May 2004 | Case Studies | I.T. Toolkit

Healthcare Procurement System: Just What the Doctors Ordered

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Miami Children's Hospital scrubs up to prepare for more efficient purchasing

"Garbage in, garbage out" is a well-known adage in computing. To give it a more positive spin, the benefits an information system creates are only as good as the raw materials—the data—you feed into it. That certainly holds for the purchasing process, where inaccurate or out-of-date product information supplied to an information system can generate delays, incorrect shipments, and extra work.

At Miami Children's Hospital (MCH), for example, errors in the purchasing department's master database of products "cause transaction delays every day," says Jeanne Tellez, the hospital's information systems coordinator. That master list provides product data to the hospital's ESI/NOVA materials management information system (MMIS), from McKesson Information Solutions, which MCH uses to buy medical and surgical supplies.

"When you send inaccurate information, obviously that's going to hold up the purchase order," Tellez explains. And when employees at the hospital receive their shipment, "they can't match it to the purchase order because the information is different," she adds.

MCH's product database, however, has been growing steadily cleaner since the hospital became a member of Global Healthcare Exchange (GHX), an electronic trading network for healthcare providers and their vendors. GHX has also helped MCH implement electronic data interchange, making procurement more efficient and helping the hospital better monitor its purchases.

Based in Westminster, Colo., GHX was formed in 2000 by several major healthcare product manufacturers. Today, its owners and members include manufacturers, distributors, healthcare providers, and group purchasing organizations (GPOs). The company does not aim to make a profit; its stated purpose is to help its members take costs out of the supply chain.

For hospitals and other healthcare providers, one of the biggest supply chain challenges "is not having accurate product and pricing information," says Bruce Johnson, vice president of sales and marketing at GHX.

Each time a supplier publishes a new catalog or price sheet, someone in the purchasing department must study it for changes and make those updates in the master product list. When those hard copy documents pile up, orders placed through the MMIS reflect old data. Vendors kick invoices back because product names, units of measure, quantities or prices are wrong; or someone in Accounts Payable must reconcile discrepancies between invoices and purchase orders.

"It's a Catch-22. If you don't fix the stuff on the left side of your desk—the new information coming in—you end up having a bigger pile on the right side of your desk—the discrepancies you're working on reactively," Johnson says.

Decentralized procurement compounds the problem. While purchasing professionals order standard items such as gloves and bandages, hospital departments often place their own orders for special items.

"Somebody in the operating suite might enter a name for a division of Johnson & Johnson that's different from the name somebody else enters in the internal item master catalog that the hospital maintains," Johnson says.

If the database lists several names for the same supplier, it's hard to track how much business a healthcare facility does with different vendors. Lacking such knowledge, buyers may miss opportunities for volume discounts.

Conducting E-Commerce with Multiple Suppliers

GHX allows a healthcare provider to conduct electronic commerce with multiple suppliers. It offers tools for "scrubbing" errors and duplications from the hospital's product database, and for keeping the list up to date as vendors make changes. It also generates reports to help purchasing departments monitor their activities and refine their buying strategies.

The typical healthcare facility that conducts EDI on its own maintains connections with two to five vendors, Johnson says. For a GHX member, one link to the exchange can provide connectivity with 50 or 100 trading partners while requiring no extra work from the information technology staff, he says.

The exchange also boosts purchasing department efficiency. Because transactions are automated, purchasing staff need only attend to exceptions—perhaps when an acknowledgement doesn't arrive, or an advance shipment notice is delayed. Instead of constantly chasing down details, "that buyer will be able to spend more time on strategic efforts," Johnson says.

Tellez says she was first attracted to GHX because of its Rekon Master File Reconciliation Service. Before MCH got up and running on the exchange, GHX compared the hospital's item master to the data in its AllSource Catalog, a real-time database of product information from all its supplier members.

"The information we've gotten back has been very good; it tells us anything from a unit of measure discrepancy to a manufacturer code discrepancy, or items that are obsolete," she says. "It has shown us a wealth of information that we can use to go back to our item master and clean it up. That enables more efficient, quicker ordering."

Along with cleansing its master data, GHX also helped MCH integrate the hospital's MMIS with the exchange.

"We connected our communications server to ESI's communications server," says Pete Nelson, director of member operations at GHX. "We use GHX-specific software to not only connect and collect the data, but then to encrypt and send the data into our hub."

GHX has standard procedures for integrating to 23 management systems commonly used in healthcare, he says. GHX also offers a web-based tool for healthcare providers who do not use an MMIS.

MCH currently uses GHX to conduct electronic transactions with its three largest suppliers, accounting for 85 to 90 percent of its spend, Tellez says. It will add smaller suppliers once it completes a transition from ESI/NOVA to the Lawson Software ERP system in January 2005.

Now that it's working with a scrubbed item master, MCH relies on GHX to help it update the database as vendors make changes to their product information. Whenever the system detects a discrepancy between data in a transaction from the hospital and a supplier's current data in the AllSource Catalog, a notification arrives, "and we change it in our system," Tellez says.

Later this year, GHX will release a feature called Source Update, which will allow more advanced materials management systems to update product information automatically, once a user has reviewed and approved the change, Johnson says. This will work with both catalog information and with special pricing contained in contracts, he says.

MCH has not started using GHX's reporting services, Tellez says. In the future, among other things, it will probably use reports to get better information on what the hospital is purchasing, so it can take advantage of rebates that some vendors offer when purchases reach a certain value, she says.

Reports from GHX provide information on day-to-day activities and also help users recognize strategic opportunities, Johnson says. For example, reports could pinpoint items that a healthcare provider has been buying off contract but that are available under an existing contract for less money.

Suppliers that trade over GHX also realize several benefits, Johnson says. They gain efficiencies by doing business electronically and by receiving orders that contain fewer errors. With fewer discrepancies to reconcile, they receive payment sooner. Also, when they update their catalogs, they know their customers will promptly register any changes.

Fewer Problems on the Back End

A new member pays a one-time integration fee to cover the setup between GHX and its trading partners, Johnson says. After that, it pays a subscription fee based on the level of service it chooses—for example, the degree of scrubbing covered in the master file reconciliation and the kinds of reports required.

Having completed the reconciliation process, MCH is currently using the results to correct its item master. "As we move forward, we're seeing fewer and fewer problems on the back end because we're cleaning up our information on the front end," Tellez says, resulting in smoother EDI transactions.

The hospital also benefits from alerts that GHX sends when pricing information in a purchase order doesn't match the price for that item in the AllSource catalog. "That's on the front end, so we can fix things before the item even gets here, which is very valuable," Tellez says.

Although healthcare providers are familiar with EDI, some might hesitate to trust their transactions to a third-party exchange, Tellez says. "To be honest, that was one of my first concerns. I thought, this is a third party. I don't want to see my Cardinal Health orders held up for two or three hours before they get to the vendor.

"Well, that's not occurring," she says. "The system is working very well. We look forward to getting into more reporting and whatever GHX can provide for us."

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