It was one of the calls that we all hate to get. My 86 year old mom had broken her hip. The voice on the phone asked, “Could I rush to the hospital?” I did just that, but as I entered her room, the nurse informed me that she was unsure of the time of the surgery. The hip implant was not available. I smiled. It was a consignment inventory item that could not be located. I have a hard time getting away from supply chain.
US health care costs are $2.2 trillion/year: approaching $8,000 per person or 16% of the economy. The looming impact of the Health Care Reform Act are largely unknown, but no one argues that they will be significant. Solving the issues in the health care value chain will be a monumental, if not an insurmountable task. In May, I interviewed 17 Pharmaceutical executives on how they are preparing for increased regulation, process complexity and uncertainty. They are reading the pending legislation like tea leaves. Nothing is sure except change.
Needs a Redesign
Companies in the health care value chain are laggards. Historically, the margins have been too high for companies to place importance on supply chain, much less move to think about redefining the multi-tier, complex relationships within the value chain. Inventory positions are 25% higher than other process peer groups; and when I speak to a health care team, I feel that I have been jettisoned back in time 10 years.
In May, I had the opportunity to speak at the Indianapolis Health Care Exchange and tour Clarian Health. Named as one of the “Best Hospitals in America” by US News & World Report for five consecutive years, Clarian Health is the result of a cooperative effort of three downtown Indianapolis hospitals to combine resources, research, staff and administrative procedures to serve 20 hospitals and health centers throughout Indiana . The team spoke on the importance of value chain initiatives. As I toured the facility, I was struck by two things:
1) The focus on supply chain is increasing. The increase in focus and importance is a good thing.
2) The primary thrust is on transactional efficiency and lean. I winced. We cannot sav
e our way into value-based outcomes for health care. The greatest opprtunity for healthcare reform lies in the cracks of the links of the supply chain. The biggest opportunity is in the spaces between supply chain parties in the extended supply chain.The health care value chain needs to be redefined from the outside in.
In June, I had another opportunity to think about health care as I facilitated a panel at the UConnect conference. It was a conversation between Premier, a health care alliance for 2,300 hospitals, and Johnson & Johnson, a leading provider of medical devices, on the need for standards adoption for medical devices. Again, the gap between the as is and the to be state is large. As I held the hand of my mother, I thought about these discussions and the need for value-based outcomes in health care. The closer that you get, the more that you realize the magnitude of the problem and the opportunity. As the days in the hospital progressed, I came face to face with the real issues of health care. (Too many to elaborate in this blog!)
It will not be solved by traditional enterprise applications and supply chain approaches. These are band-aids in the face of a needed redesign. In this alert, I focus on two promising technologies to help companies build horizontal processes to improve revenue management:
Model N: The medicaid drug rebate program will apply a new rebate for new drugs and allow States to collect rebates on drugs provided through Medicaid managed care organizations. The rules are changing and IT system flexibility is paramount. There is no supply chain with a demand shaping program with the complexity and the waste of the pharmaceutical rebate programs. In the words of a client at Model N’s Rainmaker event, “if you have seen one rebate, you have seen one rebate.” Why? Each is unique, and the process complex. This customer had 40,000 customers, 650,000 products, 30,000 contracts, 19 primary rebate types, 27 order types and 12,000 types of sales. This type of rebate program cannot be solved by traditional Customer Relationship Management (CRM) or a partnership with SAP or Oracle ERP. (The rebate system for medical device implants-like the one for my mother–is depicted in figure 1.) It will grow even more complicated. There are two solutions that can help: Model N and iMany. With iMany’s recent product and management changes, my bet is on Model N.
Jonova: The second technology that I would like to see deployed more in is Jonova. This software enables a focus on value-based outcomes. It enables what-if analysis of supply chain complexity and the modeling of activities to assess cost and improve value. The upcoming release focuses on multi-tier activity-based costing and could help in top-to-top discussions with value chain partners and the redesign of the supply chain for value. It is also an excellent technology to assess the design of the supply chain in what-if modeling in Sales and Operations (S&OP). Jonova has 24 customers with a strong presence in health care . I would like to see more and more companeis question the complexity of supply chain depicted in figure 1. Jonova can help.
Time to Step up the Game
It is time for healthcare to step-up to the plate and redesign the supply chain to improve value. We cannot afford for a system this critical to health and well-being to continue to operate from left field.
