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As value-based reimbursement models place a premium on better outcomes for lower costs, health systems are turning to product standardization as a solution. Standardizing the purchases of medical supplies and equipment–from the simple to the complex–can generate operational, financial and clinical benefits for health systems that pursue this strategy.
We asked Jon Pildis, vice president of materials management at McKesson, to explain how product standardization works and to identify the actions health systems can take to make the pursuit of product standardization a core tenet across their entire enterprise.
Pildis: Product standardization is the process by which a health system takes control of its non-acute continuum. It’s taking the universe of acceptable brands or items of one kind and then, using clinical and economic criteria, reducing it down to one–one brand or item of one type and, potentially, all from one manufacturer.
Pildis: It’s the full range of any type of item purchased by the health system. That can be anything from no-tech or low-tech commodities like paper towels or hand sanitizers. It can be prescription medications or specialty drugs used on both an inpatient and outpatient basis. It can be high-tech or highly designed medical devices like heart implants or artificial hip and knee joints. Any and every type of medical supply or piece of equipment purchased by a health system can be standardized.
Pildis: The biggest benefit is operational efficiency, which comes from reducing the number of SKUs and vendors a health system handles. That makes procurement and inventory management more efficient simply because a system is dealing with less volume and less product variability. Another operational benefit is space. With less volume and less product variability, space for infrequently used materials—or in some cases those hoarded by staff—can be reclaimed for other uses, including for clinical purposes.
Pildis: The biggest benefit to supply chain management is simplicity. Complexity creates a huge hidden cost to the health system and to the supply chain generally. When a health system reduces the number of items it buys and the number of vendors it buys those items from, it produces a simplicity dividend. It’s not a line item on a profit and loss sheet, but all supply chain professionals know it’s there. A health system spends less because it’s not ordering and holding extra inventory. The cost of carrying deadstock and expired items is less. Regulatory compliance costs are less. Distributors don’t have to buy and store a full range of inventory for a health system.
Pildis: The health system is buying fewer supplies. The health system is spending less on each supply item. And the health system is deploying less capital holding inventory on site. That all adds up into substantial financial savings. It also frees up working capital that can be used for other revenue-generating purposes.
Pildis: Everyone wants an SKU benchmark, and benchmarks are great. But there is no magic number for a health system. It’s not like once a health system gets to that number, it should stop. It’s a continuous process that starts with defining the universe of SKUs to be standardized. It’s difficult for a health system to identify every possible SKU across its entire enterprise and, even if it could, standardize all products in all areas at once. It’s best to focus on one area at a time and then move on to another. A health system should establish a baseline of SKUs in each area and then continuously measure its progress over time as measured by reduced SKUs and products standardized.
Pildis: Many health systems have standardized the items that are easy to standardize, like commodities. Each site within a health system is using the same paper towels or office furniture, for example. Many health systems also have standardized commonly used prescription medications. They’re purchasing the same therapeutic agent, whether brand name or generic, from one distributor. Where they frequently fall short is on medical devices, physician preference items, and brand-name specialty drugs and biologics. For example, health systems have different orthopedic surgeons using different brands and types of artificial knee implants. As for specialty drugs and biologics, some of these drugs don’t have a lower-cost generic or biosimilar alternative, and most come from different manufacturers.
Pildis: The reason is because they are the two most difficult areas to standardize. They are the most sophisticated in terms of clinical use. It’s much easier to get people to use the same paper towels. It’s much harder to get orthopedic surgeons to use the same brand or type of knee implant.
Pildis: Health systems need to build an organizational capacity for product standardization. By that I mean building a culture and acquiring the capabilities to continuously pursue product standardization because all stakeholders recognize and appreciate the operational, financial and clinical benefits of product standardization. The first step in that process is to standardize the low-drama, low-emotion items like paper towels first. The health system learns what it takes to standardize a product without any pushback from staff. With that success in hand, the health system moves up the product level to, let’s say, gloves. After gloves, maybe rapid diagnostic tests are next. And so on. As each product level is standardized, the health system should be documenting the economic benefit from standardization as well as the clinical benefit and sharing the results with all affected internal stakeholders.
Pildis: At a minimum, the health system should be able to demonstrate to staff that standardizing a frequently used product did not lead to quality or safety issues. Ideally, the health system should be able to demonstrate to staff that product standardization actually improved the quality and safety of patient care. Improved outcomes can be the result of reducing the variability of clinical products. No treatment time is wasted trying to decide which brand of a product should be used. Staff become proficient and expert at using one type of clinical product versus different types of the same clinical product.
Pildis: The most important piece of technology is electronic ordering. That means everyone in the health system, no matter where they’re located, uses the same electronic ordering platform to purchase medical supplies, equipment and anything else they need to buy. At the very least, a shared electronic ordering platform gives a health system the ability to wrap its arms around everything that’s being purchased and to see the opportunity for standardization and cost savings in all those transactions. A common platform also provides the first step in product standardization. It lets a health system set up rules dictating what can and can’t be purchased in terms of quantities, price and range of products or brands.
Pildis: Analytics really are the tools used to bring about change and product standardization. Analytics allow a health system to gather and validate all purchasing data. Using variation, outcome, cost or other inventory parameters, a health system can define what success means for the standardization process. Then analytics can track and flag opportunities for standardization based on those parameters. Health systems can use the data to demonstrate the value of standardization to internal stakeholders and then report the results back to those same stakeholders for buy in. That continuous use of data to improve business and clinical outcomes helps maintain the system-wide momentum for product standardization.