In the U.S., in order to combat unsustainable rising healthcare costs as well as push for higher quality, provider payments are shifting from fee-for-service to value-based. Essentially, since hospitals receive a fixed amount of money for a given treatment, they must adapt their cost structures if they are to be financially sustainable.
The healthcare supply chain starts from manufacturing and goes through to delivery of services to the patient. For hospitals, supply chain expenses make up around 30% of spend, representing a large cost lever . In a 2015 survey, two-thirds of hospital decision makers “strongly agreed improving the effectiveness of their supply chain will reduce overall costs, increase revenue and lead to better quality of care” .
Mercy is a large U.S. health care system with over 2000 physicians, 44 hospitals, across 4 states . Leadership at Mercy has recognized the need to innovate and digitize their supply chain and they are among the leading providers in this area .
Analyzing a combination of clinical and cost data enables providers to find opportunities to simultaneously reduce their expenses and enhance care quality. Mercy created a “United Analytics Platform” (UAP) which combined data from across their organization. A dashboard enables everyone to see “the total cost of care, including labor, product selection, product cost, length of stay and inventory holding costs by procedure, and compare them across the enterprise”.
Image Source: Mercy ROi, as published in 
The impact of this platform has been impressive: In one case, Knee Arthroplasty, sharing trusted data with surgeons catalyzed a behavior change reducing costs per procedure from $6,500 to $5,200 over a few months .
Image Source: Mercy ROi, as published in 
Mercy initially implemented UAP in perioperative services. They are extending this across their organization. In the short-term, Mercy plans to share this platform with its suppliers and manufacturers, in an effort to build collaborative partnerships generating further synergies .
Another short/medium term initiative is Mercy Virtual, the first large-scale virtual care center in the US . Mercy Virtual and ROi, Mercy’s supply chain arm, are collaborating to find ways of “efficiently deliver[ing] supplies and equipment to patient homes” . Incorporating telematics into the patient’s home enables supply chain responsiveness to replenish supplies or administer care, and play a bigger role in understanding underlying behavioral or environmental issues which are linked to a patient’s condition . Mercy’s work can really pioneer “breakthroughs in thinking about holistic delivery from hospital to home that deliver dramatically higher satisfaction for patients with far lower costs” .
Image Source: As published in 
Mercy is also playing a bigger role in pushing the industry and sharing best practices. In 2010, they formed the Healthcare Transformation Group (HTG) with leading providers, such as Mayo Clinic. The first initiative of HTG is to push for adoption of GS1 standards, such as barcodes.
The group produced a video demonstrating the importance of the issue:
Video source: 
Long-term, Mercy along with HTG is pushing for integration of these standards, e.g. with IT solution providers of ERP and EHR . This requires collaboration across healthcare providers, suppliers, and IT solution providers. In another internal initiative, Mercy is in the process of educating its own organization on the process and value of unique identification .
In addition to current efforts, externally, Mercy could play a role in creating interoperable EHRs across the healthcare industry. It is well-positioned to do this as among the first to adopt EHR, and a supply chain organization, ROi, which is a company itself. As patients move between hospital systems, having EHRs which translate well will enable better care delivery and potential cost savings.
Internally, it is difficult to say what else Mercy could do: Public sources of data indicate work on many fronts including predictive analytics , and further supply chain initiatives . However, Mercy should be cautious of being spread too thin across several initiatives, from an economics and human capital perspective. To this end, Mercy should ensure financial astuteness in managing its cash flows as it makes large bets such as Mercy Virtual, a $54 million investment. Its operating budget is not public, however, Randal Moore, President of Mercy Virtual acknowledged the shift to telemedicine requires figuring out “how do I get from here to there without imploding and going bankrupt in between?”  Furthermore, Mercy should make sure it is investing heavily in creating the right organizational structure which will enable its transformations, training its workforce to be data-driven, and hiring the right talent.
Going forward, what do you think are the biggest challenges and opportunities the healthcare industry faces as it moves to the digitization of its supply chain? Is there a bigger role that insurance providers can play in this digitization, and what benefits can they absorb?
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