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Low-hanging fruit in healthcare spending

Posted by Chris Richie on Oct 15, 2015 11:33:48 AM

In RFID, asset tracking, healthcare spending, healthcare equipment

Climate change is a big, sprawling, complex, hotly-debated issue and has been for some time. Here’s an interesting fact though: Only 35 percent of U.S. households actively recycle. If that number reached 75 percent, it would have the environmental benefit of removing 50 million cars from the road each year. Give yourself a pat on the back next time you bring those plastic bins out curbside. While it’s not going to fix everything, it seems like a fairly simple action that companies and individuals can take to make some change. What about healthcare in this country? That other, big, sprawling, complex, hotly debated issue. Can we find any low-hanging fruit there?    

America spends the most money per capita on healthcare and we’re not number one in quality or outcomes. That’s a hard pill to swallow for those who believe in American exceptionalism and a hefty bill to pay even if you don’t. A recent report from Harvard Business School shows that healthcare in this country is regarded as the top barrier to entrepreneurship. Additionally, the “cost of healthcare” had the greatest divergence between the U.S. and foreign countries, with 64 percent of U.S. respondents citing it as a significant barrier, versus just 28 percent from abroad. It’s not hard to see why. CMS (Centers for Medicare & Medicaid Services) reports U.S. healthcare spending at over $3 trillion this year, with that number projected to grow to over $5 trillion by 2024 — more than 25% of every dollar spent in the U.S.

Healthcare Supply Chain Costs

In his column for Forbes, Kevin O’Marah cites the HBS report, writing, “Why, then, do we have a healthcare sector that for all its technical sophistication remains a gigantic burden in terms of efficiency? The US spends around 70% more as a percentage of GDP than other rich countries — including those such as Canada, Australia and the United Kingdom with demographic and cultural similarities — but has an average life expectancy at birth that is slightly worse. I believe the answer lies in supply chain.”  

The biggest expense for hospitals after labor costs is indeed supply chain costs, at 40 to 45 percent of their operating expense. There’s no shortage of opinions and analysis into what can be done and how much can be saved by streamlining the healthcare supply chain. While the importance of cutting down on waste from distribution to delivery shouldn’t be neglected, there’s also a world of inefficiencies occurring at hospitals once all those pieces of equipment and supplies are delivered.   

RFID & Workflow Management

Healthcare has generally lagged behind manufacturing and retail when it comes to asset and materials management, but more and more, hospitals and health systems are employing lean processes to drive efficiency and lower costs. the evidence of which can be found in the rising adoption of RFID (radio-frequency identification) to track and monitor equipment and other supplies. The overall global market value for RFID is projected to rise from $1.9 billion in 2013 to 5.3 billion by 2020, with much of this growth propelled by the healthcare sector. While wireless tracking technologies like RFID by themselves aren't a panacea for fixing broken workflow, when the technology is strategically deployed with clear workflow objectives, it’s a very powerful tool for automating and streamlining hospital operations. 

Mary Washington Hospital in Fredericksburg, Virginia for example went live with an asset tracking system using passive RFID eight months ago. Since then, the 437-bed hospital has managed to prevent the loss of 12 telemetry packs, two infusion pump modules, and a point-of-care unit used for programming and monitoring those modules. All told it’s nearly $100,000 in loss prevention, from a tracking system that cost a fraction of that. Another 400-bed hospital in New York state found over 80 “lost” medical devices worth over $350,000 using passive RFID tracking technology to “see” equipment stashed behind curtains, drawers and even ceiling tiles. These are just two simple examples of easy savings that can be realized in a short period, with a minimal investment of time and money. Of course, loss prevention of hospital equipment and supplies alone won't fix healthcare, but start replicating that type of success for other specific internal supply chain inefficiencies in hospitals across the country, and we can cut our costs by thousands of dollars per bed. These kinds of numbers represent low hanging fruit for reducing costs that hospitals can no longer afford to ignore.


Successful Hospital Implementation of RFID

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