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SUPPLY Chain MANAGEMENT Contour: KAISER PERMANENTE: THRIVING UNDER Pressure level

In near developed countries, health spending is rising faster than incomes. The issue is particularly acute in the United States, which not just spends more per capita on healthcare than any other country but also has seen spending ascension as a share of national income for decades—from 10 per centum in 1985 to 17 per centum in 2010 to a projected 25 percent in 2037.i Costs have skyrocketed across the board, including hospital stays, doctor visits, pharmaceuticals, lab tests, new technologies, healthcare administration, and health insurance premiums. Ironically, as treatment options go more advanced, fewer people are able to afford them.

The U.South. Patient Protection and Affordable Care Human activity, enacted by the U.S. government in 2010, is designed to brand health coverage more affordable and available. In an industry where employers and consumers for decades absorbed yr-over-year price increases, the Affordable Care Deed catapulted near healthcare providers into a new world, where survival will require a light amplification by stimulated emission of radiation-sharp focus on cost and efficiency without compromising patient outcomes.

For Kaiser Permanente (KP), past contrast, the Affordable Intendance Human action ushered in the adjacent stage of work, ane that was already very much in progress. Since its establishment in 1945, the KP Medical Intendance Programme has focused on high-quality, affordable care. Taking the next stride, the visitor is making innovations in its supply concatenation that volition arrive possible for the arrangement to thrive—non just survive—in the new era.

D.i. BUILDING THE KP NETWORK

Headquartered in Oakland, California, Kaiser Permanente is the largest nonprofit wellness plan in the Usa, serving more than 9 million members. The KP organization consists of iii dissever legal entities: the nonprofit Kaiser Foundation Hospitals, the for-profit Permanente Medical Groups, and the nonprofit Kaiser Foundation Health Plan and its subsidiaries. All told, the Kaiser Permanente organisation has 37 medical centers and more 600 medical offices located in nine states and the Commune of Columbia. Acquirement in 2011 was $48 billion.

With roots dating dorsum to the 1930s, Kaiser Permanente was formed following Earth War Two, when many people could not beget to go to a physician. The company has remained committed to providing affordable, high-quality healthcare ever since.

Collaboration among the diverse KP entities has been key to realizing that commitment. KP has carefully coordinated its clinical services—chief, secondary, and hospital care—to promote and provide higher quality healthcare. Additionally, information technology has put an infrastructure in place to provide quality-of-care oversight and to keep everyone focused on a common goal, namely keeping people healthy and out of the hospital.

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One of the factors that have made this collaboration work so well is KP'due south huge investment in cutting-border information systems, which give KP providers admission to patient records all across the program. As a result, almost every detail about a patient—from doctor visits to postsurgical treatments—is in the organization, improving both clinicians' ability to administer high-quality care and patients' experience of the treatment process. Through e-visits and telephone consultations, for instance, KP doctors are able to access patient records and consult with patients electronically, resulting in fewer unnecessary visits, ameliorate medical outcomes, and higher patient satisfaction.2

The focus on collaboration and integrated information systems has fabricated it possible to realize substantial cost savings, which KP shares with its members, offering some of the everyman insurance premiums in the markets information technology serves. Members typically pay a monthly premium and stock-still copayment for visits and procedures and in turn can cull from a wide range of KP clinics, hospitals, and clinicians. People who have traditional fee-for-service plans are more than likely to have to argue with skyrocketing premiums, escalating copayments, and out-of-pocket costs that tin can vary widely depending on the physician seen and the facility visited.

KP's emphasis on health maintenance and low prices encourages members to engage in routine checkups, wellness visits, and lifestyle counseling. In 2011, KP received top marks from the National Committee for Quality Assurance in 20 out of 77 effectiveness-of-care measures—that is, proactive illness-prevention measures such as weight counseling for children, comprehensive diabetes intendance, and antidepressant medication management.3

D.2. ADOPTING A NEW APPROACH TO SUPPLY Chain Management

As the Affordable Care Act legislation takes hold, the company is looking for new sources of cost savings while continuing to improve the quality of the healthcare services information technology provides. One central target is the product supply chain; that is, the supply chain for the medical devices and supplies used to evangelize those healthcare services.

Medical supplies account for up to 40 percent of a hospital'south operating costs, representing the second largest expense afterwards labor.four Yet when information technology comes to managing the supply chain for those supplies, the healthcare sector in general lags other industries.

That was a sobering thought for KP, which spends $2 billion on medical devices and supplies each year. Recognizing that pregnant change was needed, KP brought in supply chain experts from relevant product-based industries.

Laurel Junk is one such good, hired in 2009 from biotech pioneer Amgen to be KP's vice president of supply chain. "The burning platform is healthcare reform and the reduced reimbursements that are hitting u.s. in a material way," says Junk. "We're facing the same toll pressures that other industries did. They just got to a critical point much sooner than nosotros did."

D.two.1. INTRODUCING Information STANDARDS

A key reason why healthcare isn't equally efficient every bit other industries in this area is a lack of consequent and compatible information standards for medical and surgical supplies that would brand it possible to identify and describe products in a systematic way. Not merely does it mean that each infirmary may utilize a dissimilar part number for the identical production (exist it gloves, sutures, or instruments) only the product description and the manufacturer can vary as well.

This isn't merely a trouble for 1 healthcare network trying to communicate with another; it's a trouble within individual systems. And the bigger the system, the bigger the potential problem. Without uniform standards, KP as an organization has found it hard or even incommunicable to consolidate all of the numerous requirements for medical supplies, so each KP infirmary has had to identify its own orders. Every bit one of the largest healthcare systems in the United States, KP has the leverage to secure excellent volume discounts, just simply if efficient planning and procurement processes are in place.

But it's not just virtually efficiency. Common standards allow service providers to more hands share information about medical products or devices used to treat a particular patient. This information can exist another useful tool to help providers decide which particular medical products and devices should be used—or, even more important, avoided. That information may be essential in an emergency state of affairs, or when manufacturers issue product recalls.

That's why in 2010, KP helped found the Healthcare Transformation Group (HTG). A consortium of v healthcare systems, the HTG consists of KP, Geisinger Health Organization, Intermountain Health Care, Mayo Dispensary, and Mercy. The HTG immediately began to push button for a standard that would allow healthcare organizations to assign a unique lawmaking to every product. GS1® was the standard of option.v

If y'all've ever gone grocery shopping, you've seen GS1 standards in action in the form of the ubiquitous Universal Product Code (UPC), which is found on nigh all retail products in the The states. The bar codes adult for the healthcare industry look a lot like UPCs. And they perform a similar function, allowing all the players in the supply chain—manufacturers, distributors, and hospital chains—to be on the aforementioned page.

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Some suppliers have been resistant because of the expense involved, but the HTG has held their feet to the fire. "The five of us said to our top twenty suppliers, 'No bar codes past the end of the year, no business,'" says Junk. "It'southward a collective vox from the client side."

D.2.ii. ADDRESSING INVENTORY CHALLENGES

Data standards don't just help with the procurement side of the supply concatenation; they drive internal efficiency and ultimately help to improve the quality of healthcare. Consider the basic activities of putting materials in a specific location when they are received, and then taking them out when they are needed for a patient procedure. Failure to tape the changes in inventory associated with these activities results in an inaccurate picture of inventory levels. For this reason, hospitals prefer to cheque inventory in and out by scanning product bar codes. But when multiple bar codes are in use, it's difficult to know which one should be scanned. In some cases, labels are put on top of others, making the right bar code incommunicable to read.

To avoid these issues, some hospitals rely on manual methods for tracking inventory. Simply paper-based systems are as well problematic. Non but does the procedure take a lot of time, it'southward also prone to errors that give an wrong movie of what'due south actually on paw. Inventory that drops below a specified minimum is a red flag, causing the procurement organization to club more, often via expensive expediting.

But backlog inventory and expedite fees are not the biggest issue. Before any patient process, the required supplies must exist pulled from inventory. This is usually done via a process card. Not unlike a shopping list, a procedure carte du jour specifies what medical supplies will be needed for the procedure. But when supplies aren't available in their designated location, the clinician must hunt for them. A 2009 hospital industry survey showed that 70 percent of nurses spend 5 to xx percent or more of their time each shift searching for supplies.half dozen For a 12-hour shift, that's at to the lowest degree 30 minutes and equally much every bit ii and a half hours that those clinicians are not disposed to patients.

KP is taking a number of steps to solve this problem, which is mutual among hospitals. For starters, it is shifting responsibility for picking the medical supplies listed on the procedure cards to members of the supply chain staff. This change will free up nursing staff for patient care.

In improver, KP has also defined inventory locations and developed rules for how materials are taken and returned; associating a function with a specific location makes information technology easier to find. Consistent utilize of bar codes too helps, reducing manual transactions when products are moved from one location to some other or used for a process.

Ultimately, an accurate record of the supplies used for specific procedures will help identify the products that are used most often and make it possible to develop demand forecasts and safety stocks more accurately at the individual-item level. More important, because the employ of specific supplies volition be tied to patient records, the hospital will take a more robust mode to accurately runway exactly which products were used for each procedure.

D.3. TURNING Need PLANNING FROM AN Fine art TO A SCIENCE

Formal demand planning isn't the norm for most hospitals. That's not surprising, given the number of unplanned procedures, emergency and otherwise, that occur in whatsoever given twenty-four hour period. KP, however, is pioneering a need-planning process that takes into business relationship surgeries scheduled in advance. Elective surgeries, for example, may exist planned several months alee of time, with fewer scheduled during the summertime and holiday periods. This information, in combination with an authentic view of historical process schedules, helps make the picture of future needs more authentic.

KP is also using demand planning to ensure that the right products are available for unforeseen procedures. In the past, the nursing staff usually prepare inventory targets. Since shortages tin be very problematic, the staff is likely to err on the side of ordering too much. "The nurse will say, 'Well, typically, we need 10,'" says Brooke Fan, executive manager of supply chain. "Why don't we put in fifteen, simply in example?" Those "guesstimates" could pack a punch. Incremental inventory resulting from an actress 50 pct, multiplied by thousands of parts in hundreds of locations, tin can encounter the millions of dollars, without necessarily eliminating the likelihood of a shortage.

That's why the KP supply concatenation team has adopted a more than belittling approach to predict futurity needs, looking at how many products of a sure blazon were used, when they were used, what they were used for, and how long they take to replenish. The team is also looking at the variability in need and lead time to calculate appropriate safety-stock levels.

With a formal need plan and accurate inventory levels, each KP hospital can order supplies with the conviction that the right quantity will be on manus and that shortages will be few and far between.

D.iv. LEADING THE WAY

Data standards, automated transactions, and formal demand planning all play a part in KP's supply chain strategy. Better measurement of how medical supplies are being used—and how effective they are—informs decisions on how much to purchase and when and where supplies are needed. Changes in organizational responsibility allow clinical staff to focus more on patients than on materials management. And the company is tying the usage of specific materials to KP's sophisticated patient-records organisation, extending KP's reputation as a leader in healthcare data systems.

Advances in medical science and engineering take resulted in new procedures, medications, and medical devices focused on increasing the quality of lives and, in many cases, saving them. At KP, these technologies have had a very positive impact on patient outcomes. KP intends to continue making use of the all-time new technologies while maintaining its position every bit an affordable and high-quality healthcare pick, and then that it can go on delivering the all-time patient outcomes at the lowest possible cost.

This is where the power of the KP organization plays a huge office. With information systems that collect information with each supply concatenation transaction, KP tin consolidate information across the entire organization, profoundly simplifying the procurement process, sharing resources across facilities, and collaborating closely with suppliers and distributors.

To be certain, changes in healthcare constabulary have posed massive challenges for the healthcare industry. Kaiser Permanente, however, is leading the mode with the assistance of a supply concatenation strategy that faces toll-reduction challenges head on.