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SUPPLY Chain Direction Profile: KAISER PERMANENTE: THRIVING Nether Pressure level

In most developed countries, health spending is rise faster than incomes. The issue is particularly acute in the United States, which non only spends more per capita on healthcare than any other land just as well has seen spending ascent as a share of national income for decades—from ten percent in 1985 to 17 percent in 2010 to a projected 25 pct in 2037.i Costs have skyrocketed across the board, including infirmary stays, doctor visits, pharmaceuticals, lab tests, new technologies, healthcare assistants, and wellness insurance premiums. Ironically, every bit handling options become more advanced, fewer people are able to beget them.

The U.Southward. Patient Protection and Affordable Care Act, enacted by the U.S. authorities in 2010, is designed to brand wellness coverage more affordable and available. In an industry where employers and consumers for decades absorbed yr-over-year cost increases, the Affordable Intendance Act catapulted most healthcare providers into a new world, where survival will crave a laser-sharp focus on cost and efficiency without compromising patient outcomes.

For Kaiser Permanente (KP), past contrast, the Affordable Care Act ushered in the next phase of piece of work, 1 that was already very much in progress. Since its establishment in 1945, the KP Medical Care Program has focused on high-quality, affordable care. Taking the next step, the company is making innovations in its supply chain that volition get in possible for the organization to thrive—not just survive—in the new era.

D.ane. Building THE KP NETWORK

Headquartered in Oakland, California, Kaiser Permanente is the largest nonprofit health programme in the United States, serving more than 9 meg members. The KP organization consists of three divide legal entities: the nonprofit Kaiser Foundation Hospitals, the for-profit Permanente Medical Groups, and the nonprofit Kaiser Foundation Wellness Program and its subsidiaries. All told, the Kaiser Permanente organization has 37 medical centers and more than than 600 medical offices located in 9 states and the District of Columbia. Revenue in 2011 was $48 billion.

With roots dating dorsum to the 1930s, Kaiser Permanente was formed following Globe War Two, when many people could non afford to go to a doctor. The visitor has remained committed to providing affordable, loftier-quality healthcare ever since.

Collaboration amid the various KP entities has been key to realizing that commitment. KP has carefully coordinated its clinical services—primary, secondary, and infirmary care—to promote and provide college quality healthcare. Additionally, it has put an infrastructure in identify to provide quality-of-care oversight and to proceed everyone focused on a mutual goal, namely keeping people good for you and out of the hospital.

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Ane of the factors that have made this collaboration piece of work so well is KP's huge investment in cut-border information systems, which requite KP providers admission to patient records all beyond the program. As a result, nigh every detail nearly a patient—from dr. visits to postsurgical treatments—is in the system, improving both clinicians' ability to administer high-quality care and patients' feel of the treatment process. Through due east-visits and phone consultations, for case, KP doctors are able to access patient records and consult with patients electronically, resulting in fewer unnecessary visits, better medical outcomes, and higher patient satisfaction.ii

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

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

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

As the Affordable Care Act legislation takes concord, the visitor is looking for new sources of cost savings while continuing to improve the quality of the healthcare services it provides. One fundamental target is the product supply chain; that is, the supply chain for the medical devices and supplies used to deliver those healthcare services.

Medical supplies account for up to twoscore percent of a hospital's operating costs, representing the second largest expense after labor.4 Notwithstanding when it 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 alter was needed, KP brought in supply concatenation experts from relevant product-based industries.

Laurel Junk is ane such expert, hired in 2009 from biotech pioneer Amgen to be KP'south vice president of supply chain. "The burning platform is healthcare reform and the reduced reimbursements that are hitting us in a material way," says Junk. "We're facing the same cost pressures that other industries did. They simply got to a critical point much sooner than we did."

D.two.1. INTRODUCING Information STANDARDS

A primal reason why healthcare isn't as efficient as other industries in this expanse is a lack of consistent and uniform data standards for medical and surgical supplies that would go far possible to identify and describe products in a systematic mode. Not only does it mean that each hospital may use a different part number for the identical production (exist it gloves, sutures, or instruments) only the product clarification and the manufacturer can vary besides.

This isn't just a problem for 1 healthcare network trying to communicate with some other; it'southward a trouble inside private systems. And the bigger the system, the bigger the potential problem. Without uniform standards, KP as an system has found it difficult or fifty-fifty impossible to consolidate all of the numerous requirements for medical supplies, so each KP hospital has had to place its own orders. Equally one of the largest healthcare systems in the United states, KP has the leverage to secure excellent volume discounts, only just if efficient planning and procurement processes are in identify.

But it's not only about efficiency. Common standards allow service providers to more easily share information about medical products or devices used to treat a particular patient. This information tin can be some other 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 situation, or when manufacturers effect production recalls.

That's why in 2010, KP helped constitute the Healthcare Transformation Group (HTG). A consortium of five healthcare systems, the HTG consists of KP, Geisinger Health System, Intermountain Health Intendance, Mayo Clinic, and Mercy. The HTG immediately began to push button for a standard that would allow healthcare organizations to assign a unique lawmaking to every production. GS1® was the standard of choice.5

If you've always gone grocery shopping, you've seen GS1 standards in action in the form of the ubiquitous Universal Product Lawmaking (UPC), which is plant on virtually all retail products in the United States. The bar codes developed for the healthcare manufacture wait a lot like UPCs. And they perform a similar office, assuasive all the players in the supply chain—manufacturers, distributors, and hospital chains—to be on the same folio.

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Some suppliers accept been resistant considering of the expense involved, but the HTG has held their feet to the burn down. "The v of usa said to our pinnacle twenty suppliers, 'No bar codes by the end of the year, no business organization,'" says Junk. "It's a collective voice from the customer side."

D.2.2. ADDRESSING INVENTORY CHALLENGES

Data standards don't just help with the procurement side of the supply chain; they drive internal efficiency and ultimately aid to meliorate the quality of healthcare. Consider the basic activities of putting materials in a specific location when they are received, then taking them out when they are needed for a patient procedure. Failure to record the changes in inventory associated with these activities results in an inaccurate picture of inventory levels. For this reason, hospitals prefer to check inventory in and out past scanning production bar codes. Only when multiple bar codes are in utilize, it's hard to know which one should exist scanned. In some cases, labels are put on top of others, making the right bar code impossible to read.

To avoid these issues, some hospitals rely on manual methods for tracking inventory. Merely paper-based systems are too problematic. Non simply does the procedure accept a lot of time, it'south as well prone to errors that give an incorrect pic of what's actually on paw. Inventory that drops beneath a specified minimum is a red flag, causing the procurement organization to guild more, often via expensive expediting.

Simply excess inventory and expedite fees are non the biggest issue. Before whatsoever patient procedure, the required supplies must be pulled from inventory. This is usually washed via a procedure card. Not unlike a shopping list, a process card specifies what medical supplies will exist needed for the process. But when supplies aren't bachelor in their designated location, the clinician must hunt for them. A 2009 hospital industry survey showed that 70 percent of nurses spend 5 to twenty percent or more than of their time each shift searching for supplies.6 For a 12-60 minutes shift, that'due south at to the lowest degree 30 minutes and as much as two 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 common among hospitals. For starters, it is shifting responsibleness for picking the medical supplies listed on the procedure cards to members of the supply concatenation staff. This change volition gratuitous upwards 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 part with a specific location makes it easier to find. Consistent use of bar codes also helps, reducing manual transactions when products are moved from one location to another or used for a process.

Ultimately, an authentic record of the supplies used for specific procedures volition help place the products that are used about often and make it possible to develop demand forecasts and prophylactic stocks more accurately at the private-detail level. More than important, because the employ of specific supplies will be tied to patient records, the hospital will have a more robust style to accurately rails exactly which products were used for each process.

D.iii. TURNING Need PLANNING FROM AN 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 whatever given day. KP, nevertheless, is pioneering a demand-planning process that takes into account surgeries scheduled in accelerate. Constituent surgeries, for example, may be planned several months alee of time, with fewer scheduled during the summer and holiday periods. This information, in combination with an accurate view of historical procedure schedules, helps brand the picture of future needs more accurate.

KP is as well using demand planning to ensure that the right products are bachelor for unforeseen procedures. In the past, the nursing staff usually set inventory targets. Since shortages can exist very problematic, the staff is likely to err on the side of ordering too much. "The nurse will say, 'Well, typically, we demand x,'" says Brooke Fan, executive manager of supply concatenation. "Why don't nosotros put in fifteen, only in case?" Those "guesstimates" could pack a punch. Incremental inventory resulting from an extra 50 percent, multiplied by thousands of parts in hundreds of locations, tin meet the millions of dollars, without necessarily eliminating the likelihood of a shortage.

That'due south why the KP supply chain team has adopted a more analytical approach to predict future needs, looking at how many products of a certain type were used, when they were used, what they were used for, and how long they take to replenish. The squad is also looking at the variability in demand and atomic number 82 time to calculate appropriate safety-stock levels.

With a formal demand plan and authentic inventory levels, each KP hospital tin society supplies with the confidence that the right quantity will be on hand and that shortages volition exist few and far between.

D.iv. LEADING THE Way

Information standards, automatic transactions, and formal demand planning all play a role 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 let clinical staff to focus more on patients than on materials management. And the company is tying the usage of specific materials to KP'due south sophisticated patient-records system, extending KP's reputation as a leader in healthcare data systems.

Advances in medical scientific discipline and technology accept 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 bear upon on patient outcomes. KP intends to go on making use of the best new technologies while maintaining its position every bit an affordable and high-quality healthcare choice, then that information technology tin can proceed delivering the best patient outcomes at the lowest possible cost.

This is where the power of the KP organisation plays a huge function. With information systems that collect data with each supply chain transaction, KP can consolidate data across the entire arrangement, greatly simplifying the procurement process, sharing resources across facilities, and collaborating closely with suppliers and distributors.

To exist sure, changes in healthcare law have posed massive challenges for the healthcare industry. Kaiser Permanente, however, is leading the way with the help of a supply chain strategy that faces cost-reduction challenges caput on.