Digitalization of Integrated Healthcare Systems’ Supply Chain Management

How digitalization may affect integrated healthcare systems' supply chain management

Partners Healthcare (Partners) is a non-profit, integrated health system in New England founded by two famous flagship tertiary academic medical centers, Massachusetts General Hospital and Brigham and Women’s Hospital and consisting also of community and specialty hospitals, a managed care organization, community health centers, a physician network, home health and long-term care services. It is internationally renown as a leader in biomedical research and clinical care and has in recent years aggressively undergone mergers and acquisitions in line with a trend characterizing the entire US healthcare industry [1]. Digitalization has already disrupted almost all facets of healthcare operations and that electronic medical record uptake has jumped from 10% to 90% of all US hospitals in the last 10 years in response to both patient and provider demand and healthcare policy incentives created exemplifies the nature in which digitalization will disrupt healthcare in the years to come. Aside from changing the nature of the doctor’s visit to encompass a doctor-patient-EMR and patient portal triad, digitalization in healthcare has sparked an increasing focus on collecting and harnessing big data to improve all aspects of patient care. Radical changes in health care policy such as the 2010 Affordable Care Act that incentivize clinical services payment reform and the 2009 HITECH Act which promotes the adoption and meaningful use of health information technology coupled with increasing healthcare costs and decreasing reimbursement rates from public and private health insurance payors have shaped Partners’ response to the trend of digitalization of healthcare, an industry where the bulk of spending is driven largely by physicians who are famously resistant to change and the adoption of technology. Partners bore an enormous financial cost of $1.2 billion in 2015 to implement the Epic electronic medical record across its vast network [2] and faced significant challenges in reduced labor productivity and employee morale from which it has not yet fully recovered [3].

Notably, Partners recently announced a record $108 million net operating loss at the end of 2016 [4]. In May 2017, Partners announced “Partners 2.0,” a $600 million operating cost-cutting initiative – the largest in its history – to streamline revenue collection, supply chain, care delivery and research [5]. In the second quarter of 2017, Partners announced that “supplies and other expenses increased $67 million (11%) to $678 million, reflecting the new Medicaid assessment ($23 million) and increased costs for pharmaceuticals ($17 million, 14%) [6]. Partners Supply Chain Management is a centrally managed contracting, procurement, and disbursement unit that has sole control over contracting and pricing for all member entities of its network [7] and in 2015 was recognized as a leader in standardization of its supply chain management [8]. Partners also continues its 2004 Supplies Diversity Program [9] which extends Partners’ mission of community outreach “to involve an increasingly more diverse group of suppliers to participate in the procurement operation” and currently consists of 3000 certified vendors categorized Historically Underserved Businesses.

In the short-term, Partners should continue its efforts in standardization, for example of their surgical implants and medical instruments, a selection process that to now has been left to the individual preferences and selection of the individual surgeon in the OR [10]. Partners should also consider adopting RFID technology, relatively unused in the healthcare industry, to its inventory management system [11]. In the medium term, Partners should invest in linking its Epic electronic medical record into which real-time clinical activity is entered by front-line healthcare providers – for example, by scrub nurses and surgeons in the operating room – with procurement activities to minimize supply shortages that cost frontline providers 17% of their workweek [11]. With integration into their electronic medical record, Partners could continue to invest in developing capacity for predictive supply chain management to anticipate equipment and supply needs based on trends such as primary diagnoses seen in its emergency rooms over the last 6 months and seasonal diagnosis patterns.

Two important questions regarding the role that digitalization will play in Partners’ strategy are (1) what role will the artificial intelligence so sought after for improved diagnosis (i.e. IBM Watson) play in influencing other healthcare operations such as supply chain management and (2) in what new capacities will Partners need to train its frontline healthcare providers such as physicians, nurses, and technicians to optimize adoption of digitalization in supply chain management?

[1] “Hospital Merger Mania Continues Throughout Country.” Fierce Healthcare. https://www.fiercehealthcare.com/finance/hospital-merger-mania-continues-throughout-country

[2] “Partners Launches Billion Dollar Electronic Health Records System.” The Boston Globe. https://www.bostonglobe.com/business/2015/05/31/partners-launches-billion-electronic-health-records-system/oo4nJJW2rQyfWUWQlvydkK/story.html

[3] “One Year Later, 8 Updates on Partners’ Healthcare’s Epic Go Live.” The Boston Globe.  https://www.beckershospitalreview.com/healthcare-information-technology/1-year-later-8-updates-on-partners-healthcare-s-epic-go-live.html

[4] “Partners Healthcare Posts Record Operating Loss.” The Boston Globe. https://www.bostonglobe.com/business/2016/12/09/partners-healthcare-posts-record-operating-loss/aFEQ2Ff93HN0lEpeawgucI/story.html

[5] “Partners Healthcare Cuts Millions To Become More Efficient.” The Boston Globe.  https://www.bostonglobe.com/business/2017/05/12/partners-healthcare-cut-million-become-more-efficient/7ECOLpQpkJX80mUfFZDuoL/story.html

[6] “Q2 2017 Financial Results.” Partners Healthcare.  http://www.partners.org/Newsroom/Press-Releases/Q2-2017-Financial-Results.aspx

[7] “Partners Healthcare Supply Chain Management – Supplier Guide.” Partners Healthcare. http://www.partners.org/Assets/Documents/About-Us/Supplier-Guide.pdf

[8] “Novation Recognizes 255 Hospitals and Health Systems for Achievements in Supply Chain Management.” Vizient Inc.  http://newsroom.vizientinc.com/press-release/novation/novation-recognizes-255-hospitals-and-health-systems-achievements-supply-chai

[9] “Partners Healthcare Supply Chain Management – Supplier Guide.” Partners Healthcare. http://www.partners.org/Assets/Documents/About-Us/Supplier-Guide.pdf

[10] “Providers Are Bundling Equipment Purchases to Save Money and Improve Care.” Modern Healthcare. http://www.modernhealthcare.com/article/20170907/NEWS/170909916/providers-bundling-equipment-purchases-to-save-money-improve-care

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7 thoughts on “Digitalization of Integrated Healthcare Systems’ Supply Chain Management

  1. Thank you for a very interesting summary on how digitalization is affecting Partners Healthcare, and I am sure these trends are also found more broadly in other large healthcare institutions nationally and internationally.
    Thinking about your second question “In what new capacities will Partners need to train its frontline healthcare providers such as physicians, nurses, and technicians to optimize adoption of digitalization in supply chain management?”, I think this is one of the key issues. Investing in this technology is the first step, but ensuring that all players (including patients) understand the benefits of it, know how to use it optimally, and are willing to take the time to learn how to do this, will be crucial for digitalization to have the impact you describe in your article.
    In addition, I would also like to mention that, as well as the advantages of real-time clinical data from frontline healthcare providers, collecting real-world data (i.e. data collected after the patient has left the hospital, in his/ her “real world” context) through smart devices and other digital technologies will also benefit operational management in hospitals by improving the predictive supply chain management you mention in your article.

  2. Ashley,

    Very interesting article on health care digitalization!

    I agree with your suggestions for RFID based inventory management and Epic electronic medical record (EMR) improvements. I think you could go one step further and use RFID for patient tracking. This would allow Partners to utilize time-driven activity-based costing and gain insight on how to appropriately allocate resources and patient flow.

    Getting users on board to a new platform is always difficult. Typically moving to electronic systems is based on capturing and storing data in a structured way (e.g., relational database). This requires entry forms that are not very flexible to the end user and which is why people prefer to just use Excel or paper. Rather than just use artificial intelligence for diagnosis could Partners push for a system that would scan, recognize, and process written notes from doctors into accessible/actionable data? This would eliminate user onboarding issues and reduce training costs.

  3. Thanks for a great read about the Partner’s healthcare system! It seems that digitization is a huge opportunity and cost for the healthcare system. Based on the solutions you posed, my argument would be three-fold.

    1. There has been an increased investment in healthcare technology, however, the investment is not outcomes based. Often times, healthcare systems implement a new technology because a vendor convinced them that it would be great. There is a misalignment of incentives here to begin with. HITECH was a step towards assessing whether the capital expenditure was truly necessary. I spent a few months conducting reviews for these expenditures on behalf of the Department of Health in MN and observed that hospital rationale for justifying the expenditure was hardly adequate. Often times, it was an accountant who filled out the form to be submitted to the state because someone had to do it. The information on the form rarely ever indicated that “This expenditure for our healthcare system in machine X will reduce patient readmissions by Y%.” Therefore, I believe that there needs to be a healthy level of skepticism around digitization and technology investments in healthcare.

    2. I echo the above point around implementation as a huge concern. The people using EMRs or other new technologies are often people who have done their job in a particular way for long time. As such, change management around option is always a long process. Even today, there are doctors who do manual dictations of patient notes despite the existence of technology that would theoretically make their jobs easier. There should be a strategy around which stakeholders are approached for buy in and in what order to ensure a more smooth implementation.

    3. The proliferation of technology in medicine has been great for information sharing. However, my understanding is that with so many different systems, often times systems don’t speak to each other which is to the detriment of patient care. An EMR implemented through Epic v. Cerner may be slow to connect to the other. I recently read a story about a patient whose care was compromised because when he made it to one department of the hospital, the EMR from his primary care physician’s clinic had not updated in the system. As a result, the doctor/nurses did not realize that there was missing information and built a plan of care rooted in inaccurate/insufficient information and the patient had to go to the E.D. These situations have a human impact on the families of these people.

  4. I find your recommendations quite convincing and very sensible. I would however add to your point on increasing focus on ‘improving all aspects of patient care’. Digitization has allowed several hospitals to video conference with specialized doctors during complex surgeries. Through this portal, doctors with more experience in a certain procedure can help and guide other doctors performing that same procedure. This helps increase efficiency and the success rate of a hospital, as well as reduce its error rates which in turn can reduce the overall costs of health care to patients. I would consider implementing this strategy as well.

  5. Really interesting article, Ashley. You mentioned the $1.2B investment that Partner decided to make in EPIC. It looks like the move to EMR has reduced labor productivity  in the short-term due to the need to train frontline healthcare employees. One way that trend could be reversed is through creating subject matter experts that could help optimize the adoption of EPIC and be a point of contact for questions that may arise. On this point, I believe that the logical subject matter expert here would be technicians that currently support physicians. That would help ensure that physicians are not left with the burden of trying to enter information into EMRs.

    Unfortunately, due to current regulations, doctors must spend hours entering patient data into EPIC and other EMR systems. I believe that these regulations are causing inefficiencies in the medical supply chain, since doctors are not working at the top of their license. This has led to doctors spending 33% of their time looking at computer systems instead of working with patients (http://medicaleconomics.modernmedicine.com/medical-economics/news/its-time-get-doctors-out-ehr-data-entry). One way to solve this problem in the short-term is to reduce the strict regulations that doctors must comply with and allow them to pass some of the data-entry to technicians, which will allow doctors to improve their productivity and ensure that they are working at the top of their license.

  6. Your article helps illustrate a continuous issue in the healthcare industry. Due to heavy regulation and dependence on reimbursement, the healthcare industry lags far behind in technology adoption than other industries may. My primary physician still uses a fax machine. When I was selling Surgical Gloves for Cardinal Health, I spent many days in Operating Rooms that used whiteboards to track patient movement from pre-Op to the Operating Theater to Recovery, instead of computers. In fact, I was amazed that an anesthesiologist was in charge of “running the white board”, using their $300,000 degree to draw a chart.

    I provide these examples to illustrate the point that the healthcare industry is unable to react to disrupting innovations like other industries can. For example, digitization has become expected by consumers. They want to be able to use Facebook or perform a Google search for free, without reimbursing the company for the heavy investment in the technology platform. This consumer expectation if offset by technology companies finding new ways to monetize their services, through selling data and advertising. However, regulations such as HIPPA prevent the healthcare industry from selling data to make up for investments in technology such as the one Partner’s made that resulted in substantial losses. Partner’s also has very little price control, given the reimbursement levels set by Medicare, to offset any investment they may make.

    You’ve done a nice job demonstrating the risks inherent in such a highly regulated environment. Unfortunately for patients, the very industry lagging behind in digitization is the industry that can benefit from it the most, improving patient outcomes in the process.

  7. I love this, Ashley – and all the commenters above! Thanks for illuminating the fundamental problem that hospitals like Partners face.

    I want to pull on a thread about patients from several comments above to add a new layer to the supply chain of the hospitals: Namely, the process of working with the patients themselves. Patients are in part the customers of healthcare services, but as Tom’s comments about RFIDs and and Ashley V’s comments about the operating room illustrate, a patient in need of service is also part of a supply chain – a supply chain that hopefully turns as many sick/injured patients as possible into patients with the best possible chance for improved health outcomes. The more people the hospital can achieve this for, the more it can make based on insurance reimbursements, at least in the ideal world. In some ways, the supply chain that Ashley has described in the paper – particularly as it relates to inventory management – is fundamentally about enabling this “patient-outcome” supply chain to function more effectively.

    I think that treating this process as multi-layered and linked supply chain might help clarify and illustrate the ways that digitalization can improve patient outcomes and experiences, thereby (ideally) reducing costs and increasing revenues. (I wish I could draw a diagram in the comment, as I think a process flow would be highly beneficial!) Examples of such opportunities abound beyond EMRs, RFIDs, and patient-process tracking: Digital tools that help improve patient diagnosis; less invasive surgical procedures that rely on digital innovations (and robotics!); better patient check-in systems; and many more.

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