Hospitals Take High-Tech Approach to Supply Chain

BN-KV450_medsup_M_20151020105502Hospitals, facing growing pressure from insurers to cut costs, are taking an axe to their supply chains.

New forms of payment triggered by the Affordable Care Act have threatened to reduce revenue for hospitals, prompting providers to add services and constrain costs. Many hope that technology long used in retail and other industries will help them cut inventory costs by millions of dollars.

Up until last year, the team managing supplies for BJC HealthCare’s network of 12 hospitals in Illinois and Missouri kept track of medical devices the old fashioned way: by counting them, said Marcia Howes, chief supply chain executive at the company. As a result, hospitals frequently ordered too many of some products. Others would run low on an item and order more, even if another BJC hospital had a surplus.

BJC is spending millions of dollars to attach RFID tags, markers that transmit data via radio frequencies, on some medical devices, such as catheters. The tags feed into a central database that tracks when items are used or expire. New orders are automated, and hospitals can lend supplies to each other.

Ms. Howes said the new system reduced the amount of stock facilities had to keep on hand by 23% in tests. The health system expects to make back its investment in under 18 months.

The process of tracking inventory “was different at every hospital … some were counting it, or just eyeballing it,” said Stephen Kiewiet, vice president of supply chain operations at BJC. Now, “I know exactly what inventory’s in there. I know everything about that inventory.”

Scanners are ubiquitous in retail, allowing suppliers to know almost immediately after a customer buys a product. But in hospitals the technology, particularly RFID tags, is mainly used to keep tabs on patients as well as expensive equipment.

“When something is purchased [in other industries] the whole supply chain knows,” said Tony Vahedian, general manager of medical services and solutions for Cardinal Health Inc., which is helping to implement BJC’s RFID system. “They are smart, intelligent supply chains driven by data. You don’t have that in healthcare.”

Hospitals have been slower to adopt new supply-chain technology in part because inventory traditionally is managed by many different individuals, from doctors to clinicians and other staff, said Eric O’Daffer, analyst for research firm Gartner Inc.

But health systems are also paying more attention to costs now because the Obama administration is making an effort to move health systems and providers away from getting a fee for each service they provide and be paid instead for the quality of overall care patients receive. A rash of mergers has also made it easier for multiple hospitals to consolidate supply chain operations.

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