The Healthcare Hub

Just the Facts and Only the Facts: A Bare-Bones Breakdown of the Cost of Implantable Devices

posted by: Martin Payne
Wednesday, November 14, 2012

If you’re a regular reader of “The Healthcare Hub,” it won’t come as any surprise to you that the current state of the implantable device supply chain (IDSC) is severely flawed. You also know that the healthcare industry loses billions of dollars a year due to technical inefficiencies, lack of visibility and plain-old human error within the IDSC.

When we set out to develop an automated solution for the IDSC, we knew it was in bad shape. But after getting into the thick of it, we found that the problem was much bigger than we thought. The deeper we dug, the more shocked we were with the inefficiencies and financial losses we discovered. Let me quantify some of this for you:

  • During the course of 18 months, my team researched the IDSC processes of 600 providers and suppliers.
  • Cardiac and orthopedic implantable devices make up a more than $40 billion annual market.
  • The healthcare industry loses over $5 billion a year due to inefficiencies in the IDSC representing a 12-and-a-half percent overhead, or tax, on that healthcare supply spend.

The one constant throughout all of our interviews was that healthcare needs to change. And, as all of these numbers show, one of the last big bastions of inefficiency is implantable devices. So let’s break some of this down even more:

  • Providers are simply not capturing everything that they should be for billing and are working within a 5-to-7 percent error range, which, at the end of the day, adds up to billions of dollars. 
  • Inventory processes for implantables are highly inaccurate compared to other segments.  For example, orthopedic and spine implant manufacturers turn their inventory about once per year.  Other implantable device categories turn at faster rates but are still well below other industries – there is a lot of room for improvement.  
  • Providers tend to overpay by 12 percent on 30 - 40 percent of products, and a high percentage of invoices are discrepant.

If you can move these metrics even one percent, you are looking at billions of dollars in savings.

Earlier this year, GHX announced the industry’s first comprehensive IDSC solution. We are currently piloting the first phase with six providers and four suppliers – capturing data from product purchase to product usage at the point of care to enable accurate billing, purchasing and inventory tracking. Some of our initial results include:

  • A provider reduced the number of touch points for purchase order creation from eight to one.  
  • Another pilot site reduced the average time it took to generate purchase orders from five days to one day.
  • One provider’s cycle times, from procedures to PO, have been reduced from one week to two days.

We have many other findings from our pilots (you can read more here), but I promised you only the bare-bones numbers in this post. I’ll be sure to share pilot results as we move into phase two (capturing consumption information at the point of use) and phase three (capturing and sharing inventory cycle counts electronically) later this year and into 2013. 

One thing is for certain, today’s IDSC processes need to change – to ensure that healthcare costs are contained and more resources are available for patient care. The pilot program is driving major efficiencies in this space and I’m confident that the IDSC of tomorrow will be much more streamlined, efficient and collaborative, for both provider and suppliers.