Episode 22: Can we pandemic-proof the healthcare supply chain? Examining medical equipment management with Kelly Starman from PartsSource

Justin Steinman:
Definitively Speaking is a Definitive Healthcare podcast series recorded and produced in Framingham, Massachusetts. To learn more about healthcare commercial intelligence, please visit us at definitivehc.com.
Hello and welcome to season two of Definitively Speaking, the podcast where we have data-driven conversations on the current state of healthcare. I'm Justin Steinman, Chief Marketing Officer at Definitive Healthcare, and your host for this podcast. I think it's safe to say that the pasts three years have brought all sorts of supply chain challenges regardless of what industry you're in. While some supply chain issues are minor irritants, I had to wait 13 months for new microwave for my kitchen renovation, other supply chain issues are far more mission critical, and one could argue that no supply chain is more mission critical than the healthcare supply chain. You're literally playing around with people's health. If a hospital runs out of a drug or a specific medical supply, the consequences could be dire. If their x-ray or MRI or CT machine breaks down, then people can't be diagnosed for anything from a broken arm to a breast cancer screening.
To help shed a little light on the healthcare supply chain and what's going on there. I've invited Kelly Starman, Chief Marketing Officer at PartsSource to join me today on Definitively Speaking. According to their website, PartsSource is the world's leading healthcare services online marketplace and the largest provider of medical replacement products. Their goal is to help you transform your supply chain to ensure that healthcare is always available. So I'm pretty sure that Kelly and I have a lot to talk about today. Kelly joined PartsSource for spending decades working in healthcare and healthcare IT. Before PartsSource, she was a Chief Marketing Officer for North America at Phillips, and before that she held a variety of marketing leadership roles at places like Athena Health, GE Healthcare IT, GE Corporate, and Smith and Nephew. Plus she's fluent in Japanese, which is kind of cool. So Kelly, welcome to Definitively Speaking.

Kelly Starman:
Thank you so much, Justin. It's great to be here.

Justin Steinman:
Have you talk Japanese to us in a little while.

Kelly Starman:
Sounds good.

Justin Steinman:
But for now, we'll start with an easy question. What's going on with the healthcare supply chain today?

Kelly Starman:
Well, Justin, when you were doing your intro, I was trying to think about what I was waiting for during the pandemic. And for me it was not a microwave, it was a rowing machine.

Justin Steinman:
Okay.

Kelly Starman:
But I'd say neither of those really live up to some of the challenges that we saw in the healthcare supply chain. I think that like other industries, it was significantly disrupted during the pandemic by lots of factors, shipping restrictions, manufacturer backlogs, equipment shortages, and staffing shortages. I think fortunately the good news is now that pandemic related restrictions have lessened, but supply delays continue to be a challenge for healthcare providers.

Justin Steinman:
So Kelly, how has the healthcare supply chain evolved over the past 36 months?

Kelly Starman:
So I think in many industries, early in the pandemic we had a lot of COVID related shipping restrictions. Those shipping delays have continued. So as of this summer, there continued to be port issues on both coasts, which caused a lot of container backlogs. And the stat that really gets me is that prior to the pandemic, it took about 50 days to move a container between Asia and the US. That number is now over a hundred days. And so when you think about that doubling impact across every single product across the industry, it's really slowed things down and slowed things down very significantly during COVID. I think the other thing that we saw start to happen is that the FDA began reporting equipment shortages, which is very unusual and unique.
At the very beginning, it was a focus on masks and oxygen as a primary concern. The FDA is still tracking this, and I think that as we go into the winter, it's probably something that's going to become increasingly important. There's also a lot of geopolitical stuff happening right now with China and Russia, and China's a major supplier of medical devices and a lot of the equipment we use. So I think that companies are really starting to think about what their policy is around accepting goods from China, trying to have some other alternatives to China as the relationship between the United States and China evolves.
And so I think that while we're out of this really acute phase of, okay, when is this going to ship? Am I going to get my masks? Am I going to get my oxygen? And we're moving more towards, okay, we feel like things have normalized, but now there are other challenges that are presenting themselves and we're going back into the winter, we're recording this in the winter and COVID is ticking back up again. I just think that we're going to see continued challenges, but probably a little bit less severe than what we saw in the past 36 months or so.

Justin Steinman:
Now, I know that you are really, actually, you're more of an expert on the equipment side of things with MRI, CT and all the stuff, whether it's Phillips or your current job at PartsSource. And I think back to the start of the pandemic when I was at CVS and we were all worried about how many masks can we get to the store, and that was all about the masks, and that's really medical supply. Do you see any sort of difference in the supply chain for medical supply versus medical equipment like the MRI, CTs, and is even equipment the right way to talk about that?

Kelly Starman:
Yeah, I think that's an interesting question, Justin, because from a supply standpoint, I think because procedures shut down during the pandemic and hospitals were not really thinking about purchasing new equipment, they were thinking about how am I going to treat all of these patients that are in my hospital? How am I going to deal with all of these shortages that I have in order to treat those patients? There wasn't really a backlog or any kind of supply chain issues around equipment purchases. So I think that from a parts standpoint, the demand continued and I think a lot of health systems were turning to PartsSource for things that they were having a really hard time obtaining. And so our focus, we've been sending supply chain update newsletters to our customers for the past three years to really keep them informed in terms of where we're seeing shortages.
The other thing that has been really interesting to observe is that over time as suppliers consider cost, quality, reliability, and brand, they've started also considering this idea of availability. So whereas you might be reluctant to switch out your GE MR for a Siemens MR, maybe you're willing to accept a GE part instead of a Siemens part, or maybe you're willing to accept a refurbished part, or maybe you'll accept a generic part because you have an immediate need and you can look at what the availability is and know that it's actually worth more to your patients and keeping your equipment up and running to use a generic part versus having that branded part. And so I think as we explore alternatives and as our customers have explored alternatives in order to improve how they work through their own supply chain issues, it's really expanded in opportunity within the market around replacement parts and maybe a slight move away from a more traditional supply chain.

Justin Steinman:
You know, you think back to COVID and the whole world of panic and all at, they were probably not going off and saying, Hey, I think I want to go buy a new GE x-ray machine today.

Kelly Starman:
No.

Justin Steinman:
But they probably were doing high volumes of x-rays and CTs as they were trying to diagnose. So the equipment that they had probably got more wear and tear on it. Right?

Kelly Starman:
Exactly. And if you're in the supply chain, you do not have time to go through an entire RFP process to order new equipment. You're just trying to make the most of what you have and source, I mean, yeah, source ventilators, source monitors and all the parts that you need in order to make those function at scale.

Justin Steinman:
So are the parts like interchangeable? Can I like plug a GE MRI piece into a Siemens piece? I have no idea.

Kelly Starman:
It's a little more nuanced than that, but I think it really depends on the modality that we're talking about. This is very sophisticated equipment that we're talking about, especially in the imaging space. And I think a lot of devices, especially by the main OEMs, are designed to be proprietary and work with their parts. But there are some other places where it is a little bit more interchangeable and I don't think that brand matters as much as availability. At least that's what we're seeing.

Justin Steinman:
And have we started to recover for availability? Is availability better now than it was?

Kelly Starman:
Availability is better. I think ship date, it's, we have some interesting data from our network that shows that ship date started to creep up. It was at its highest at the beginning of 2020, in Q1 2020 and it continued to decline until the end of 2020, early '21 and then peaked again at the end of '21. And we've seen it continue to decline again. I do think availability is getting better, but it's something that we're watching pretty closely just given some of the conditions and concerns I talked about earlier.

Justin Steinman:
So I've got some interesting data here around usage and where things have been trending to, I don't know if you know any of this type of stuff, but we did some research from our database and found out that the number of imaging procedures done each day in the United States, do you have any idea what that would be?

Kelly Starman:
The number of images? This feels like a business school case study question, Justin, I don't know the answer to that.

Justin Steinman:
[inaudible 00:09:05]. So apparently the number of imaging procedures done each day on average is 433,719, which is astounding.

Kelly Starman:
That's extraordinary.

Justin Steinman:
And the average number of imaging machines in the hospital is 20, but a DOD hospital has 42 imaging machines on average. And so you start doing your business school stuff real quickly, or your favorite consulting company case study, right?

Kelly Starman:
Yes.

Justin Steinman:
Where you math, okay, there's 42 imaging machines and each image takes five minutes and you can run them 24-7. My mother-in-law literally got an MRI, the other day at 9:30 PM out in Worcester. I'm like-

Kelly Starman:
I mean you got to have that good uptime, Justin.

Justin Steinman:
I guess so.

Kelly Starman:
But I will add a stat there, which I always think about. So at PartsSource, we market primarily to the health technology management group within a hospital. And for those who aren't aware, that is the team that keeps equipment up and running. And it's a really important function within a hospital because it is directly tied to patient care and also to hospital revenue.
But when you think about the scope of work for somebody who's in HTM, hospitals have 10 to 15 Devices per bed, so this is how we think about the world is in a per bed way. And so a 500 bed hospital can have between five and 7,500 Devices that they're managing.

Justin Steinman:
Oh my god.

Kelly Starman:
And so thinking about how do you keep track of all of that equipment, how do you make sure that it's up and running? How do you make sure that you've got all the parts that you need to repair it and the technicians to repair it is really challenging and daunting. And a new place that we're getting into now that I think is especially interesting is around the maintenance of that equipment as well, both within your own in-house HTM department or externally. I think that historically companies have done a lot of that type of work externally and now we're seeing the trend shift internally. And so we're thinking about how do you enable a team to service their own equipment and track and maintain all of that equipment internally?

Justin Steinman:
Yeah, so first I think back to a recent guest we had, David from Calcite and all I can think about, he's talking about PHI and you just mentioned how many equipment pieces there. I'm thinking about, oh my god, what a security nightmare. But that was two podcasts ago. Listening to talk right now, how do you manage all of that equipment in the hospital? How do you know what's going to break down when, what the timeline to repair is, because also what's mission critical? If some things breakdown, the bed's not usable, if something else breaks down the bed can still use, but it's like maybe not for a really critical patient. How do you think about the management of all of that?

Kelly Starman:
So it's a great question and we've actually done some research at PartsSource to really figure out what the answer to that is. And so we surveyed a number of hospitals around what is their contracting strategy for equipment maintenance. And what we thought we'd find is that there would be some kind of strategy in terms of who's servicing your equipment based on the modality that we're talking about. So if you have for example, neurology and that's a very complex set of equipment that you need, you might assume that all of that would be done with an OEM and then something that's a little bit more simple like a monitor might be done by your in-house team or by a third party for time and maintenance. But what we actually found is that there was a huge amount of variability, even by specialty, even within a health system in terms of how they were managing all those different contracts. And so we think there's an opportunity there to really look at what should your HTM equipment management strategy be.
Secondly, we've done a ton of contracts like this in the past. We have thousands and thousands of equipment data points from our service contracts in the past. And so when we're thinking about underwriting, we look at the pool of assets and we really understand what is the risk of that pool of assets. And so depending on age, depending on make and model and the type of environment that it's in, something might break occasionally, something might break all the time. And so we pull our products together to address that. I think one area that we've been really focused on is around ultrasound probes. So if you think about an ultrasound probe, you've got lots of different technicians coming in and out and those probes can break really easily.
So we have a depo repair program where you put your probe in a box, you ship it off, we'll send you a trade-in temporary probe so you can use that while we're repairing your probe and then we'll ship it back to you. And so we really try and work with our health systems to find solutions that can help them just make their day-to-day a little bit easier. And then in terms of tracking and keeping track of all these different pieces of equipment, we are exploring a lot of different things. So one of the things that we have found really useful lately is just QR codes. So putting a little QR code sticker on every single piece of equipment. And you can imagine a future where you just click on that QR code and up pops your app where you can easily download and order service and know when your technician's arriving. So lots of great stuff and innovation in that space.

Justin Steinman:
And yet, it doesn't, frankly it doesn't sound all that innovative. This stuff exists in other industries. Right? Is healthcare just that far behind? And we talk about, I was behind on EMRs following financial services. Is healthcare equipment just behind other industries?

Kelly Starman:
Well, I think it's a difference between maybe the equipment and the systems that surround it because the equipment itself is mind boggling. I think I'm blown away by the technology that we can use to look inside the human body and treat conditions within the human body. But I think that the systems that surround healthcare are totally antiquated. And if you just look at the amount of investment that's happening in health technology right now and the proliferation of companies that are identifying and trying to solve problems, it's clear that there is just so much opportunity here to catch up to other industries and to leverage what we've learned in other industries to really help improve outcomes and bring the cost of healthcare down.

Justin Steinman:
Yeah, we're all trying to figure out how to bring the cost of healthcare down. So as you're talking about all of this equipment, we're talking MRI, CTs, these are expensive pieces of equipment, right? Is there a secondary market for these things? Can I get a used CT machine the way I can get a used Audi?

Kelly Starman:
I don't think it's that easy, but you can. I think that I've participated in programs in the past where we really think about the circular economy, and so instead of acquiring secondhand, which you definitely can do, we try or companies try to take the materials and make sure that they're recycled sustainably. And so there's a lot that goes into equipment that can be reused or repurposed. And so I think that most of the time, places that are acquiring new MRs want the latest, greatest, best technology and that's why they're choosing to upgrade. So I don't think the secondary market in that regard is as popular, but certainly the parts are extremely valuable on the secondary market for people who are looking to maintain those kinds of equipment and also as we think about recycling and repurposing.

Justin Steinman:
But I'm also thinking about, we spend a lot of time on this podcast talking about rural hospitals. I mean you and I are fortunate, we're here in the greater Boston area, some of the best hospitals world, frankly a lot of money floating around Massachusetts, but you're in other parts of the country, you may not have the money to get the best MRI machine or even something that's being used at Mass Gen today, which is cutting edge. You're out someplace else rural in the country, you might be thrilled to have that if it's five to seven years old. So how-

Kelly Starman:
Justin, I don't know if Definitive doesn't work out. It sounds like you found another business to go start.

Justin Steinman:
I don't know anything about this. I just sit here on a podcast and speculate randomly. And so I'm always just kind of, does that even exist or is that just kind of-

Kelly Starman:
I don't know if that exists. I personally haven't seen that or have experienced that, so I don't know. I haven't seen that. So maybe some entrepreneur out there can take this as a little germ of an idea.

Justin Steinman:
Either that or I'll call one of my old buddies at GE Healthcare and get them on. I was on the softer side of things, so I never really got into a hardware with them to kind of look at it at RSNA.

Kelly Starman:
I have seen a lot of equipment like that get donated to places in need. So especially ultrasound machines that are really portable can be moved around like that. Yeah.

Justin Steinman:
So we've talked a lot about hospitals. Is there anything different about an imaging facility? Do you guys support imaging facilities in addition to hospitals?

Kelly Starman:
We do. And I think the primary difference is that if you think about a hospital or health system, our primary target is over 400 beds. We certainly service smaller entities than that, but when you get to a system that that's big, you can generally afford to have a health technology maintenance organization to help support all of the equipment that you have. And there's enough administrative layer to really help that entity function. I think what we're seeing with the non-acute space, and that's all types of surgery centers, imaging centers, dermatology, is that they don't want to invest in a health technology maintenance team. And so there's a real preference towards outsourcing their equipment maintenance and I think an opportunity for a company like ours to really partner with them to help them scale up and down as they need to depending on how their assets are performing.

Justin Steinman:
Got it. Got it. Now, you mentioned earlier to me that I forget if I recall this. I think you mentioned we were talking about something about you guys are creating a services marketplace. Right?

Kelly Starman:
We are.

Justin Steinman:
How does that work? How do I think about that?

Kelly Starman:
So our customers today subscribe to parts. And what that means is that they join our platform and we connect them with suppliers on one side, and hospitals on the other side of that. And we pass through the parts to them at cost. So we have a great relationship with our suppliers and provide a lot of value to them. And then that value gets passed through to our subscribers. We're starting now to look into the services part of that and acknowledge that for a large part of the healthcare system population that they don't have a strategy. So this goes back to what we were talking about before, that they don't really have visibility into what they're spending across all of their contracts. So even within the same health system for the same asset, they might be paying two different prices to the same manufacturer.
And so we really want to bring visibility to that. And in order to do that, we've created a network of over 5,000 service providers. And so it's a little bit like Uber where if on one side are the drivers, and they're not contractually employed by our company, but they would be the health technology technicians and then on the other side are the providers or the riders. And so if something breaks, on demand, they can click a button and we can serve them up through an algorithm a recommendation on who they might want to have as a service provider, what that will cost and when they'll be there.
And so that's been really successful for us. And we're looking at now moving into taking on an entire pool of assets to do the same thing. So when something breaks, they call us, we give them a really nice stress-free experience, we take care of everything on the backend, and then at the end we catalog their field service request, so we take care of all the documentation for them, store it centrally, and we really think that this enables them to have choice within how they're providing equipment maintenance and also free them up to focus on their highest and best use within the organization.

Justin Steinman:
So can people bid out their services? Can they undercut each other for the better price service or is this kind of flat fee?

Kelly Starman:
There's a contractual fee that they use. So you would see an OEM price, for example, and maybe an ISO price and maybe the price of doing it with your own in-house team. And then you really get to pick what you want for the service. And it's a lot, again, like Uber. You can pick Uber Black, you can pick your pool or whatever you want. And so we really are trying to put choice back in the hands of the provider and add that transparency that they may not have had in the past.

Justin Steinman:
Got it. So you can come always to PartsSource and get both parts and the technicians now. So kind of become a one-stop shop, if you will.

Kelly Starman:
Exactly.

Justin Steinman:
Got it. Got it. So let's pivot back and talk a little bit about some of the macros, supply chain stuff as we start to get to the end of our time here, right?

Kelly Starman:
Sure.

Justin Steinman:
Has the supply chain, in your opinion, recovered from COVID? Can it recover from COVID?

Kelly Starman:
It's tough to answer that question, Justin.

Justin Steinman:
We only ask the hard questions here.

Kelly Starman:
I do think that it's recovered from COVID. If we look at our numbers and we look at how things have been performing year over year and especially two years ago, it does feel like we've reached that point of stasis. And especially that fact where I said 75% less days to ship than where we were in January makes me feel pretty good. And I think that there's some really interesting technology out there now around AI, around machine learning that can help us get even better with supply chain. So I do think that it's improved. Do I think it's improved enough to the point that we could weather another pandemic right now? No, but I think that going through what we have has really revealed some of the challenges that are within our system, and it's made us all tighten up our processes and our procedures a little bit so that hopefully the next time, if we have to go through some supply chain challenges like this, again, we're all going to be better at reacting to it.

Justin Steinman:
So two of those challenges think that we would need to fix, what do you think they are before the next pandemic inevitably comes, I think we say.

Kelly Starman:
I think we need to get better at really understanding demand and where that demand is going to come from and when it's going to come. I think we need to get better at understanding just kind of where goods are today and where they're going. And like we talked about earlier, just the geopolitics and really having resilience across the supply chain and not being overly dependent on one country or one supplier. This is not unique to the healthcare industry. A lot of other industries now are starting to think about these things and really trying to diversify their supplier base so that if one piece of the support network goes down, the whole network doesn't go down.

Justin Steinman:
Yeah, I think that's really, we talked a little bit about redundancy. That's really an important point. So another one of the things before we let we go, and I've really liked talking with you today about this topic is we're all about a little bit of self-help here on the podcast. We're always trying to help our listeners understand what they can do around this. So what should our listeners be watching out for as they look forward to the supply chain here, first parts of 2023, how can they take steps? We have many hospital systems listening to this, people at all levels inside the hospital system. How can these folks take steps to ensure they won't become victim to an unforeseen supply chain delay? What's in their power?

Kelly Starman:
Yeah. I mean, I think what we've heard of a lot of our customers doing on this topic are really understanding where their greatest need is and where their greatest potential fault points are. So if you've got a piece of equipment that absolutely has to be up and running, maybe if you in the past kept a one month supply, maybe now you keep a three month supply. So really trying to plan ahead and understand where you have resources that are just totally critical to your success and taking a bit more precaution there.
I think otherwise it's just what we're all doing, which is watching macroeconomic trends, making sure you have good communication set up with your suppliers, good communication, set up with your internal teams and the ability to track and monitor when things are arriving, how things are shaping up for your own organization. I think it's really tough for a health system. There's not much you can control when you're at the end of the supply chain. So I think the most you can do is really just be prepared and think ahead and have that extra supply of things in the basement, so to speak, so that you know you're ready if we get to this point again.

Justin Steinman:
And that really is an interesting point. You said you're at the end of the supply chain. It's interesting, you're at the end of the supply chain at a hospital, but you're also on the front lines at the hospital. And so these hospital executives have really got this unique challenge they've got to try to solve because if they screw up, it is a matter of life and death. And at the same point in time, these folks are seeing declining revenues. In fact, the average hospital operates at a negative operating margin, also known as a loss. And so if they are losing money and they have to have more inventory on hand, which is you just argued, is the right, sane thing to do and frankly responsible thing to do, you're actually asking them to take working capital out of their pockets and basically buy an insurance policy.

Kelly Starman:
I think that the pressure on our health system executives and our health systems in general is so great right now. They are on the front lines. They are saving lives every day. They add so much value to our economy, and yet their margins are so slim and the way that they are forced to operate is really challenging. And that's one of the reasons why I'm so passionate about what I'm doing right now, because I think that there is real opportunity to take tangible cost out of healthcare and to try and deliver on that mission every day is really inspiring.

Justin Steinman:
Yeah. I thank you and I appreciate that. I think there really is an opportunity, a lot of cost out of healthcare. I think we all need to do that to make the whole system more efficient. Not an easy problem to solve.

Kelly Starman:
No.

Justin Steinman:
By any stretch of the imagination.

Kelly Starman:
If we knew how we'd be retired by now.

Justin Steinman:
Exactly. Exactly. So would a lot of people, so would a lot of people. Well, hey Kelly, thanks for coming on the show today. This was really great. I enjoyed talking with you.

Kelly Starman:
This was wonderful. Thanks so much, Justin.

Justin Steinman:
And for all the listeners out there, thank you as always for listening to Definitively Speaking, a Definitive Healthcare podcast. Please join me next time for a conversation with John Moore, Chief Commercial Officer at Health Track Rx about what's going on in the lab testing space. We're still in the middle of winter, so it's high season for cold flu, COVID, rsv, and every other infectious disease requires rapid testing to diagnose. And just like the supply chain was dramatically changed by COVID, I think we all can agree that the rapid lab testing space changed as well. I'm excited to hear more details from John about these changes and so much more.
If you like what you heard today, please remember to rate, review, and subscribe to the show on Apple Podcasts, Google Podcasts, Spotify, or wherever you get your podcast. To learn more about how healthcare commercial intelligence can support your business, please follow us on Twitter at Definitive HC or visit us at definitivehc.com. Until next time, take care, please stay healthy, and remember, make sure you get that arm x-rayed.