Originally Published MDDI October 2004

Healthcare Trends

Hospital Defect Reduction: Will Device Makers Be Affected?

As hospitals increasingly stress procedures such as inventory and data management, device makers will be called upon to provide new features and services with their products.

David Warburton

A quiet revolution is taking place in many hospitals around the nation in an effort to reduce medical errors and rising costs. Recent articles in both The New York Times and The Wall Street Journal have reported that hospitals are adopting many defect reduction methodologies.1,2 These methodologies, such as six sigma, have already been used successfully by manufacturing companies such as GE and Toyota.

Until recently, a healthcare facility has been considered fundamentally different than, for instance, an automobile manufacturing line. This notion was based on the inherent complexity and unpredictability of patient care. It was thought that because every patient and every illness was different, highly individualized care was a neccessity.

Consequently, healthcare in general has resisted the trend to reduce costs and to require continuous quality improvements. By contrast, such trends have characterized most major industries, from automobiles to semiconductors. Healthcare has resisted, that is, until now. In the past few years, three significant trends have converged, setting in motion a transformation of the hospital environment.

First, companies have identified employee healthcare insurance as a major business expense and have attacked those costs the same way they tackled costs at other suppliers—by providing hospitals with the tools and training to apply six-sigma methods. This shift is highly significant. In manufacturing, cross-pollination of defect reduction methods is common. Someone trained in six sigma at one company will move to a different company in a few years and teach others the methodology, but there is little cross-pollination between industry and healthcare.

There is no group of administrators large enough in any one hospital to implement a defect reduction program successfully. However, industry is increasingly providing hospitals with experts to both teach and help implement defect reduction principles like six sigma. Such industry support is providing the catalyst to get such programs into hospitals.

Second, sophisticated hospital-wide computer applications are finally reaching a state of maturity such that they are being deployed in more and more hospitals. These applications allow caregivers to track a patient from admission to discharge. They also provide hospitals with a central database of patients’ diagnostic and billing information.

Data and workflow management tools are not new to hospitals, but they are only now achieving broad market penetration. It is critical that device manufacturers be aware of the tools’ capabilities so they can assess and plan for the effects on their own marketing and distribution.

Third, data and workflow management tools are being coupled with wireless networks, radio-frequency identification (RFID) technology, and the ubiquitous bar codes. Such tools enable healthcare professionals to easily access and enter data at the point of care, rather than at a terminal down the hall. The amount of patient and asset data hospitals collect and manage has increased as well.

The transformation in healthcare is not about any hot new technology, although technology enables it. Rather, it is a new way of thinking about hospital work practices using techniques and technologies from industry to reduce both costs and error rates. These three trends are creating opportunities for medical device firms to create value from them. For example, device companies may determine that they should avoid pursuing high-risk

product development strategies for state-of-the-art diagnostics equipment. Instead, they might add value to an existing diagnostic product by bar coding the device’s disposables to conform to the Health Industry Bar Code (HIBC) Supplier Labeling Standard. This strategy would enable the disposables to be tracked in a hospital’s inventory control system without manual data entry. Alternatively, a device manufacturer could add Wi-Fi capability and an HL7-compliant interface to the device to interface with a hospital’s automated lab-service-order management application.

This article explores some of the changes to healthcare practices driven by these three trends and suggests some opportunities for medical device companies.

Hospital-Wide Data Management

Hospital-wide data management applications have grown from their roots as patient billing systems to include electronic medical records for the patient. These systems interface with or support the following:

• Electronic drug-tracking systems with caregiver decision–support capabilities. Such support capabilities include, for example, the ability to warn of possible harmful drug interactions.
• Workflow order systems. These systems allow caregivers to place orders and receive results from radiology, laboratory, and allied services in a hospital.
• Radiology image databases. These databases contain patients’ x-ray, MRI, and ultrasound results.

Opportunities for device manufacturers lie in their ability to develop devices that can interface with these applications. A hospital-wide data system is only as good as the information available to the end-users. Devices that make data entry and access faster or more accurate provide value to the hospital customer. A hospital-wide system can provide a centralized patient database, data security, and messaging to the distributed systems using an appropriate application interface, such as HL7 or DICOM. Manufacturers can leverage these systems by developing devices that act as nodes, passing data to and from a hospital’s database. Or manufacturers can simply take advantage of technology trends such as bedside bar code scanners.

Data Access and Entry at the Point of Care

On February 25, 2004, FDA released a rule requiring pharmaceutical manufacturers to include bar codes on all drugs administered in hospitals and other healthcare settings.3 The rule is intended to facilitate deployment of automated drug-tracking systems in hospitals. However, it has far broader implications.

One implication is that hospitals are going to begin to install bar code scanners near patients’ bedsides. This in itself provides a product opportunity for medical device manufacturers.

For example, an infusion pump is a commodity item. However, some minor changes add value for the hospital, taking the device to a new level. For example, add a bar code scanner to the pump that reads both the patients’ ID bracelet and the bar code printed on the IV bag. Then, add an off-the-shelf Wi-Fi network interface to allow the pump to query the hospital’s drug-tracking database.

With these additions, the infusion pump could confirm the correct drug and dosage before therapy begins, reducing the possibility of medical errors. The pump is no longer a commodity; it is a part of the hospital’s defect reduction strategy. Furthermore, there is no risky breakthrough technology required. Instead, existing technology is repackaged to take advantage of the move toward automated drug tracking.

A further implication of this new FDA rule is that useful products, such as bar code scanners at the patient bedside, will find applications beyond their original intended use in drug tracking. Nothing prevents that scanner from being used to scan—and therefore track—everything in the patient room labeled with a bar code. Bar codes can and eventually are likely to appear on disposable medical devices and supplies. Hospitals then could track inventory with retail-store accuracy. Products could be tracked from a hospital’s receiving dock to its point of use. Such tracking would enable hospitals to reduce inventory levels, reduce theft, and ensure accurate billing of patient supplies.

Tracking and measurement of inventory will lead to better inventory metrics, too. Eventually, hospitals may be able to follow the same just-in-time (JIT) path as other industries, working with suppliers to reduce inventory and decrease order turnaround times.

Healthcare suppliers can help hospitals move in this direction because many already have applied JIT inventory management principles in their own facilities. However, the idea of using JIT principles as sales and marketing tools may be new for a manufacturer’s marketing department. Medical device manufacturers could offer JIT delivery services, consignment stocking, and products labeled with HIBC bar codes. Manufacturers might also partner with asset-management service providers to offer JIT inventory levels. These services can be key differentiators in an otherwise highly price-sensitive commodity market.

Asset Tracking

Inventory management in the healthcare industry is not a unique problem. Both the manufacturing and the retail sectors share it, and the same types of JIT inventory management techniques used by these sectors are applicable to the healthcare industry.

One inventory problem, however, appears to be unique to hospitals—the management of a hospital’s capital assets. Virtually every capital asset a hospital owns, from an IV pole to an OR table, is on wheels. In any hospital corridor, equipment is either moving from one place to another, or it is parked along the wall waiting to go somewhere. Of course, in many hospitals, the walls already have boxes of medical supplies stacked to the ceiling. This excess inventory results in average usage rates of 30–50% for pieces of equipment, based on data from a major hospital equipment supplier.

Finding a needed piece of equipment can take a healthcare provider precious minutes. In a typical hospital day, these lost minutes add up to hours of lost productivity. For example, 7 minutes out of a 15-minute escort cycle is spent looking for a wheelchair.4 Hospital scheduling is highly fluid, so equipment requested for one room at noon may be needed by a different patient in a different room when it is eventually delivered at 2:00 p.m.

In addition, hospitals are often a labyrinth of interconnected buildings. So it is not surprising that many hospital administrators have trouble knowing where equipment is, how often it is used, or even how much the facility owns.

One solution to this problem, RFID tagging, also comes from industry. Several companies have recently introduced RFID-based asset management services and systems tailored to the hospital environment. To track an asset, RFID tags are placed on that asset. A network of readers arranged throughout the facility scan the tags as they pass nearby, and a central database keeps track of the assets’ location. Healthcare professionals can find a piece of equipment simply by accessing the database through a nearby terminal.
Typically, there are two kinds of RFID tags:

• Passive tags, which receive their power from the reader when the reader passes within a few inches of the tag. Both the range and amount of information the tag can store are limited.
• Active tags, which have their own power supply—usually an internal battery. These tags have much greater range and can store and transmit much more information.

Currently, RFID tags are proprietary and independent of the equipment on which they are mounted, meaning that equipment itself cannot communicate easily with the tag. This situation presents another opportunity for device manufacturers. By partnering with one or more players in the hospital asset management market, a capital equipment maker can integrate an RFID tag into a device.

This may work, for example, as a plug-in module like a PCMCIA card. The tag would not only transmit the equipment’s location, it would also transmit information about the equipment, such as its state of charge and state of use.

The most profound effect that the emergence of asset-tracking systems will have on device manufacturers comes from an area other than product features. As hospitals track and manage their capital assets more carefully, use of each device will increase. More-efficient use will ultimately reduce demand for additional equipment. Most hospitals without an asset management system typically have twice the capital equipment they need. Equipment specifications such as mean time between failures will become more important as hospitals drive equipment use rates toward 100%.

Facilities may also choose to own less of their capital stock. Rather, they may shift complete asset management to a partner to help increase use, maximize capital investment, and manage periodic variations in demand. This focus on usage rates is not new to industries for which return on capital is a vital profitability metric. Southwest Airlines, for example, is profitable in part because it strives to keep its planes in the air, rather than on ground waiting at the gate.

Because many hospitals have not previously had management tools such as asset-tracking, some of them have chosen to focus on equipment availability. Many hospital stocking systems are designed to ensure that equipment is available immediately, even if it means having an excess, rather than focusing on techniques to increase efficiency and to maximize use of existing equipment.

Workflow Simplification

All of the applications discussed so far provide metrics, such as metrics on disposables usage or asset utilization. When these hard data on hospital performance are coupled with six-sigma defect reduction methods such as cross-functional process mapping, hospitals are going to focus on reducing the bottlenecks and non-value-added processes in their daily workflow. These processes include redundant data entry, which automated data-entry methods and hospital-wide databases can help reduce or eliminate.

Improving workflow also includes decreasing investment in little-used equipment. Once hospitals have accurate data on asset use, they can cut back on purchases of lesser-used assets and increase investment in frequently used equipment, thereby decreasing the demand for such products that can lead to long wait times.

Moreover, improving workflow can eliminate processes or procedures that add no value to patient outcomes. In addition, opportunities are available for companies that can offer products that improve workflow or reduce cycle time in measurable ways.

For example, surgical orthopedic procedures are short, typically lasting less than 2 hours. A procedure often takes less time than is needed to set up and subsequently clean the operating room.

As part of one hospital’s cycle-time reduction efforts, members of its OR staff noted that they often waited 10 minutes between procedures to allow one of the larger instruments to cool. Addressing this cooling time could be a product opportunity for a device manufacturer.

The change may have little to do with the actual function of the device in surgery. In other words, a device designed with no more technical advantage than faster cooling could allow that particular OR to fit in at least one more surgery per day. The result would be a significant increase in throughput for which the hospital would be willing to pay.

What Are the Implications?

As hospital-wide software applications become more common, defect reduction data-entry methodologies such as bar codes, RFID, and wireless techniques are going to become standard. Device manufacturers should recognize the trend toward automated data entry and incorporate enabling technologies into their products.

In addition, industry defect reduction methodologies such as six sigma will increasingly cross over into healthcare facilities. These tools will put a spotlight on medical device cycle times and usage rates.

This is especially true when tools are combined with metrics provided by asset management and patient-workflow management applications. Such industrial measures of productivity have not been applied previously to management of medical device usage.

The availability of these metrics will change both inventory practices and capital asset use. This change, in turn, will alter the nature of the relationship between supplier and hospital customer. Device manufacturers who can develop products that account for this new distribution model are likely to gain market share over those who cannot.

Finally, efficiency and error reduction are going to become marketable features. As more hospitals implement software tools that measure efficiency and quality, product features that decrease cycle time and reduce medical errors will become as important as other product performance features.

References

1. Reed Abelson and Milt Freudenheim, “The Conglomerate Will See You Now: Is What’s Good for G.E. Good for Healthcare?” The New York Times (July 18, 2004).
2. Bernard Wysocki Jr., “To Fix Healthcare, Hospitals Take Tips from the Factory Floor,” The Wall Street Journal (April 9, 2004): 1.
3. Marianne Kolbasuk McGee, “FDA Bar-Code Aimed at Improving Patient Safety,” InformationWeek (Feb. 25, 2004).
4. “Out of Thin Air,” Business and Management Practices 9, no. 11 (2000): 28.

Copyright ©2004 Medical Device & Diagnostic Industry