Healthy Standards

Healthy Standards

Heather Nachtmann points to the salmonella/peanut butter outbreak of early 2009 as the perfect example of why hospitals – all of them! – need to use only one number to identify identical parts used in hip-replacement surgeries and angioplasties. Seems prudent, but what does contaminated peanut butter have to do with identifying orthopedic implants or small balloons inserted into obstructed blood vessels? Not much, she says, other than an important lesson that could save human lives.

“When that happened and word spread up and down the retail grocery supply chain, jars of peanut butter vanished from grocery shelves,” said Nachtmann, an associate professor of industrial engineering. “I’m sure there were exceptions due perhaps to personnel constraints in some stores, but in general, once that recall was announced, any peanut butter that could have been contaminated was gone. It all happened very quickly.

“Unfortunately, if this scenario were to occur today with an implant or a pacemaker or any other device inserted into a patient, the health care supply chain could not respond as quickly. So our peanut butter can be recalled instantly, but things that touch our body, things that keep us alive, take hours to pull out of use.”

The problem, Nachtmann says, has to do with information: access to it and the quality of it. The retail and grocery industries use numbers – Universal Product Codes, which can be found next to every bar code – that consistently and reliably identify unique products throughout the supply chain. This simply means that an individual product – Ben and Jerry’s Chocolate Fudge Brownie for instance – tied to a specific number can be identified, regardless of its location, which may be the manufacturer, a distribution center or a specific grocery store.

Although there is a movement in this direction, the health care supply chain does not have Universal Product Codes. It has numbers — just not the same numbers for identical products, and this lack of consistency pervades not only the entire health care supply chain but, in some cases, hospital systems themselves.

Nachtmann and Edward Pohl, also an associate professor of industrial engineering, discuss this and other findings in “The State of Healthcare Logistics – Cost and Quality Improvement Opportunities,” their report on the U.S. health care supply chain, a complex and expensive system that industry analysts and economists have labeled as inefficient and a significant source of rising health care costs. The researchers surveyed 1,381 professionals from all major sectors – providers, manufacturers, distributors and group-purchasing organizations – of the health care supply chain. They found that in addition to being an extremely expensive undertaking – the average health care provider spends more than $72 million a year on supply-chain functions – the U.S. health care supply chain is immature and starved for accurate and accessible information.

“What we’re talking about is language, one language to identify syringes, staples, surgical scissors and knives, heart monitors, latex gloves, hoses, stethoscopes, cafeteria trays… you name it. Everything. One language used by every player.”

A Universal Language

The health care supply chain is a network of information and logistics within the broad spectrum of U.S. health care. In addition to direct health care providers such as acute-care hospitals and long-term facilities, surgical and diagnostic centers, physicians’ clinics, pharmacies and other facilities, the network includes laboratories, equipment manufacturers, suppliers and distributors. Group-purchasing organizations – businesses established to increase purchasing or bargaining power for bulk supplies – also play an integral role in the health care supply chain.

To some degree – whether it’s a small manufacturer that produces custom implants or a huge hospital system that serves thousands of patients – every entity within the categories above contributes to and benefits from the health care supply chain, especially if it runs smoothly. But most players, Nachtmann and Pohl discovered, are only poorly prepared to participate in it. Many survey respondents indicated that their organization’s supply chain operated merely as an ad hoc, unstructured system in which management practices and processes were loosely defined but not implemented.

A major obstacle to implementation – indeed, the major barrier to an integrated and mature supply chain, respondents said — is a lack of data standardization. Specifically, nearly three out of four survey participants, most of whom worked for a health care provider, indicated that lack of data standards was a significant barrier to their organization reaching an acceptable level of collaboration among all health care supply-chain members.

Data standardization? It’s the same thing as good, accurate and consistent information about each and every product. Nachtmann alluded to a definition above, but in industry-speak, data standards refer to universally agreed-upon and accepted representations, formats and definitions for common data ascribed to equipment, supplies and records. In other words, one standard data system to document and track every object that goes in and out of every health care supply-chain entity.

“What we’re talking about is language,” Nachtmann says, “one language to identify syringes, staples, surgical scissors and knives, heart monitors, latex gloves, hoses, stethoscopes, cafeteria trays… you name it. Everything. One language used by every player.”

Money To Be Saved

The benefits of such a language transcend the pre-eminent goal of patient safety. Each year health care supply-chain organizations devote billions of dollars to health care delivery, the business of procuring and distributing materials, equipment and information to help professionals do their jobs. The average provider in Nachtmann and Pohl’s study spends more than $70 million a year, nearly one-third of its annual operating budget, on supply-chain functions. Traditionally, Nachtmann says, hospitals and other health care providers have focused so intensely on quality patient care that health care delivery has suffered.

“Health care providers are worried about saving lives, not operating efficiency,” she says. “But now they realize that a lot of money can be saved.”

Supply chain inefficiency is not a new problem. For many years, at least since the early 1990s, industry analysts and supply chain professionals have targeted health care supply chain and logistics as an area in which inefficient practices can be eliminated or at least reduced enough to facilitate health care delivery at a reasonable cost. Down in the trenches, health care supply-chain professionals know that incorrect or inconsistent product data causes pricing errors, wasted time and labor redundancy by personnel trying to resolve rebate, return and credit issues with suppliers.

But how do these inefficiencies play out? Consider the recall scenario above. A manufacturer discovers a flaw on a specific implant used in hip-replacement surgeries and immediately issues a recall to all clients. As this information travels throughout the supply chain, workers at distribution centers and provider facilities try to identify the correct part. This process is often tedious and time-consuming – not to mention subject to human error – because the manufacturer’s number associated with that part differs from the distribution center’s number for the same part, which in turn is different from the provider’s number. Three numbers or codes for the same, identical object. The whole process of identifying and pulling the right part requires a great deal of record reconciliation and human labor. Moreover, this proprietary state exists horizontally as providers themselves – or suppliers – do not share the same number for an identical part.

“Compounding this problem,” Pohl says, “is the fact that product identification codes may not be consistent between branch hospitals in the same network or even between floors of the same hospital.”

Experienced industry professionals know that data standards increase compatibility, reduce redundancy and improve collaborative exchange. Their ideas and efforts have only intensified as health care costs have risen at an unsustainable rate. The problem has spawned national associations, organizations and even research centers – including the University of Arkansas’ Center for Innovation in Healthcare Logistics.

Movement Afoot

With group-purchasing organizations leading the way, the health care supply chain crawls toward much-needed change. Thirty-five percent of the survey respondents stated that their organization was moving toward the adoption of a data standards system. More than 65 percent of group-purchasing organizations had done so. A significant number, more than 50 percent, of manufacturers had committed to a data standards system. At 38 percent and 31 percent, respectively, distributors and providers were slower to convert. On the negative side, most participants stated that their organization had not adopted a data standards system or did not know if one had been adopted. For health care providers alone, this percentage – “no” or “don’t know” – was about 70.

The researchers asked participants about their organization’s readiness level for the adoption of a data-standards system. One out of three participants who worked for an organization that planned to adopt such a system believed their organization was either “ready” or “very ready” to do so. Forty-three percent of the respondents indicated that their organizations were only “marginally ready” or “not ready at all” to adopt standards. A small percentage (10 percent) had already adopted a location-identification standard, and even fewer had adopted a product-identification standard, but, encouragingly, a majority (about 60 percent on each) of respondents thought their organization would adopt both within three years.

All of this, however, may mean nothing if the various systems differ, which could create more roadblocks to communication. Importantly, an overwhelming majority – 88 percent – of those organizations moving toward the adoption of data standards will use the same systems: Global Trade Item Numbers, or GTINs, and Global Location Numbers, or GLNs. Developed by the health care function of GS1, a global organization that designs and implements global product standards to improve efficiency of the supply chain, GTINs and GLNs are the formal, proper names for product-identification and location-identification standards, respectively. Together, they function as the universal language that Nachtmann mentioned: One language to identify and locate objects.The latter function is critical, Nachtmann says, because some systems are so large and complex that they often have multiple billing entities – one number for the main hospital and a different number for the children’s hospital, for example. In the most extreme cases, she and Pohl found systems that had billing-location numbers broken down by floor or offices within the same building. Inconsistent naming schemes led to confusing and chaotic situations in which there were multiple codes for the same provider. For example, delivery and billing problems abound in a situation such as this:


Establishing Global Location Numbers does not mean that providers must limit the number of unique billing entities, Nachtmann says. Hospitals and health care systems could set up as many numbers or codes deemed necessary to implement their billing, supply-chain and logistics operations. But, to avoid confusion generated by the above example, providers must use only one number for each unique location.

“There is a strong movement across the health care supply chain to implement location and product identification standards,” Pohl says. “But the implementation of these standards by individual organizations will do little good if the supply chain partners of those organizations choose not to implement the same standards. Most organizations formally encourage adherence, we found. I think there will be more compliance and cooperation over the next three years, and I think we’ll see significant progress toward universal standards for data. The research was sponsored by the Center for Innovation in Healthcare Logistics and the Association for Healthcare Resource and Materials Management, a national association for health care supply chain and materials-management professionals. The Center for Innovation in Healthcare Logistics is an industry-university partnership that leads a nationwide effort to identify and foster systemwide adoption of health care supply chain and logistic innovations. The center facilitates collaboration among researchers at the University of Arkansas, health care provider organizations and industrial sponsors, including Wal-mart Stores, regional Blue Cross Blue Shield companies, VHA Inc., the Association for Healthcare Resource & Materials Management, Procter and Gamble and IBM. The center began operations in May 2007 and has sustaining funding of more than $3 million for five years.

Experienced industry professionals know that data standards increase compatibility, reduce redundancy and improve collaborative exchange. Their ideas and efforts have only intensified as health care costs have risen at an unsustainable rate.

About The Author

Matt McGowan writes about research in the College of Engineering, Sam M. Walton College of Business, School of Law and other areas. He is the editor of Short Talks From the Hill, a podcast of the University of Arkansas. Reach him at 479-575-4246 or

University Relations Science and Research Team

University Relations Science and Research Team

Matt McGowan
science and research writer

Robert Whitby
science and research writer

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