ACHIEVING SUPPLY CHAIN EFFICIENCIES THROUGH USE OF AN ELECTRONIC TRADING EXCHANGE FOR HEALTHCARE

Transcription

1 ACHIEVING SUPPLY CHAIN EFFICIENCIES THROUGH USE OF AN ELECTRONIC TRADING EXCHANGE FOR HEALTHCARE Supply chain optimization can contribute to both better quality of care and lower healthcare costs. Supply chain costs represent approximately one-third of total hospital spending, second only to labor and are the fastest growing operating expense for most hospitals. As such, lowering supply chain costs can make a significant difference in the cost of healthcare for providers and the patients they serve. The supply chain also plays a critical role in ensuring the right product is available at the right place, the right time and the right price,...greater supply chain visibility can help prevent the use of counterfeit and/or misidentified products from being used in patient care, Karen Conway, GHX San Francisco, California, September 20, Learning from Best of Breed has been a driving force for the Biotech Supply Management Alliance (BSMA), organizers of the upcoming 3 rd annual conference titled TRANSFORMING THE GLOBAL SUPPLY CHAIN FOR END-TO-END VISIBILITY & QUALITY PATIENT CARE", on the 26 th of October in South San Francisco. Register at Karen Conway, Director - Industry Programs, Ghx, and Devendra Mishra, Executive Director, BSMA, engaged in a wide-ranging Q&A session to provide a preview before her presentation at the premiere Conference of supply chain executives from all over the world. The interview of Karen Conway has highlighted how the Biotech industry can leverage a proven electronic trading exchange for the healthcare industry. Karen Conway brings 25 years of experience in strategic communications and has been active in healthcare industry associations, including: Healthcare Information Management and Systems Society (HIMSS), Association for Health Care Resource & Materials Management (AHRMM), Strategic Marketing Initiative (SMI) and the Arizona State University Health Sector Supply Chain Consortium. Her eight years of experience as a journalist and nine as a lobbyist at the state and national levels have given her a unique perspective on healthcare reform and the supply chain. Mishra: Supply chain management principles have often led industries to overcome the intrinsic legal and operational impediments. What prompted the creation of GHX nearly a decade ago? Conway: In 1996, the Efficient Healthcare Consumer Response study identified billions of dollars in waste in the healthcare supply chain that could be saved in part through expanded use of e-commerce. It was the dot-com boom, and dozens of new start-ups were vying to deliver those savings. The business models of some of those early entrants were focused more on

2 making money for investors than taking costs out of healthcare, while others lacked neutrality, which the founders of GHX considered critical to delivering savings across the supply chain. Global Healthcare Exchange was founded in the year 2000 by a group of five health care manufacturers - Abbott Labs, Baxter International, GE Medical Systems (now GE Healthcare), Johnson & Johnson, and Medtronic. Today GHX is owned by representatives of the entire healthcare supply chain, including manufacturers, distributors, hospitals and group purchasing organizations. It provides an electronic trading exchange designed for health care providers, suppliers, and manufacturers to buy and sell supplies online. GHX aims to lower supply chain costs for its users by enabling transactions with multiple parties through one electronic platform, as well as by automating the purchasing process and reducing purchase order errors. Hospitals representing more than 80 percent of the licensed beds in the US and the suppliers from which they purchase more than 85 percent of their products are now integrated to the exchange. GHX also operates in Canada and nine European countries. Mishra: How has GHX evolved over the last decade? Conway: In addition to integration, GHX offers enabling technologies in the cloud to improve efficiencies in the procure-to-pay process and provides access to more accurate and timely data that providers and suppliers can use to make better strategic decisions. Through market consolidation, including mergers and acquisitions with some other exchanges, With a critical mass of participants using the same platform, strong industry ownership, and a strict data privacy policy, GHX provides the technology, community and governance necessary to create greater buyer-seller collaboration and business process improvement across the healthcare supply chain. Mishra: How does an electronic trading exchange work where suppliers and providers do business with multiple trading partners? Conway: GHX integrates into the enterprise resource planning (ERP) and/or materials management information systems (MMIS) for suppliers and providers. Integrated organizations can then onboard trading partners that are also connected to the exchange in order to conduct business with them electronically. GHX synchronizes data between buying and selling organizations before they begin transacting to help reduce order errors. Those organizations connected to GHX can send and receive a wide variety of electronic transactions, including but not limited to purchase orders, purchase order acknowledgements, advanced ship notices, and invoices. Depending on their individual technology systems, trading partners can also utilize more advanced electronic transactions, such as those used for catalog updates and price activation. GHX currently enables more than 130,000 unique trading partner connections. Mishra: What kind of web-enabled solutions exist for businesses? Conway: Buying and selling organizations without EDI infrastructures can also transact business via GHX by utilizing Web browser solutions and EDI to fax/ conversion tools. For example, an integrated hospital can send orders to GHX via EDI and GHX will convert them to

3 fax or to send to the supplier and then convert a fax or confirmation from the supplier to EDI and send it back to the provider. Buying organizations can also send orders to GHX via fax or , and GHX can convert the orders to EDI, send them to the supplier and then convert the EDI confirmation to or fax and send it back to the provider. Through a combination of integrated, Web, and fax conversion solutions, GHX enables electronic transactions between more than 11,000 provider and 4700 supplier facilities. Mishra: What is the economic arrangement in these transactions? Conway: Both suppliers and providers pay a one-time integration fee to connect to GHX and an annual subscription fee to utilize the exchange. Mishra: How does GHX advance the business of healthcare in terms of patient care worldwide? Conway: Supply chain optimization can contribute to both better quality of care and lower healthcare costs. Hospital costs represent approximately one third of overall healthcare spending in the US, and supply chain costs represent approximately one-third of total hospital spending, second only to labor. Supply chain costs also represent the fastest growing operating expense for most hospitals. As such, lowering supply chain costs can make a significant difference in the cost of healthcare for providers and the patients they serve. The supply chain also plays a critical role in ensuring the right product is available at the right place, the right time and the right price, helping generate a positive outcome and experience for patients. Greater supply chain visibility can help prevent the use of counterfeit and/or misidentified products from being used in patient care, which could otherwise result in ineffective or potentially harmful treatment. GHX helps buyers and sellers both synchronize and share data to improve visibility and in turn safety. Capturing data at the point of use, such as the operating room, can optimize business processes and visibility in the area of healthcare delivery that has the greatest impact on both cost and quality. As an example, knowing which implant was used on which patient can help clinicians provide better and more expedient care in the event of a recall or the need for revision surgery. Mishra: With leaders of AHRMM stating that supply chain improvements can have a 10 to 20% positive impact on the bottom line of hospitals, where are the low hanging fruits? Conway: There are a variety of areas where healthcare providers (as well as suppliers) can achieve savings through supply chain optimization. Trading Partner Connectivity: By using an exchange to connect to multiple trading partners through a single Internet connection, hospitals, on average, report that they can avoid between $1000 and $3000 per supplier connection for costs associated with IT labor, hardware and software, and telecommunications fees, some of which are ongoing. Suppliers can also avoid costs associated with establishing and maintaining direct EDI connections with providers. When GHX was founded in 2000, less than 50 percent of hospitals were conducting any form of e-commerce, and those that were generally only had 1 to 3 electronic

4 trading partners, and usually just with their prime vendors. Today, the average number of supplier connections per hospital over 150 beds is 40, with some integrated delivery networks working with GHX reporting well over 100 integrated suppliers. Increasing the Percentage of Electronic Purchases: In 2000, only about 5 to 20 percent of purchasing was handled electronically. Today, hospitals over 150 beds report that they are processing 60 percent of their orders via EDI. On average, an electronic order is 70 to 80 percent less expensive than a manual order. Real-time Exception Management: The ability to identify and correct purchase order discrepancies in real time can help hospitals avoid costly invoice exceptions. As a result, orders processed through GHX are often 55 to 70 percent less expensive than an electronic order sent direct to a supplier via EDI. Reducing invoice exceptions translates into hard dollar savings, most notably by enabling hospitals to take advantage of early pay discounts from suppliers. On average, hospitals report a 33 to 50 percent reduction in invoice exceptions using GHX. Suppliers can also realize savings through a reduction in days sales outstanding. Real time exception management provides visibility into backorders, which can also translate into hard dollar savings. With advanced ship notices, buyers are notified when a product is on backorder and can determine if an alternative product needs to be ordered in time for a scheduled case and often take action quickly enough to avoid rush order and overnight freight charges. GHX also enables buyers to see if products are on contract, which helps them identify if there are other contracted items that clinicians have determined to be functionally equivalent. In this way, hospitals can often avoid paying as much as five to 20 percent more for non-contracted replacement items. Real time price validation helps hospitals ensure they are paying the correct contract price during the transactional process and make any changes as necessary, avoiding more costly efforts to recoup the difference later on. Discrepancy Reduction: By synchronizing data between providers and suppliers, GHX can help increase the number of orders that can be processed in a touchless manner without manual intervention. Non-discrepant orders on average are 30 to 50 percent less expensive to process than those with discrepancies. Automate the full procure-to-pay process: Savings can be achieved by automating as many aspects of the procure-to-pay process as possible, including requisitioning and accounts payable. By enabling those responsible for requisitioning products to see which products are on contract, hospitals can increase contract compliance and reduce the number of products purchased off contract and at higher prices. Automating the accounts payable process can also yield savings. GHX has found that hospitals using its invoice automation solution can reduce processing costs by an average of $12 per invoice.

5 Mishra: How are the best in class healthcare organizations implementing a holistic approach to procurement? Conway: Historically, hospitals have taken a very segmented approach to procurement, with multiple supply chains running in their organizations. By centralizing and automating more purchasing, materials organizations can gain greater insight into their purchasing patterns and identify opportunities for greater contract savings and product standardization. Better management of physician preference items (PPI) offers a significant opportunity for improvement. As much as 50 percent of a hospital s medical-surgical spend is attributed to PPI, which are often sold on consignment outside the purview of the materials management department. With a lack of visibility into these purchases, providers often have little control, not only over which items are purchased, but also over whether or not they are purchased at the correct contract price. Best-in-class providers create catalogs that contain only items, including those sold on consignment,that have been approved for purchase, along with the correct contract price for those products, and integrate those catalogs into their MMIS or ERP systems. Some institutions provide log ins to sales representatives so that they can create electronic requisitions for implants, which can generate purchase orders to be sent to the supplier s system. This approach can increase price accuracy while reducing time spent by clinical staff on supply chain related activities and giving them more time to spend on patient care. Best in class suppliers use auto id and mobile technology to keep track of consignment inventory in the field. More accurate and timely utilization data from customers can help best in class organizations ensure that adequate supplies are available at the point of care, while minimizing the amount of excess inventory in the pipeline. Excess inventory increases carrying costs for both suppliers and providers and often results in waste due to products expiring before they are used. Mishra: What are the impediments to transforming tactical procurement to a strategic imperative? Conway: Healthcare providers have typically not viewed supplies as assets. According to Gene Schneller, director of the Arizona State University Health Sector Supply Chain Research Consortium, If you don t see something as an asset, you probably don t manage it. On the supplier side, medical device companies have typically focused first on product leadership and customer intimacy, and only then on operational excellence. With increased financial pressures on both providers and suppliers due to economic conditions and healthcare reform, an increasing number of buying and selling organizations are focusing more on supply chain operations, especially as more supply chain leaders enter healthcare from other industries where this approach has proven successful. Materials management is often only responsible for commodity products, with lab, radiology, the operating room, emergency room, pharmacy and food service, among others, ordering products and services on their own. Integrated delivery networks have also operated separate supply chains for their acute and non-acute care facilities. Lack of

6 consolidation of purchasing across an entire system makes it difficult to effectively manage spend. Lack of trust between trading partners has been an impediment to adopting many of the supply chain strategies used outside of healthcare. The supply chain, because it crosses organizational boundaries, can provide an opportunity for providers and suppliers to build trust by collaborating to improve supply chain efficiencies. Trading partners working with GHX have begun to map business processes from the point of manufacture to the point of use and identify where they can reduce costs and share in the savings. Mishra: What do you envision in terms of industry efforts to provide visibility and accountability with a universal numbering system for products? Conway: Industry standards for product identification provide a variety of advantages from both an operational and clinical perspective. Standards play an important role in data synchronization, which can reduce errors and rework in the procure-to-pay process. Product identifiers also make it easier to use auto id and capture technology, such as barcodes and RFID, to record information about products used. This information can then be used for a variety of purposes, including but not limited to: purchase order generation, charge capture, implant logs, patient records and comparative effectiveness research. Mishra: How are you facilitating the response of payers and providers to the current healthcare reform? Conway: Under healthcare reform, hospitals and other healthcare providers will be reimbursed based on value (quality and efficiency) as opposed to the volume of procedures performed. As a result, they will need to be able to gather data from various (clinical, financial, supply) systems in order to understand the total cost of ownership (TCO) for the supplies they purchase. Use of product identification standards, which GHX can enable, will be instrumental in increasing interoperability and data sharing among systems. The more purchases handled electronically, the more insight providers have into their overall purchasing trends. Capturing information about products used can help providers, payers and suppliers better understand the efficacy of products and their contribution to overall value. Mishra: It is reassuring to learn that today GHX is applying its knowledge from the medicalsurgical side of healthcare to the pharmaceutical industry by collaborating with pharmaceutical supply chain players to define requirements for a track and trace system. I understand that GHX believes it can serve as a common ground for various supply chain players to collaborate on an industry solution, supported by strong data privacy rules, industry neutrality, and an established technological infrastructure. About Bio Supply Management Alliance (BSMA)

7 The Bio Supply Management Alliance was born of the need to create a worldwide community of operations and supply chain management leaders and professionals in the biotechnology industry. The Alliance provides a forum for collaboration, learning and best practice sharing of practitioners, executives and thought leaders in these uniquely demanding industry sectors. MEDIA CONTACT: Tim Salaver, tim@biosupplyalliance.org,