Out With the Old, In With the New

March 1, 2007

After working in the healthcare supply chain IT field for the past 17 years, I’ve observed that improvement in supply data management is a measure that can yield substantial savings in operating costs. There’s a broad disparity in the currency and effectiveness of technologies used in this industry, with a notable percentage of ERP and purchasing systems inadequately meeting supply managers’ needs. Effective supply chain management technologies should allow hospitals to block and tackle in managing their supply chains. Regardless of the supply management technology deployed, they all require sufficient supply data quality and expanse.

After working in the healthcare supply chain IT field for the past 17 years, I’ve observed that improvement in supply data management is a measure that can yield substantial savings in operating costs. There’s a broad disparity in the currency and effectiveness of technologies used in this industry, with a notable percentage of ERP and purchasing systems inadequately meeting supply managers’ needs. Effective supply chain management technologies should allow hospitals to block and tackle in managing their supply chains. Regardless of the supply management technology deployed, they all require sufficient supply data quality and expanse.

As things stand now, most hospitals don’t have an adequate central repository for supply data, typically referred to as an item master file. The sheer number of unique items typically purchased by a hospital or IDN—20,000 to 100,000 items—makes the supply data management proposition difficult. Add to that a dearth of credible sources of detailed supply information, a shortage of in-house supply data expertise and a lack of automated item master file management processes. Then, subtract available data integration services, and you have a mission-critical data management problem on your hands. Something as simple as getting the right price for an item can become a problem when pricing data quickly becomes obsolete or disconnected from hard-earned contract prices. Inaccurate and incomplete item master files are a barrier to supply chain blocking and tackling, i.e., purchasing items that are on contract and paying the correct price.

In addition, insufficiently populated item master files result in caregivers investing inordinate amounts of time searching for the supply information necessary to request or order supplies.

From a cost standpoint, shifting supply data management functions to an outsourced data management provider may make more sense. Consider how much time is required to correctly and completely enter supply data to create a new item master record, assuming it’s available, and add to that the difficulty in implementing controls on item file management. Contrast that with professional supply data management providers’ subject matter expertise and advantages in economies of scale, and you can see that it becomes difficult to justify keeping this function in-house.

The Rise of Supply Data Management Providers
Supply data management service providers are stepping in to attempt to fill the item master file maintenance and management need. While still a huge improvement over what hospitals are now doing with their own item files, these services are not without their problems.

In general, only new record requests are processed among the current generation of providers. That leaves unfixed a lot of evolutionary errors in existing file records. Also, records are prepared in batch format. However, between the time a new item is requested, and when it is delivered and loaded to the hospital’s purchasing system (typically at least 30 days), a lot of time is lost. There can be additional errors or missed opportunities because the batch file extracts, and subsequent cleansed file updates, are not always integrated with contract or price information. Hospitals typically need to order items before the 30-day cycle. That leaves hospital staff entering items themselves or composing an incomplete or inadequate “free-form” purchase order if they need an item sooner.

Another major limitation with current outsourced supply data management services approach is that only those items actually purchased a specified number of times, or specifically requested, are built-in and available in the item file. A significant percentage of all the individual items a hospital needs to purchase may still not be in their item master file. Hospital staff can get stuck in a time-consuming search, making phone calls or surfing the Web, looking for the information they need to place an order. Even if they are successful researching an item, the purchase transactions that result may not be properly formatted and typically have limited, often incorrect content.

That raises the question, how will future generations of supply data service providers overcome the limitations of the current generation?

Enter the Virtual Item File
The next generation in outsourced supply data management service providers will overcome these problems using a technology called virtual item files. Already familiar to many IT professionals, virtual item files have been used successfully in other industries to streamline the supply order process while holding down costs. It’s only logical to expect that virtual item files will make their way into healthcare supply data management.

In the virtual item file model, a massive supply item data repository of complete, accurate, current and standardized supply information is maintained by a supply data management provider and integrated directly into the hospital’s purchasing system, giving staff faster, more valuable and easier access to necessary supply information when ordering. With virtual item files, all approved hospital staff see the same user interface on the screen, along with a more complete listing of supply items and vendor contracts. Preferred items also are displayed, and purchase limits can be set on formulary items. Everything is there, enabling staff to find what they need sooner and get it faster.

How Virtual Item Files Work
Virtual item files require relatively simple integration between the service provider’s data repository and the hospital’s purchasing/requisitioning system. The data management service provider serves as a master registry for all supply item-related data, which includes contract, pricing, inventory, patient chargeable, and carve-out status. Through this central registry, data relationships that facilitate effective business practices are maintained, such as purchase transactions where a price on a PO line is crosschecked against vendor contracts when a purchase order is prepared, ensuring pricing accuracy. Supply information can be shared across the organization. This creates reliable information streams that support all related business functions within a healthcare provider including materials management, finance, cost accounting, patient accounts, and clinical services.

In addition to the massive data repositories maintained by data management providers, virtual item files can be linked through the Internet cloud to electronic catalogs maintained by suppliers that sell huge numbers of items with high data volatility; such as office supply or industrial parts companies, for example. In the near future, users may have the ability to navigate through their purchasing system directly to a supplier’s online catalog, even using the shopping cart functionality to compose a purchase order.

The Impact on Staff
For hospital staff, the practical benefit comes when they need a supply item. Users have access to a tremendously expanded number of supplies with complete supply and pricing information crosschecked against vendor contracts. They spend less time locating items they need and once located, correct and complete information is plugged into each purchase order, ultimately leading to better quality data flowing to all hospital systems and processes relying on supply data. With easier supply ordering comes greater employee satisfaction, due to timely delivery of supplies to staff and fewer headaches in the process. Patients benefit when caregivers spend more time providing care and supplies are available when needed.

Virtual item file technology makes sense for healthcare providers because it reduces operating costs by ensuring correct prices are consistently paid. It also increases regulatory compliance by providing better quality data; decision-support systems that contain accurate, rich, standardized data with which to manage the supply chain and supply costs; and, improved patient case-based supply consumption capture, which leads to complete and accurate billing that results in incremental revenue and an improved revenue cycle.

Virtual item files also reduce disputes and delays with claims by generating accurate claim information, ensuring correct billing of device carve-outs in contracts, as well as, improving financial analysis and strategic decision making by providing access to credible data. Less labor is invested in preparing and ordering. And, controls on items to which particular users have access can be limited in the virtual item file. This mechanism provides an effective way to impose compliance with hospital contracts, preferred items, and/or formularies that typically drive economic benefit to the organization.

In the ongoing evolution of outsourced supply data management providers, the adaptation of technologies such as virtual items files from other industries will help senior healthcare management get more value out of the technology investments they have already made. Having seen IT evolve in healthcare data management over the past decade, it is clear to me that virtual item files are a good example of how supply data management providers will do more for healthcare management at a lower cost.

A Developing Trend
Hospitals need an integrated supply system that guarantees items are purchased at the correct or contract price; gives caregivers more time with patients; and, provides senior management with an accurate picture of supply costs, enabling them to better develop budgets and determine profitability.

In the current healthcare IT world, hospitals may find it difficult to deliver the same quality of item master file management services that come with adoption of a virtual item file delivered by professional supply data management companies with their expertise, data assets and critical mass. When factoring in the enhanced service level and lower delivered cost, the argument becomes fairly compelling. The maturity of supply data management service providers, the increasing role of contract vendors in providing supply data, and the increasing ease of system and data integration ensure that virtual item files will gain greater use in the healthcare industry. Simple economics will drive their adoption.

Steve Polte is senior vice president, Design and Development MedAssets Analytical Systems in Alpharetta, Ga.

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