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Health Care's Major Illness

Supply chain pains continue to plague most hospitals. Here's how two leaders used IT to improve their prognosis.

May 10, 2004 12:00 PM ET

Computerworld - Sutures, surgical instruments and other medical supplies typically account for a hefty 25% of a hospital's operating budget. Add labor and logistics costs, and the total jumps to 35% to 40%, according to the Healthcare Financial Management Association, an industry professional organization in Westchester, Ill.
Yet compared with other industries, like high tech, auto manufacturing and consumer packaged goods, health care -- and hospitals in particular -- is downright dinosaurian when it comes to deploying IT to better manage the supply chain.
Experts recite a litany of explanations, including drum-tight budgets and a sort of institutionalized acceptance of labor-intensive manual materials-management processes.
"Hospitals and clinics tend to want to focus the dollars they have on patient care. They're not going to channel their capital budget into supply chain," says David Yundt, president and chief operating officer at Hospital Logistics Inc., a for-profit hospital supply and logistics company launched by University Health Network in Toronto.
Given hospitals' primary clinical mission, supply chain excellence is typically undervalued by top management, say many in the industry.
"The prevailing thinking is that materials management are those people we can just keep down in the basement," says Sarah Friesen, former director of supply chain at Sunnybrook and Women's Hospital in Toronto. Now, Friesen is general manager of Shared Healthcare Supply Services, also in Toronto.
In the U.S., as in Canada, the hospital industry remains highly fragmented, which has stymied the development of standards for naming, describing, ordering and paying for the tens of thousands of products that hospitals use. With more than 5,000 hospitals and health care systems in the U.S., no single organization is large or powerful enough to dictate how the supply chain works, as Wal-Mart does in the retail sector, says Lee Marston, CIO at Broadlane Inc., a health care software and services company in San Francisco.
Also, very few hospitals have a single, integrated computer system for ordering, tracking and paying for supplies. The upshot is that physicians and other clinicians regularly buy the brands they prefer rather than items a hospital may have contracted for at a discounted price.
Broadlane conducted a yearlong analysis of all of the supplies purchased at one of its multihospital clients. It found that the chain had spent more than eight times what it would have spent had its clinicians all purchased the same supplies at the lowest contracted price. "You find out millions could be saved if everyone got together and paid the same price," Marston says.
The problem is that most hospitals lack integrated computer systems and therefore don't have easy access



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