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Chapter 5 – Informing: Information Systems in the Healthcare Supply Chain

Learning Objectives

Outline and explain the utilization of information systems in the healthcare supply chain.

Discuss and give examples of the different uses of information systems and technology of those systems in the operation of the supply chain.

Relate, discuss and provide examples where information systems in the healthcare supply chain provide the availability of performance metrics and statistics to inform decision making for improved efficiency, effectiveness and efficacy of the supply operation in the healthcare organization.

Distinguish the functional areas of information systems, such as sourcing, EDI, vendor management, warehousing/storage and dispensing to points of care with regard to the healthcare supply chain.

Relate the business operation, how work is accomplished, to the information systems, how information and data from operations flow, within the healthcare supply chain.

Evaluate the benefits of improved information systems and utilization of metrics for healthcare supply chain operations and management in terms of performance, health outcomes and stakeholders’ perceptions.

Introduction

Information systems are valuable assets to healthcare organizations.

Data in context, such as a healthcare supply chain context, is information; information that is ‘actionable’ or useable is knowledge.

Information systems foster knowledge for operators, managers, leaders and strategists.

Efficient, effective and most importantly, efficacious business practices are reinforced and complemented by well developed, built and deployed information systems for a trained team of professionals across the healthcare personnel continuum.

Introduction

Information systems are vital since:

Clinical Complexity is Reality: Over 10,000 unique situations (diseases, injuries, etc…) can present by patients to the healthcare organization;

Complexity of Knowledge is Reality: Over 500,000 new additions to the knowledge-base (literature of medicine and healthcare) each year and increasing each year given that 460,000 additions were available in 2003 – 2004;

Operational Complexity is Reality: Multiple players in the healthcare value chain with hospitals, physicians, health plans, pharmacy benefit management companies (PBM), disease management companies, commercial laboratories, etc… when all combined translates into a navigational nightmare for a consumer of healthcare services; and

Technological Convergence and Integration is Reality: Medical devices, equipment and software applications are converging to create new technological innovations coupled with changes to the professional standard of care due to technological innovation.

Information Systems in Healthcare Supply Chain

Computers and information technology has an important role in healthcare.

However, due to the rapid changes that occur in both the healthcare and computer technology industries, it can be difficult to take full advantages of the opportunities for process improvement that occur through a partnership between healthcare and information technology.

Today there are a multitude of information systems available with applications for the healthcare industry ranging from process simulation, to metric tracking, and supply chain optimization.

Pencils to Keyboards to Touchpads and Electronic Systems

The evolution of hospital information systems can be traced back nearly to the start of computing.

In order to reduce costs, both adaptive and technical changes need to be considered.

Changes Throughout History

In the 1960’s the main force behind healthcare information systems was Medicare and Medicaid.

By the 1970’s computer technology had advanced to a point where computers decreased in price and became small enough to install a system for each key department within a healthcare organization.

The 1980’s saw the largest changes since Medicare and Medicaid. These changes focused around diagnosis-related groups (DRG) and reimbursement rates for Medicare and Medicaid patients.

Throughout the 1990’s, increased competition in healthcare lead to consolidation of health systems resulting in the need to integrate hospitals and providers.

The 2000’s saw the focus of healthcare systems start to shift to an outcomes-based approach.

The use of technology in healthcare is likely to continue to increase given past history and current government programs such as Healthy People 2020.

Interface Map

In addition to the cost savings, utilizing information systems is critical because of the complexity of the healthcare system, both in clinical and support areas.

This complexity is perhaps best illustrated with a flow diagram, designed to show the movement of information within the supply chain.

the foundation of managing the supply chain is the management of data.

Figure 5-1

Reproduced from (2012). Designing the Standard for a Healthy Supply Chain - mThink. Retrieved December 7, 2014, from http://mthink.com/article/designing-standard-for-healthy-supply-chain/.

Data Management and Information Flow

Managing data and the flow of information in the healthcare supply chain is a continuous challenge.

Information flows in the organization are affected by both the functional layout of the organization and the task at hand.

Managing this flow of information through the organization is important in the healthcare supply chain in order to prevent stock-outs or excess inventory.

Data Management and Information Flow

With process improvement plans methods such as lean that push inventory levels down, problems with information flow in the supply chain are quickly uncovered.

Some basic information that can prevent supply chain issues is easily communicated across the supply chain some variation of three questions:

What needs to be ordered next?

What has not yet been delivered? And

What types of products will we need in the future?

How does Information Flow in the Organization?

The formal communication network includes all communication along official lines of authority within an organization.

These formal channels typically have certain functional communication barriers.

These functional barriers to communication result when information needs to pass between various divisions of the supply chain.

For Example, without the aid of an information system, passing information about a stock-out from departmental storage, to central storage, and then to acquisitions is a slow process that moves forward step – by –step.

Through the use of an information system, the level in the departmental storage area can be remotely monitored and restocked from central storage without risk of a stock out.

(2012). 8.5 Communication Channels - Flat World Knowledge. Retrieved December 8, 2014, from http://catalog.flatworldknowledge.com/bookhub/7?e=collins-ch08_s05.

What Data Should Be Managed?

Information to be managed within the supply chain includes inventory, vendor information, transaction history, and contract related information.

This information is usually managed through the use of an enterprise resource planning software package or ERP.

Some examples of healthcare ERP vendors include McKesson, SYSPRO, QAD and Lawson.

SYSPRO is the vendor for an ERP system for the medical devices and pharmaceuticals industry and has a specific system for each industry.

The McKesson system is designed to serve both the health and medical practice industry through their ERP offering.

The Lawson ERP offering is a system that was not specifically designed for the healthcare industry originally.

Through the acquisition of other companies such as Healthvision Solutions, its ERP system gained the functionality to become a leading ERP option for healthcare organizations.

Data Standards in ERP System Development in SCM

Data standards are determined within the project management, building and deploying/launching of the supply chain information system or the ERP aspect of the supply chain operation.

Table 5-1

Item Master

Figure 5-3

Item Master

An item master is a master record for a particular item kept in inventory.

This includes the description, warehouse specific information, fulfillment, sales, and handling specifications.

Figure 5-2

Vendor Master

A vendor master system contains information about the vendors that supply an organization. Typically, this information is stored in individual vendor master records. The master record for a vendor includes the vendor’s name and address as well as additional information such as:

The contact information for important individuals associated with the account, typically sales representatives

Terms of payment

Currency used for order from the vendor

(2005). Vendor Master Data - SAP Help Portal. Retrieved December 8, 2014, from http://help.sap.com/saphelp_47x200/helpdata/en/75/ee0b1c55c811d189900000e8322d00/content.htm.

Transaction History File

The transaction history file is a part of the ERP system that tracks the status of customers based on the frequency of orders they place within the organization and what business transactions have occurred with the health organization to external suppliers and vendors.

Typical statuses are new, recent, lost, and dormant.

Contract Elements

Contract elements are linked specifically to the vendors in the Vendor Master File and are used to set parameters on operational transactions between the vendors and the healthcare organization.

Both the monitoring of contracts for performance problems and the managing of amendments can be administered through most ERP systems.

Contract information such as delivery and payment terms, items to transact and other elements are loaded in the ERP system and linked to the vendor master to ensure that the negotiated contract terms are utilized when business is conducted.

What is Linked to the Information System?

Links to information systems can be found throughout the healthcare supply chain.

Information systems can be used to track the movement of goods from the manufacturer to central storage, to the floors through their use in patient care.

Performing tracking without the use of information systems would be extremely time consuming and error prone process.

Clinical links to information systems include pharmaceutical usage, medical / surgical supplies, and usage information.

Acquiring and Procurement: Sourcing and Purchasing

Many healthcare supply chains in the industry are linked to an ‘external hub’ to conduct transactions.

Global Health Exchange (GHX) connects manufacturers, distributors, suppliers and vendors to healthcare organizations’ supply chains to efficiently transact the business of purchasing.

In healthcare over 50% of medical and surgical items, such as cotton balls, are processed and transacted electronically between healthcare organizations and vendors by GHX.

Acquiring and Procurement: Sourcing and Purchasing

For a best practice when the supply item(s) will be ordered in large quantities, over a long period of time or when the cost of transactions with this vendor will be moderate to high, a contract should be established with this vendor to achieve the best pricing and service terms for ordering, receiving, returning, utilizing and maintaining our supply items.

Electronic Data Interchange (EDI) is an important concept to electronic transactions in the healthcare supply chain.

Electronic Data Interchange (EDI)

EDI is a set of standards that collectively provide a common protocol or syntax for transacting business documents electronically– it is a set of rules and guidelines that are applied when developing and implementing software and services designed to transmit business documents electronically

Table 2-4

Reproduced from: TrueCommerce EDI Solutions, “EDI Overview: A Practical Guide to EDI and the TrueCommerce EDI Platform,” White Paper, Seven Fields, Pennsylvania, Retrieved from http://www.highjump.com/sites/default/files/Resources/WP-US-EDI.pdf, p. 4

TrueCommerce EDI Solutions, “EDI Overview: A Practical Guide to EDI and the TrueCommerce EDI Platform,” White Paper, Seven Fields, Pennsylvania, Retrieved from http://www.highjump.com/sites/default/files/Resources/WP-US-EDI.pdf, retrieved July 8, 2014.

Transportation

Tracking the transportation of products using information systems has been common place for years.

A sophisticated example of this is the UPS package tracking system.

Warehousing and Storing

Storage and inventory that is managed in a warehouse, consolidated service center or within central supply in the hospital provides critical information that must be linked to the rest of the healthcare supply chain system.

The purchases that are received, where information systems provide critical information on the requisition, the invoice and the actual count of items received (called a three-way match) is an important quality control and fiduciary step in the receiving function.

All this information, on hand quantities for SKUs (stock keeping units) stored in the warehouse, received items, cross-docked items, requisitions/orders received that are confirmed with a three-way match for invoice payment, etc… are all resident in the information system.

Popular Warehousing Information Systems

TECSYS

TECSYS is a visionary and technology leader in warehouse management software. TECSYS has an unrivaled staff of warehouse experts who serve the Government, Healthcare Supply Chain and High-Volume Distribution industries with game-changing supply chain management solutions.

Manhattan

Manhattan Associates supports supply chains operating on platforms of visibility, holistic intelligence, flexible workflows and shared common elements create enduring competitive market advantage for their customers.

http://www.tecsys.com/?gclid=COTl7v_e27QCFQcHnQodbXEAQg, Retrieved December 10, 2014. http://www.manh.com/solutions/distribution-management/warehouse-management, Retrieved December 10, 2014.

Sister’s of Mercy Health System

In the 1990s through the early 2000s the healthcare supply chain found at Sisters of Mercy Health System was much like those found at many organizations.

The fragmented and duplicative systems across Mercy were dependent on six different information technology (IT) materials management software solutions, were unable to negotiate the maximization of supplier discounts, and were heavily relying on outside vendors to help facilitate the management of the health system’s supply chains.

Sister’s of Mercy Health System

With the creation of a new centralized supply chain, departmental data could then be shared across the system, and Mercy’s reliance on outside vendor information was dramatically lessened.

This progression in strategy let to a project called ‘Genesis’ within the health system to integrate and leverage strategic units within the health system for increased efficiency, effectiveness, efficacy and competitive advantage.

Sister’s of Mercy Health System

The creation of the entity called Resource Optimization and Innovation (ROI) helped consolidate the supply chain throughout Mercy at the corporate level, align major processes utilizing a shared materials management software solution, create an internal group purchasing organization, and allow for the enterprise-wide management of supply chain distribution and repackaging processes within Mercy.

Figure 5-4

Reproduced from: Corry, A., Ledlow, G., & Shockley, S. (2005). Designing the standard for a healthy supply chain. In Achieving supply chain excellence through technology (ASCET) (Vol. 6., pp. 199–202). San Francisco, CA: Montgomery Research.

Corry, A., Ledlow, G., & Shockley, S. (2005). Designing the standard for a healthy supply chain. In Achieving supply chain excellence through technology (ASCET) (Vol. 6., pp. 199–202). San Francisco, CA: Montgomery Research.

Consolidated Service Centers

The Consolidated Services Center (CSC), permitted improved supply chain responsiveness by better catering to customer hospitals, improving fill rates over the 85% to 90% that other distributors achieved, streamlining the receiving process, and reducing complexity by 70% through combined deliveries of medical/surgical supplies and pharmaceuticals.

Figure 5-5

Distribution

Item distribution within a facility works much the same way as the package tracking system.

Internal to a facility, products may be tracked with an RFID system.

Alternatively, the use of products in departmental storage locations may be tracked by weight.

Why is All This Important?

Information technology provides the tools necessary to efficiently manage the transportation and distribution of items within the supply chain through the use of automation.

The process automation made possible through the use of information systems, when implemented appropriately, has the effect of decreasing workload (employee compensation).

Since automation of supply chain activities can potentially reduce costs in both of these areas, the supply chain is an excellent choice for automation and process improvement activities.

Visualizing the Flow of Items

One of the primary advantages of using information systems to monitor the healthcare supply chain is that it allows decision makers to visualize the flow of items from vendor to storage and their usage in providing care.

This visualization allows for the easy determination of bottlenecks and efficient areas within the system.

Picture: http://www.con7.com/portals/0/iStock_globe-and-network_web.jpg

Information Systems Facilitate Metrics and Performance Statistics

Selecting appropriate metrics is critical to process improvement efforts.

The benefits of using metrics in healthcare include that their use promotes accountability, clarity and brings into focus objectives while promoting systems thinking and problem solving.

The typical steps in using metrics include: collecting data, analyzing data, making decisions based on the data, evaluating results, and repeating the cycle to improve the accuracy of the metrics.

(2011). Selecting Effective Metrics and Dashboards for Process ... Retrieved December 7, 2014, from http://www.processexcellencenetwork.com/business-process-management-bpm/columns/selecting-effective-metrics-and-dashboards-for-pro/.

Selecting Appropriate Metrics

Selecting appropriate metrics typically goes back to the question “what does my customer value?”

The data that is being used for a particular metric should be verified to ensure that it is correct and presented in an easy to comprehend format.

Properly selected metrics provide both an internal and external perspective and are clearly defined.

The definition of a metric can include what is being measured, why it is being measure, who uses the data and how the data is utilized to determine if the metric is relevant to the organization.

Basic Metrics

Information systems give healthcare organizations the ability to better track metrics used to improve patient care, profitability, and efficiency.

Examples of some basic healthcare supply chain metrics include inventory turnover, contract utilization, supply cost per adjusted case mix, and pharmaceutical supply cost per adjusted case mix.

Picture: http://thumbs.dreamstime.com/t/percent-metrics-d-illustration-tape-meter-symbol-45252081.jpg

Basic Metrics: Formulas

Inventory Turnover Rate =

This metric should be evaluated in the context of reordering and restocking while taking into account risks such as stock outs. This metric allows for the more complete utilization of inventory which is important because of the cash value of inventory is money not available for other value-adding purposes.

Contract Utilization Rate =

This is a critical metric because supplies purchased utilizing a valid contract from a vendor encourage standardization, typically cost less, and result in increased contract compliance. This can potentially impact contract discounts or rebates based on compliance and vendor satisfaction.

Basic Metrics: Formulas

Supply Attribution Value =

This is important to a healthcare organization because the metric indicates the intensity of supply use for a facility. Understanding the intensity of supply use allows an organization create better benchmark grouping.

Stock Inventory Fill Rate =

This ratio allows the tracking of the level of customer service provided by a stock inventory location.

Basic Metrics: Formulas

Pharmacy Inventory Fill Rate =

Similar to the stock inventory fill rate, this measure makes use of information from item master, stock, and standard items. The Pharmacy Inventory Fill Rate is used to measure the level of customer service provided by the pharmaceutical stock inventory location.

Delivery Date Accuracy =

Delivery Date Accuracy is a measure of the item delivery performance to customer on time or early as compared to the required or expected delivery date. This is compared to the line level on purchased orders.

Operational Management Enabled by Metrics, Statistics and Information

Improvements to operations, informed management and quality leadership strategic decision making are facilitated with the availability of timely metrics, operational statistics, cost reports and integrated information.

Systems: Cloud Versus Server Based

Information systems have traditionally been run from servers stored either locally or in a specialized facility housing servers called a data center.

Cloud computing is a system in which groups of remote servers are connected together on a network to share resources.

From the end user perspective, these cloud systems operate essentially the same as a traditional server but at a fraction of the cost and with a higher level of reliability.

The cost savings are achieved through the use of shared services and system resources over multiple physical computers.

Even though cloud computing has advantages with regards to cost and redundancy, there are security concerns with using cloud based systems.

Simulation for Process Improvement and Optimization

With information system utilization, valuable tools such as simulation can offer decision support information to improve the healthcare supply chain operation and how it is managed.

Simulation can be a powerful tool for process improvement and optimization within the healthcare supply chain.

There are two main categories of simulation: discrete and dynamic simulation.

Discrete Event Simulation

Discrete Event Simulation (DES) is a way to model the operation of a system as a series of events over time.

In this modeling system, each event is considered to change the system.

Between each event, it is assumed that no changes to the system occur.

Several common issues that can be addressed through this type of simulation include:

Patient Flow;

Bed Management;

Facility Design;

Low Productivity;

Dynamic Event Simulation

Dynamic Simulations are a type of modeling where a computer program is used to model the changing behavior of the system over time.

In contrast to DES modeling, dynamic simulations are based on continuous activity, not discrete events.

Because dynamic simulations analyze time periods instead of discrete events, they are typically much slower to run than discrete event simulations.

Follow the Cotton Ball

Can you imagine how a requisition for a box of cotton balls in the ERP system (from the item master) for a Medical/Surgical Nursing Ward Unit in a hospital is compiled with other cotton ball box requisitions?

Can you imagine how that compiled set of requisitions gets ordered using the terms of the contract (terms of the contract are in the ERP system linked to the vendor master to apply to this order)?

Can you imagine how that order from the healthcare organization goes through the GHX transaction hub in ‘cyber-space’ using the appropriate EDI transaction code?

Can you imagine how that order is received while an EDI confirmation is sent back to the healthcare organization that ordered the cotton balls?

Can you imagine how the cotton balls are delivered to the CSC, where a three way match is done, the invoice is paid and the cotton balls are then sent to the healthcare organization customers who requisitioned the items and some cotton balls are placed in the pick area and the bulk storage area of the CSC or warehouse?

Can you image how the transaction history file is updated to document the transaction?

If you can ‘Follow the Cotton Ball’ through the information system, then you are starting to understand the flow of data and the flow of tangible items in the healthcare supply chain.

Summary

The healthcare supply chain must keep pace, and in actuality forecast needs and demands, of this dynamic industry of healthcare.

This chapter provided an overview of information systems, metrics and improvement opportunities that are enabled by robust and integrated information systems.

The domain of information systems will continue to grow and develop over the course of your lifetime.

It is important to keep up to date on technological improvements and this includes information systems, software packages and the integration (or interface) between these systems.

Discussion Questions

Outline and explain the utilization of information systems in the healthcare supply chain.

Discuss and give examples of the different uses of information systems and technology of those systems in the operation of the supply chain.

Distinguish the functional areas of information systems, such as sourcing, EDI, vendor management, warehousing/storage and dispensing to points of care with regard to the healthcare supply chain.

Relate the business operation, how work is accomplished, to the information systems, how information and data from operations flow, within the healthcare supply chain.

Exercises

Outline three different applications and explain the utilization of information systems in the healthcare supply chain.

Discuss and give three examples of the different uses of information systems and technology of those systems in the operation of the supply chain.

Relate, discuss and provide two examples where information systems in the healthcare supply chain provide the availability of performance metrics and statistics to inform decision making for improved efficiency, effectiveness and efficacy of the supply operation in the healthcare organization.

Distinguish the functional areas two different aspects of information systems, such as sourcing, EDI, vendor management, warehousing/storage and dispensing to points of care with regard to the healthcare supply chain.

Relate one business operation such as warehousing or storing or dispensing to points of care, how work is accomplished, to the information systems, how information and data from operations flow, within the healthcare supply chain.

Evaluate three different benefits of improved information systems and utilization of at least three metrics for healthcare supply chain operations and management in terms of performance, health outcomes and stakeholders’ perceptions.

Journal

Define:

Enterprise Resource Planning (ERP) Systems:

Metrics:

Information System Interface:

Consolidated Service Center:

Supply Chain – Clinical Integration:

Supply Chain – Revenue Management Integration:

Journal Continued

Search: Search items may give you great assistance in understanding the healthcare supply chain, provide the website/URL and provide a one paragraph summary of what you found.

Lawson INFOR ERP Systems http://www.infor.com/product_summary/scm/scm-for-healthcare /

McKesson ERP Systems http://www.mckesson.com/en_us/McKesson.com /

Techsys (Warehousing and Inventory Management Information Systems)

http://www.tecsys.com/? gclid=COTl7v_e27QCFQcHnQodbXEAQg

Manhattan Supply Chain Solutions (Warehousing and Inventory Management Information Systems)

http://www.manh.com/solutions/distribution-management/warehouse-management