Standard identifiers are an important component to achieving better visibility into the role of products in delivering better value in healthcare.
Despite the vast differences in healthcare systems around the world, there is a universal need for better visibility into data that can help determine what contributes to better quality care at a more affordable cost. Certainly, there are many factors that impact quality and cost, including the products used in patient care. The important questions to be asked are: How effective are they? Are they available at the right place and the right time? Have they been recalled or are they expired? Were they administered to the right patient, in the right dosage? Are they authentic or potentially counterfeit? How much did they cost?
Unfortunately, it is often difficult, even for some of the most sophisticated healthcare organisations, to answer these questions. Part of the problem is the lack of widespread use of global data standards to consistently and accurately identify and track these products from the point of manufacture through to the point of care. But that is changing, as healthcare manufacturers, distributors, hospitals and other providers of care recognise the value other industries – especially retail and grocery – have achieved through the use of standards. A recent report, discussed later in this article, also quantifies many of the benefits hospitals can achieve through standards adoption, from better inventory management to lower recall processing costs.
The product data standards movement really began 40 years ago, with the development and adoption of the Universal Product Code (UPC) as the single standard for product identification in the consumer packaged goods industry. The UPC was the first barcode developed by the international standards body known today as GS1.Today, UPC codes are nearly ubiquitous on retail products and are credited with a wide range of benefits, from faster checkout lines to better ability to forecast and meet demand. While progress is being made in healthcare, the use of standardised identifiers and barcodes is still relatively limited. There are often barcodes on medical-surgical products, but in many cases, those barcodes are tied to proprietary, as opposed to standard, identifiers. As such, it is very difficult to identify products across the entire healthcare supply chain, because the number and barcode used by the manufacturer can be completely different from what is stored in systems at hospitals or scanned at the bedside. Also, a proprietary number assigned by one manufacturer to a product can be the same as the number assigned by another manufacturer to a completely different product.
Much of the growing awareness and adoption of product data standards in healthcare has been driven by GS1, which expanded its focus to healthcare in recent years. A number of governments around the world have mandated the use of the GS1 standard for product identification, known as the global trade item number (GTIN), for a variety of purposes. In the Asia Pacific region, India’s Ministry of Health and Family Welfare (MoHFW) has decreed that all medical supplies procured by the MoHFW must comply with GS1 standards for bar codes; while in Australia, state, territory and federal health departments now require suppliers to use GTINs to populate the National Product Catalogue with item master data for the purposes of tenders and contracts. Peter Fleming, chief executive officer of the Australian National E-Health Transition Authority (NEHTA) told attendees at the GS1 Global Conference in Sydney in 2012 that the ability to store and share accurate, complete and up-to-date data on healthcare products between suppliers and healthcare delivery organisations is a critical, foundational component to Australia’s transition to an electronic health system.
The number of medical devices labeled with standard product identifiers is expected to increase significantly with the advent of Unique Device Identification (UDI) regulation. While there may be some variances in the regulation as it is introduced in countries and regions around the world, it will require manufacturers to:
The US FDA issued its final UDI rule on 24 September 2013, and the European Commission has published draft regulations as well as recommendations for a common framework for establishing a UDI system across the European Union (EU). Meanwhile, other countries, including China, Japan, and Australia, are considering similar regulations. These countries, along with the US, EU, Canada and Brazil, are all members of the International Medical Device Regulatory Forum, a voluntary group of medical device regulators working to create harmonisation for UDI regulation around the world. Consistency in UDI regulations not only makes it easier for suppliers to comply with the multitude of regulations in different countries, but it should also help provide healthcare delivery organisations with better information about products as they move around the globe and are used on patients in various locations. For example, if we identify the same product the same way, data captured on its use by one hospital and included in a product registry in one part of the world can be compared to data on that same product’s use in other hospitals and captured in other registries. In this way, we can gather more robust data on that specific product and its use in patient care, which can contribute to valuable information for comparative effectiveness research and population health studies.
The impetus for the UDI regulation was a 1999 Institute of Medicine report that found that, “At least 44,000 people, and perhaps as many as 98,000 people, die in hospitals each year as a result of medical errors that could have been prevented.” Some of those errors were attributed to medication errors, (e.g., administering the wrong drug and/or the wrong dosage to the wrong patient), which led to creation of a regulation requiring pharmaceutical manufacturers to label their products with a barcode based on the US national drug code (NDC). The US FDA considered a similar requirement for medical devices, but soon realised there was not an analogous standard identifier used widely for those products. That led to inclusion of language in the FDA Amendment Acts of 2007 calling for creation of ‘a unique device identification system for medical devices requiring the label of devices to bear a unique identifier…[to]…identify the device through distribution and use, and may include information on the lot or serial number.’
Meanwhile, highly publicised recalls in the European Union around breast implants led the European Commission to move forward with UDI. When the EU announced its draft UDI regulations in September 2012, Commissioner John Dalli commented: “Just a few months ago, everybody was shocked by the scandal involving fraudulent breast implants which affected tens of thousands of women in Europe and around the world. As policy makers, we must do our best never to let this happen again. The proposals adopted today significantly tighten the controls so as to ensure that only safe devices are placed on the European Union's market.”
But the vision of the European Commission, the US FDA and other regulatory bodies, as well as the other benefits associated with global product data standards, can only be achieved if healthcare delivery organisations adopt unique identifiers in clinical and business processes. Otherwise, if manufacturers are invest the resources necessary to comply with the regulation(s), but no one uses the identifiers, the outcome will only be greater regulatory burden and expense. The EU recommendations include requirements for hospitals to use the UDIs to report adverse events, document which medical devices were used on which patients in the case of certain high risk procedures, and capture UDIs for implantable devices in electronic patient records. The US is also looking at what would be required to document UDIs in electronic health records and for the purposes of reimbursement. As a result, UDIs could become part of the regulatory requirements for hospitals and healthcare systems. With or without regulation, there are plenty of other reasons for hospitals to use the standard identifiers.
Many of those benefits were documented in an October 2013 study entitled ‘Strength in unity: The promise of global standards in healthcare’. In preparing the report, the McKinsey &Company interviewed more than 80 industry leaders around the world to quantify the potential value from greater standards adoption in healthcare in both ‘lives and dollars,’ as well as the investment that each type of organisation—medical device and pharmaceutical manufacturer, wholesaler and distributor, retail pharmacy and hospital—would have to make to achieve those benefits. The report found that all sectors can benefit, but only if a significant number of trading and channel partners 1) agree on the standards to use, 2) make changes if the agreed upon standards differ from those in use today, and 3) adopt new processes and systems.
The primary areas of value identified in the study include:
To determine the value to hospitals, McKinsey based its calculations on a hypothetical hospital with 300 beds, 10 operating rooms, an average annual patient population of 20,000 and revenue of US$300 million per year.
McKinsey estimated that this average hospital would have to make an upfront investment of US $600,000 to $800,000 and spend an additional US$3-4,000 each year to be able to scan and process barcodes and to improve inventory levels and management in various supply locations, including central storage and operating rooms. The investments would be for: barcode scanners, system upgrades, and associated project management and training to learn and adopt new processes internally and with supply chain partners. These are not insignificant investments, especially considering the financial constraints faced by most hospitals. But the McKinsey study found the savings to be considerably higher, as much as US$ 2.7-4.3 million annually. These savings are achieved, in part, through a reduction in adverse drug events and the costs associated with processing recalls and automating data management, order processing and financial transactions. The adoption of global standards can also help hospitals achieve both cost savings and improved patient safety through inventory optimisation.
Adverse event reduction
US$ 1.1 – 1.9 million of the savings estimated by McKinsey for hospitals assumes a 10 per cent reduction in medication errors by scanning barcodes at the bedside to ensure the right patient is receiving the correct medication in the prescribed dosage. McKinsey estimated a corresponding 30-50 per cent reduction in Adverse Drug Events (ADEs) and calculated the savings using US benchmarks of US$4,700-8,700 in costs per ADE.
Reduced Inventory Levels
The study noted that excess and redundant inventory is a significant contributor to healthcare costs; clinicians often keep ‘private’ supplies of products outside of formal supply points in hospitals to make sure they have enough products on hand. By improving demand forecasting through the use of global data standards and visibility into these so-called secret stashes , McKinsey estimated the average hospital in the study could reduce inventory levels by 15 to 30 per cent, resulting in a one-time cash flow savings of US$1.7-3.3 million (beyond the total savings estimated above).
Reduced shortages and Obsolesence
Increasing inventory visibility and supplies under management can also help reduce supply shortages, as well as the likelihood that products will expire before they can be used or that compromised products could be used in patient care. According to McKinsey, the annual global cost to healthcare for product obsolence is US $51 billion.
For many products, UDI regulation will require not only a standard product identifier, but also additional information such as lot numbers and expiry dates. McKinsey estimates that 20 per cent of the hypothetical hospitals’ assets become obsolete before usage, equating to a loss of US$ 2.2. million annual. By reducing obsolence by 50 to 75 per cent, the study estimates the hospital could save US $ 1.1 – 1.7 million each year.
Lower data cleansing costs
Finally, McKinsey says healthcare industry spends US$2-5 billion per year keeping product data accurate and resolving transactional errors, not to mention the revenue lost when products are not available for scheduled procedures. There are multiple reasons for the lack of data accuracy, including manual data entry and proprietary and incompatible numbering systems. Use of global data standards can reduce the amount of time, money and effort healthcare trading partners invest to keep their data synchronised.
McKinsey assumes its hypothetical hospital has 10 full time employees dedicated to data cleansing, at an annual labour cost of US$98,000. The use of global data standards, combined with supporting processes and procurement technologies, can help lower those costs by 20-30 per cent, for an annual savings of US$0.2-0.3 million.
Getting to Value
The McKinsey report also estimated costs for manufacturers, using a hypothetical medical device manufacturer with US$4 billion in annual revenue and 25 packaging lines. The estimated costs for that hypothetical company to include product identification, lot number and expiry dates on second packaging was estimated at: $150-225,000 capital per each of 25 packaging lines; $1-2 million in licenses and integration cost for enterprise software and an annual expense of 10-15 per cent of invested capital (depreciation, maintenance, operating expense). Doing the same for primary packaging was US$300-500,000 for each of the 25 product lines, with similar costs for licenses, enterprise software integration and annual expenses.
These are not insignificant costs, but unlike hospitals and healthcare systems, manufacturers subject to the UDI regulation must make the necessary investments. But like hospitals, they can also reap benefits, ranging from better inventory management through demand forecasting and to improved supply chain efficiencies and security.
In its final analysis, McKinsey says its “research suggests that the healthcare industry can create significant value…both in terms of business value and in terms of meaningful improvements in patient safety and quality of care.” It concludes its report with a call for alignment among the various parties ‘to create a true win-win opportunity: a ‘win’ for industry, and a ‘win’ for the patient.’
Karen Conway works internationally with standards bodies, government agencies, analysts, academic researchers and industry associations to optimise the healthcare supply chain to improve business and clinical performance. Conway is co-author of ‘Leading from the Edge,’ a book on global leadership published in 2013