U.S. hospital systems have seen better days. Since late 2015, hospitals have seen both declines in volume and price growth below inflation, causing financial deterioration . Further, with upcoming payment reforms triggered by the Affordable Care Act and pressure from insurers, hospital systems are increasingly concerned with cutting costs without impacting patient outcomes . Even the Mayo Clinic, known for being one of the best hospitals in the U.S., is not exempt: its latest financial report in 2016 showed five-year lows in operating income and margin [3, 4].
The supply chain, which accounts for 30-40% of a hospital’s operating budget, is a natural place to start . Hospitals deal with expiring drugs, blood, and other date sensitive supplies, and many hospital systems still use low technology methods of inventory management that lead to oversupply or shortages . For hospitals, a backlog of supplies doesn’t just mean lost potential profits – it could mean expensive emergency refills, or worse, serious consequences to patients. As a result, hospitals are sometimes forced to choose between overstocking inventories or putting patients at risk .
Fortunately, digital supply chain technologies offer an opportunity for these hospitals to reduce costs while potentially improving outcomes. For example, radio-frequency identification (RFID) technology, which uses computer chips that emit radio waves to digitally tracking medical equipment and supplies, has been proven effective in both lowering costs and improving patient outcomes . RFID technology reduces the time staff members spend tracking down medical equipment and helps them easily locate misplaced equipment . Further, the data generated using RFID can be coupled with advanced analytics to optimize inventory management. One study estimated that U.S. hospitals could save $23 billion through data analytics, optimization, and automation .
While implementing these technologies seems almost obvious, hospitals are painfully slow in adopting technology. A recent survey conducted by Cardinal Health suggests 78% of providers are manually counting inventory somewhere in their supply chain, and only 17% have implemented an automated technology system to track inventory in real-time . Barriers to adoption are familiar in healthcare: upfront costs, security concerns, and fear of risking private patient information (especially with low-quality RFID tags) .
Despite these barriers, Mayo Clinic has been at the forefront of digital supply chain technology. Mayo Clinic initiated its RFID project in 2013 (fully implemented by 2015) . Additionally, Mayo Clinic has partnered with aptitude LLC to handle sourcing, contracting and analytics, allowing them to leverage data from its digital supply chain to monitor supply chain performance, engage in direct contracting with suppliers, and optimize for the most competitively priced suppliers . Recently, Mayo Clinic implemented Reveal – a tool giving suppliers real-time visibility of inventory levels for each line-item, thereby helping suppliers know when a product is running low on inventory . Because of their efforts, Mayo Clinic’s savings through supply chain innovations was estimated to be $163 million in 2015 alone, and they have been ranked in the top 3 for Gartner’s “Healthcare Supply Chain Top 25” rankings for the past five years [12, 13].
As Mayo Clinic looks longer term, they have committed to adopting more of these digital supply chain technologies. As Bruce Mairose, Vice Chair of Operations at Mayo Clinic, put it, “Reveal is the first phase of a series of multiphase tools that we believe will transform the healthcare supply chain” . Indeed, as new digital technologies reach cost effectiveness and improve patient outcomes, Mayo Clinic will have to focus on staying ahead of the curve to maintain their competitive advantage.
To that end, I have two recommendations for the organization. First, for the short-term, Mayo Clinic should explore the digital technologies that remain to be implemented, such as 3D printing. While Mayo Clinic currently uses 3D printing for surgical procedures, they have not explored the use of 3D printing to replace certain parts of their supply chain (e.g., by printing a complex medical supply instead of purchasing). Another area to explore is electronic medical records (EMR) in the supply chain process – knowing what supplies a patient will need before he/she even arrives. My second recommendation, geared towards the longer-term, is to prepare for a world of value-based care (i.e., paying for successfully treating patients rather than for volume of services). With the rise of value-based care, it will be especially imperative that providers such as Mayo Clinic track costs at the patient level, and having their digital supply chain technologies integrated with EMR technology will be key.
A 3D Printed Heart
Some questions remain for me about Mayo Clinic’s digital supply chain: what is the role of a distributor (such as Owens & Minor) in influencing hospitals to adopt digital technologies? Is Mayo Clinic organization set up in a way that enables them to test and implement new digital supply chain technologies better than their competitors?
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