Inventory Methods Can Cut Costs

Medical expenditures have skyrocketed in recent years, and with implementation of the Affordable Care Act on the horizon, medical entities from all facets of the health care industry are bracing for an increase in patients while looking to save money where they can to prepare for a potential drop in revenue.

The United States spent $2.7 trillion on health care in 2011, according to the Centers for Medicare & Medicaid Services website. On the administration end, 40 percent of the money spent within the industry is tied up in the supply aspect. Hospitals are constantly seeking more innovative inventory methods in order to maintain service standards but also reduce holding costs.

Missouri-based health care system Mercy founded its own supply chain company, Resource Optimization & Innovation, in 2002. For the past five years, Mercy and ROi have been ranked in the top 10 for overall health care supply chains in the United States by Gartner, a leading information technology research and advisory company.

The medical supply business is complicated. Each hospital uses a variety of processes to track inventory. The method used depends on the type of item. One system Mercy uses is a point-of-consumption tracking infrastructure, said Scott Nelson, chief operating officer of ROi.

Each time an item is used, at a patient’s bedside or wherever in the hospital, a barcode is scanned, and a note is made in the system for the item to be replenished. If any inventory is being used more quickly and gets critically low, a red flag is raised in the system, and replenishment is ordered outside of the regular cycle.

The newest innovation with this method is a real-time dashboard that allows medical professionals to view use of items. Nelson said this system has proved effective so far.

However, a recent study from the University of Arkansas industrial engineering department contends this type of process is not ideal. “Because of intermittent or so-called ‘lumpy’ demand, procurement and supply-chain managers struggle with how many items to order,” said Manuel Rosetti, professor of industrial engineering at the UA and lead author of the study. “Traditional methods of modeling and forecasting are not sufficient.”

A UA Ph.D. student developed a software system that aims to predict future need, adjusting a hospital’s inventory quota based on historical use data and cutting stock of items that are infrequently used.

Funded by health-care supply manufacturer Covidien Inc., the study tracked medical and surgical items used at Mercy hospitals in Fort Smith, Springfield, Mo., and Oklahoma City between Oct. 1, 2010 and April 30, 2012.

The researchers concluded hospitals would experience significant savings by utilizing the software. Rossetti said they are pursuing avenues through the National Science Foundation to fund and commercialize the technology.

However, the study analyzed the use of only about 125 out of tens of thousands of items, and also tracked the inventory for all operating rooms together and did not consider that each room needs to have certain items on-hand — that it is often not feasible to go get an item from another room.

When a patient has a “non-elective procedure, not having a particular item in the room could literally mean the difference between life and death,” Nelson said.

Most importantly, the aim is to improve service level, Nelson said. “In our field we walk the line of trying to find the balance between service need and inventory need. That is essential.”