new and exciting possibilities across the healthcare sector, including in supply chain management. 

Health systems can use AI to automate invoices, simplify contract matching, reduce manual work and ensure accurate supplier payments, he pointed out. He also noted that hospitals are using predictive AI to forecast potential supply chain disruptions and proactively source alternative products.

Being prepared for shortages before they happen is crucial — about 85% of Allina’s most-ordered items now have approved substitute products for rapid switching during shortages, Lubotsky declared.

In addition to integrating AI into supply chain workflows, he also suggested that health systems think about partnering with an outside consultant. Allina brought on a consultant, a move that drove $150 million in savings over two years, he stated.

As healthcare’s supply chain leaders continue to innovate, Lubotsky believes their efforts will center around AI-driven efficiencies, as well as utilization optimization — not just buying the right items at the right price, but also ensuring they are used appropriately in clinical practice.

Picture: Getty Images, Mykyta Dolmatov