By William Zierolf

U.S. hospital systems are struggling to leverage and integrate the powerful capabilities provided by modern information technology. Most hospitals employ the basic elements of IT in managing administration and logistics, but lack the enterprise-wide integration of this technology and data that makes IT so powerful. The public debate over electronic patient records is only one dimension of this. Hospitals also lack wall-to-wall supply chain management tools that can link real-time inventory data to a hospital’s main information system so that it is centrally available to all personnel within the system.

What does this mean? In many areas essential to patient care, hospitals are flying blind. They are not exactly sure what clinical supplies they have, where these supplies are located or whether the items have past their expiration dates. This lack of transparency leads to higher costs in two ways. First, when essential clinical supplies are missing or expired the day before a medical procedure is performed, they must be ordered piecemeal and shipped overnight (the most expensive way of ordering supplies). Worse, when it is discovered the day of a procedure the only option is to cancel or postpone the procedure. Second, without a detailed, accurate accounting of the supplies actually used in a patient’s treatment, patients can be over-billed for unused items or the hospital absorbs the cost of items actually expended. Either way, someone gets the short end of the stick. More troubling, without a clear understanding of which patients received exactly what items – like a hip implant - there is no way to effectively deal with the product recalls that happen from time to time.

Fortunately, there is movement afoot to deal with these problems in a way that not only improves patient care, but also reduces cost. Up until now, most hospitals have dedicated their investment dollars to upgrading their clinical technology, creating a significant gap between hospital medical technology and the IT infrastructure used to manage actual patient care. Believe it or not, the kind of basic supply chain technology, infrastructure and methodologies that you find in any manufacturing facility or shipping hub in America is non-existent in most hospital systems. With the advent of value-added providers of these capabilities, hospitals are reexamining everything from patient records to insurance processing, and looking for ways of leveraging the IT revolution and improving supply chain management is an essential component of this system upgrade and overhaul.

The supplies are a hospital’s second largest cost after labor. As a result, modest improvements in supply chain management can result in significant cost capture and savings. In a recent study, hospitals that adopted a proactive, streamlined method of supply chain management have been shown to reduce costs from five to 15 percent, which equates to a one to three percent improvement in operating margins.

The key to improving the hospital supply chain is to view it as a complete, wall-to-wall system that links all component system parts – the loading dock, storeroom, prep areas and operating rooms - in a single cohesive chain. Most hospitals have an existing materials management system that tracks deliveries to the loading dock. This lets supply chain personnel know what inventory has been delivered but they can’t see the rate at which it is being used or where it has been delivered in the hospital. Greater inventory transparency at each step in the supply chain is a must.

Hospitals can unify this entire system with modern supply chain software that is both compatible with existing central material management software and places handheld devices loaded with sophisticated applications in the hands of personnel at points-of-use throughout the system. All items are scanned and tracked at each point, giving hospital administrators granular visibility into department storerooms and operating rooms on a real-time basis. Where RFID and advanced barcode technology is employed, this system becomes even more efficient and streamlined.

A comprehensive supply chain management system also tracks exactly what items are used during a medical procedure and which unused supplies are returned to the storeroom. After the procedure, the unused items get scanned back into the storeroom, billing the used items directly to the patient. This greater level of accuracy and transparency works to the advantage of both the patient and the care provider.

A comprehensive supply chain management system will also generate alerts when inventory is running low or nearing expiration. Appropriate “par” levels can be set and when the system falls below these, an automatic alert is sent out. The supply chain management system also serves as a powerful analytical platform capable of generating reports and providing the intelligence needed to improve performance, cut costs and reduce unneeded inventory. Fewer supply chain personnel are needed to manage the system more effectively, reducing the burden on hospital staff, particularly care providers.

Supply chain improvement is nothing new and many industries have perfected its management to a science. But the health care industry has a lot of catching up to do. While hospitals have addressed some of the aforementioned issues, very few have implemented a solution that unifies the entire hospital inventory system – from the loading dock to the clinical area – under one transparent system. Until they do, hospitals will continue to be less efficient and patient care won’t be as good as it should be.

William Zierolf is the president and chief executive officer of Management Health Solutions. MHS is a premier health care information technology organization that provides integrated mobile supply chain software applications, content services, inventory valuation services, master data management and professional services to hospitals and health care systems nationwide.