Last fall, leading health care industry organizations joined with the National Alliance for Health Information Technology (NAHIT) to identify uniform standards for supply chain transactions. Later this year, the NAHIT’s Healthcare Supply Chain Standards Coalition will recommend a series of standards intended for use by hospitals, manufacturers, distributors and group purchasing organizations (GPOs). The goal is to save money and time by improving the efficiencies of transactions among these groups. In the following interview, Laura Wooster, director of technology leadership for the coalition, discusses why after years of false starts, the health care industry may finally be ready for widespread adoption of supply chain standards.
Q. Attempts in the past to devise standards that would be widely accepted by the various trading partners in health care haven’t been successful. What’s different this time?
A. I think the environment in which we are currently operating has changed. Costs keep rising, and providers are looking to reduce those costs. The supply chain is one area where there is huge waste in health care. An EHCR (Efficient Healthcare Consumer Response) study performed in 1996 said there was $11 billion in costs that could be avoided by moving toward a streamlined, automated health care supply chain. Those estimates were recently updated by Arizona State University, and I think they now put the figure at $16 billion.
Q. From where might these potential savings come?
A. A lot of ordering today is done manually. Even once it’s automated, there’s a lot of inconsistency and lack of clarity. For example, certain hospitals may have 10 different customer identification numbers (representing them) in one distributor’s computer, just because of inaccuracies. By automating and standardizing customer identifications, supplier identifications and product identifications we can reduce a lot of the manual work that’s done in reconciling errors. Pricing can be clarified as well.
Q. Do hospitals, manufacturers and distributors feel a heightened urgency in coming to grips with these problems?
A. I think they do. The move overall toward health IT has brought some more light to these issues as hospital CEOs start moving toward electronic health records. (Hospitals) might look at the supply chain again and revisit the idea of updating those systems. Also, the FDA recently looked at identifications for devices and currently is undergoing rule-making for that area. Improving device identification goes along with the broader issue of product identification in the health care supply chain. So that’s bringing a lot of scrutiny to the issue. And patient safety can be greatly improved.
Now that we have electronic health records, we can more carefully and accurately define products that are used to treat a patient, and we’ll start to see benefits in terms of product recalls. There were issues when a pacemaker was recalled because it was difficult to know which specific pacemaker a patient may have received if, say, only one lot of the pacemakers was defective. Certainly nobody wants to undergo unnecessary surgery to find out [if a patient has a recalled device].
Other patient safety benefits could be real-time research on outcomes such as: Do drug-coated stents work better than regular stents? If these items are accurately identified in a patient’s electronic health record, you could assess outcomes much more quickly than today when you have to manually look at each patient’s chart, abstract that information, then do the outcomes research in addition to that.
Q. You mentioned the FDA. To what extent is the government involved in what your organization is trying to accomplish?
A. I think everybody wants to do this without the government having to get involved. But we are planning to include them in the process.
We will be inviting the FDA to our meetings. We hope they will be actively involved with providing us any information that can help. It [the FDA] could also learn what we are doing so that it can do better in terms of device identification and better rule-making.
Q. Given the lack of widely adopted standards today, have you seen any hospitals or suppliers maybe becoming frustrated and starting adhoc initiatives to implement their own standards? If so, how will this impact adoption of what your group ultimately finalizes?
A. I’m not really aware of any adhoc initiatives that would conflict with ours. We are being very careful to make sure we know what is going on with other groups.
CHeS (Coalition for Healthcare eStandards) has done work in this area, and we are working very closely with it and other associations. We are also looking at the U.S. health care supply chain while trying to stay aware globally so that any work our group does wasn’t eventually conflict with, say, a manufacturer with worldwide product (distribution). We try to keep aware of what’s out there and make sure that this initiative will be a definitive one that helps all stakeholders and does not cause further confusion or conflict in the health care supply chain.
Q. What specific standards are you looking at and where did they originate?
A. The subcommittees that will be looking at standards are just getting started. We’re currently collecting research from a lot of the associations out there that have already done some work. The coalition will choose existing standards or ones under development. So we are not a standards-developing organization.
Q. Could you give us a couple of examples of the associations you’re looking at?
A. CHeS is giving us some information. SMI (Strategic Marketplace Initiative, Scituate, Mass.) is providing us with a lot of information. We are hoping to talk to Arizona State University; they’ve done a lot of work in this area. A lot of the individual manufacturers have done some research. The Department of Defense is doing pilot work in this area, which they will share.
Q. What are the biggest challenges you are facing when it comes to developing a widely accepted group of standards?
A. We represent all the stakeholders in the health care supply chain, and each has very individualized needs. Reaching a consensus will be a challenge, but it also will lead to the eventual success of the project. So we are trying to balance the needs of the providers, the manufacturers, the distributors and the GPOs, and make sure that everyone comes out with a win on this. That’s where the most work will come.
Q. Do you have a strategy for resolving conflicts given the different needs of these various groups?
A. Everybody that is joining the coalition is interested in seeing this come out in a successful way. We are engaging the leaders of these organizations, and they have a high-level view of the issues and see the long road, not just the short term. That makes it much easier to find a consensus position and find something that everyone will consider a win for themselves and the entire health care supply chain.
Q. Once you have a set of standards that you’ve all agreed upon, what mechanism will be in place to make sure individual organizations adopt and adhere to them?
A. One of our subcommittees will be education enablement. They are not going to wait for the standards to be decided on. They will start by educating the industry on the work that we are doing and then eventually, once the standards are chosen, they will educate organizations on the importance of adopting them.
Also, groups that are joining the coalition will be to the greatest extent possible, using these standards themselves. Getting major players in the industry to join will provide a large impact that will ripple throughout the industry and encourage others to adopt standards without fear of obsolescence.
Q. So if large suppliers or manufacturers adopt the standards, the price of doing business with them will be adhering to these standards?
A. Exactly.
Q. You mentioned earlier that there is the potential to save about $16 billion. Have any studies been done to estimate the cost of complying with standards for such things as updating purchasing systems with new codes and identifiers?
A. There has been some research done, but a lot of it was within organizations, so it hasn’t been publicized. In the DOD pilot that is currently under way, they are looking at the ROI and the cost of the initial investment of adopting standards.
Q. Your first initiative will be to cover standards for organizational and facility identifiers. Why did you single out that area as the first one to tackle?
A. There is a good amount of research already done on the benefits of organizational identifiers in other industries, and I think the [health care] industry is ready to move toward one standard. So we thought it would be a good, early win.
If we are successful in choosing a standard and pushing its adoption throughout the industry, that will give us the credibility to tackle harder issues such as data synchronization.
Q. Where are you in the process of coming up with organizational identifiers?
A. We are currently forming the subcommittees, and we’re collecting the research that they will then look into. The subcommittee will then make a recommendation to the coalition’s oversight committee about which standard [to adopt]. That recommendation will look at the ROI for each of the stakeholders, the overall cost and the overall benefits for the industry in moving to that standard. We hope to have that standard chosen by the third quarter of 2007.
Q. What specific impact do you expect to see when the health care supply chain has adopted that standard?
A. Providers could see a lot of labor and cost savings. A lot of hospitals are trying to standardize certain products instead of having many specialty orders. [A standard] will let them have better reporting of what different suppliers can provide them with.
Because suppliers could better identify a hospital and different shipping locations within a hospital, they would be able to more accurately provide the hospitals with total cost information; and manufacturers could streamline charge-back on the rebate processing.
They could see savings because less money would be tied up in unresolved accounts. For GPOs, a standard will help them provide better service to their members in terms of contracts, pricing and reporting.
Q. What advice can you offer materials managers to help prepare them for the eventual release of standards?
A. Just to be aware of the issues and the potential savings and how standards can help their organization. Then look at how they can change their business processes to make better use of the eventual standards. We always say that IT is not the answer—it’s a tool to reach a solution. If your business processes still rely on older methods that may be inefficient, you are not going to come out with a win in the end just because you have standards.
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