Impact of Digitalization on Healthcare

Kaiser Permanente and the impact of digitalization on the healthcare supply chain.

Impact of Digitalization

The healthcare supply chain is a complex system that requires buy in from manufacturers, distributors, providers, payers (government and insurance companies), regulators, and patients. Providers, such as hospitals and healthcare clinics, are at the center of this supply chain – they purchase goods from manufacturers or distributors and use them to deliver services to their patients, while also ensuring they will receive appropriate approval from payers and meet the quality standards of regulators. To have an efficient healthcare supply chain, providers much manage the goals of each of these stakeholders to deliver optimal customer value at minimum costs [1].

Digitalization has made an isolated impact on each stage of this supply chain; however, the most profound impact has come in the form of increased ability to communicate transparent, real time data between each stage and stakeholder. This is particularly powerful in the healthcare industry because it allows for ongoing monitoring and reporting of patient centric data that enables providers to identify and respond to patients’ needs more quickly. This data also helps providers effectively communicate with suppliers and payers to ensure they have a low cost but efficient inventory and drive preventative care as well as quality patient outcomes [2].  Providers across the United Sates belief that digitalization can help improve the healthcare supply chain and in turn lower costs, increase revenue, and improve quality of care [3]. One provider, Kaiser Permanente, has noticed this potential impact and is striving to implement sophisticated data sharing systems to ensure data is optimized at every step in their supply chain.

Acting on Digitalization

To address the implications of digitalization in the Healthcare sector, Kaiser Permanente was one of the first health care providers to adopt an electronic medical records system that would enable the organization to drive transparency and communication across their healthcare delivery model [4]. In the short term, Kaiser’s integrated healthcare data model is being used to improve inventory management, demand forecasting, care coordination, reduce medical errors, patient satisfaction, and overall patient-provider communication [5]. In the next two years, Kaiser will be able to reduce their inventory variability and drive supply chain efficiencies to help decrease the cost of care, which directly flows to their patients [6].

In the medium and long term, Kaiser plans to optimize its electronic medical records to disrupt the way the American health care system monitors costs and provides services. Historically, the healthcare sector has focused on a fee-for-service model, where providers are paid based on quantity of care provided rather than quality. For example, a patient can visit a clinic or hospital for treatment for symptoms related to the common cold. However, the medication prescribed is ineffective and the patient returns to the clinic a week later looking for another remedy. In this system, the provider is reimbursed for the two visits – despite the poor patient outcome. If the hospital were able to track the actual outcome, it could incentivize the particular provider to spend more time with the patient and identify the true cause of the cold. In many cases, the patient may have a more complex illness, but because of the poor communication, is consistently given cold remedies. In fully integrating patient electronic records, Kaiser can better track patient outcomes at their clinics and drive a fee-for-value model that rewards providers for quality of care provided [4].

Could Kaiser do more?

Up to this point in time, Kaiser has been on the leading edge of recognizing and responding to digitalization in the healthcare industry. However, there is still more the organization can do to fully take advantage of digitalization and drive change in each part of their supply chain. While Kaiser has effectively improved both the downstream and upstream management when dealing with their suppliers and delivering patient care, there is room for further improvements on the payer side. Kaiser should use digitalization as an opportunity to better translate patient data to payers so they can understand the true cost of care per region and adjust insurance rates and reimbursements accordingly. Also, by sharing more accurate provider data, health insurance companies and government regulators would have a better understanding of patient needs, related illnesses, best practices in short and long term medical practices, and effective policies to drive care prevention and holistic treatments.

Additionally, Kaiser can more aggressively manage unwarranted variation in how individual physicians and care centers treat common problems. This will further drive efficiencies as well as standardization in their healthcare delivery [7].

Despite the positive impact of data digitalization in the healthcare supply chain, there is still a concern regarding subjectivity of the data. Are there actions Kaiser and other providers can take to decrease this subjectivity? Or is subjectivity a necessity in healthcare that should not be diminished? (792 words)



[1] RevCycleIntelligence. “Exploring the Role of Supply Chain Management in Healthcare.” RevCycleIntelligence, 17 July 2017,

[2] Nichol, Peter B. “The healthcare intelligence revolution: supply-Chain management for healthcare.” CIO, CIO, 13 Oct. 2016,

[3] RevCycleIntelligence. “3 Most Common Healthcare Supply Chain Management Challenges.” RevCycleIntelligence, 4 Jan. 2017,

[4] Rogers, Bruce, et al. “Digital Supply Chain — Are you Leading the Pack?” Forbes Insights, 2017,

[5] Wheatley, Benjamin. “Transforming Care Delivery through Health Information Technology.” The Permanente Journal, The Permanente Journal, 2013,

[6] Dash, Thomas London and Penelope. “Health systems: Improving and sustaining quality through digital transformation.” McKinsey & Company,

[7] Bajner, Jeff GoldsmithRichard. “5 Ways U.S. Hospitals Can Handle Financial Losses from Medicare Patients.” Harvard Business Review, 11 Nov. 2017,


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Student comments on Impact of Digitalization on Healthcare

  1. Healthcare is a hot button topic in the USA, and your analysis clearly demonstrates the tangible value that digital technology can have in improving the system for all stakeholders in the process. A key question that I had while reading this article was how will the implementation of this technology need to be adjusted across different geographies? While the universal health care bill was implemented in the USA and now there are political actions to try to repeal it, other nations across Europe already have well established universal health care programs that are heavily subsidized by the government. While it is reasonable to assume that electronic medical records will be beneficial to all nations, I still wonder if future technologies around automation  and data processing will be adopted uniformly across different geographies. With those considerations in mind, large corporations, such as Kaiser Permanente, must maintain these geographic complexities as top of mind when creating their broader digitization strategy.

  2. Your article makes it clear that Kaiser is leading the way on the digitization of medical records. The bigger question is what impact can this have on the country as a whole? Kaiser, while relatively ubiquitous in parts of California, is still a small fraction of all the fragmented healthcare providers across the US. Kaiser’s extensive investment in IT will be helpful to it to achieve its goal of providing the best possible patient care, but unfortunately without legislative action, Kaiser will remain a good example to other providers, but not necessarily one that they will need to or be able to follow.

  3. Kaiser is an interesting choice for this analysis, as they are at the very far end on the spectrum of healthcare integration – in addition to the medical group / provider business, they also act as payer for over 11M people, mostly based on the west coast. So, in addition to driving change with other payers as you point out, they also have the opportunity to look internally to drive such change. To your point, they may currently be doing quite a bit to advocate for value-based healthcare on their provider side (downstream), but perhaps could do more to advocate for value-based pricing with manufacturers (upstream) given that they have a strong negotiating position both as a purchaser (physical goods) and as a payer (reimbursement and population-based decision making).

  4. EMR is a big topic nowadays, especially with the mandate a few years ago for hospitals to all have electronic systems. This article is well-written and interesting as its focuses only on one healthcare system — Kaiser. No doubt, the EMR has helped increased efficiency as stated in the article. The main question now, however, is integrating this system across multiple systems. As mentioned in previous comments, Kaiser is relatively only known on the West Coast and while its EMR has been very helpful for patients who stay within the system, it most likely has been a headache for patients who are moving to other areas and health systems. The inability for EMRs to speak with each other currently and easily transfer information is a major problem.

    Additionally, as a provider, I would say that the subjectivity of data in EMRs may actually not be that big of a deal, because doctors are trained to question previous doctor’s records. In other words, physicians are trained to take the history of a patient with a grain of salt, and to think through all possible differentials. However, because of innate human biases towards common vs. uncommon illnesses, certain diagnoses may be missed. This may thus be an area where digitization can be even more helpful — as mentioned, leveraging IBM Watson so that probabilities of differentials can be weighted in a more objective manner.

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