eBook

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transforming the Supply Chain:
A Library of Insight to Drive Financial Success
in the Changing Healthcare Landscape

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
As organizations struggle
to rein in healthcare costs—
a complex, daunting task—
the supply chain is
emerging as the best new
source of savings.
Clearly, healthcare organizations are in
desperate need of new savings. Slower
Medicare payment growth rates, declining
in-patient volumes and higher IT costs due
to electronic health record (EHR) software
have hit profits hard.
Medicare’s change to value-based,
“bundled” reimbursement versus volume-
based payments have left healthcare
organizations struggling with maintaining
their high level of quality care while, at the
same time, striving to reduce costs.
And, furthermore, the trend toward
acquisitions and mergers means integrated
delivery networks (IDNs) are larger and
more geographically dispersed. This can
increase administrative costs and make it
even harder for providers to understand
and control their medical-surgical spend.
The good news is that we have created an
ever-growing list of resources—a library, if
you will—to help healthcare organizations
improve supply chain efficiencies and
savings, so they can improve their overall
financial health.
McKesson Vice President of Supply Chain,
Todd Tabel, has created a library of
valuable resources to help healthcare
organizations tackle the issues that have the
greatest impact on improving supply chain
efficiency. This information first appeared
on the Healthcare Supply Chain Talk blog,
an online gathering place for sharing ideas
and strategies to improve margins by
uncovering new areas of savings within the
healthcare supply chain.
These resources and solutions address the
key business issues that are negatively
impacting efficiency, spend visibility and
control, and information sharing within the
supply chain.
They give insight on how to:
 Reduce off-contract spend
 Drive value analysis savings projects
 Enable ease of comparing functional
equivalence
 Provide formulary control at the time of
requisition
 Improve management of high cost supplies
like physician preference items
 Enhance information sharing along the
supply chain continuum
Although healthcare organizations will
continue to face financial challenges, there
are tools available to help. This e-book
offers insight on practical ways to automate
and streamline supply chain processes and
improve the quality of supply chain data—
driving new sources for capital and savings.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Margin Improvement
Why the Hospital Supply Chain is Your Best Source for Savings ………………………………….. 2
The Heroes and the Villains: 7 Top Issues for Healthcare Supply Chain in 2014 ……………. 4
Low Inventory Automation In High Cost Areas—It Can Cost You Big ………………...………... 6
5 Top Roadblocks to Healthcare Supply Chain Savings ........................................................ 8
Hospital Procurement
Can the Right Procurement System Drive Non-Labor Savings? .......................................... 12
Keeping it Clean … Are Unorganized Supply Areas Costing You Money and Compromising
Patient Safety? …...................................................................................................................... 14
Value Analysis
Get Your Head into the Cloud ................................................................................................. 17
Is Dirty Data Muddying Your Value Analysis? ..................................................................... 19
If 2012 Was the “High Water Mark” for Hospital Finances Where Will New Savings
Come From? …........................................................................................................................... 21
TABLE OF CONTENTS

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
MARGIN IMPROVEMENT

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Why the Hospital
Supply Chain is
Your Best Source
for Savings
By Todd Tabel
Vice President, ERP and Supply Chain
Solutions, McKesson
Hospitals are caught between the proverbial
rock and a hard place. Hospitals’ operating
expenses have grown about 10% annually
since 2008—this, while net revenue per
adjusted admission has been flat since 2008
and has actually gone down compared with
operating expenses.i Combined with falling
reimbursement and flat-lined patient
volumes, healthcare organizations like you
are fighting to maintain profitability.
So how can you get savings rolling? The
health care supply chain offers your best
source for new savings and capital.
The top opportunities for hospital supply
chain savings can be found by:
 Automating Hospital Procurement/Supply
Chain Value Analysis
 Improving Operational Efficiencies
Strategic Sourcing Offers
Enterprisewide Savings Advantages
Traditionally, the main source of value
analysis information on your med-surg
supply spend was what was captured in
your item master and your materials
management information system (MMIS).
Unfortunately, that missed a big chunk of
your spend—including those high-ticket
physician preference items—so savings
efforts were always limited.
Now, new cloud-based strategic supply
sourcing solutions give you visibility into
your entire med-surg spend—including
PPI—and provide the detailed data you
need to make better purchasing decisions
moving forward.
You can compare like items to determine
the best value choice and to identify vendor
consolidation opportunities. For example,
one procurement system utilizes expanded,
“intelligent” attributes to identify functional
similar and equivalent items for
comparison.
In addition, you can better control
purchases across your organization.
Formulary-based capabilities have the

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
ability to compare the selected item to
similar items and existing contracts to
direct the buyer to the best choice—before
they make the purchase. This enforces your
business savings goals every time a
purchase is made.
Improving Operational Efficiencies
The goal of hospital supply chain
management is not simply to reduce the
cost of supplies, but to increase efficiency,
transparency, accuracy and integration all
along the chain. But the healthcare industry
has been slow to change. Operational
improvement efforts have been stymied by
lack of automation, inaccurate data, poor
business intelligence and reporting, and
departmental and informational silos that
lead to a lack of visibility and delay action.
By implementing next-generation
procurement systems, and utilizing point of
use solutions in high-cost specialty areas,
you can automate and integrate previously
manual processes, as well as encourage the
free flow of accurate, up-to-date data
throughout the chain.
For example, in the OR, RFID-enabled
point of use solutions are now capturing
clinical data within the case, and are
automating charge capture and inventory
management functions such as
decrementing inventory counts and
reordering when levels fall too low.
Cloud-based procurement systems help
ensure the right items are purchased to
begin with, to save countless hours of
rework and invoice-to-purchase order
justification after the fact. And some
systems harness the power of artificial
intelligence and analytics to crunch supply
chain “big data” and provide relevant,
actionable information without an Excel
spreadsheet in sight. Experts also suggest
using the peer-to-peer component in BI
technology to harvest answers to questions
you can’t see in your own hospital supply
chain and to add context to operations.ii
Organization-wide efforts to reduce waste
and excess product can bring also financial
awards. It starts by making clinicians and
nurses aware of costs. A recent survey
published in Health Affairs found docs
were wrong 81% of the time when asked to
estimate the costs of common devices such
as replacement knees or spinal screws.iii
Organizations are responding with cost
education programs, such as Cleveland
Clinic, which posted prices of surgical tools
in operating rooms.iv In a recent OR
Manager newsletter, OR directors and
managers cited costs savings as their second
biggest accomplishment of the past year,
right after improving patient safety.v Survey
respondees achieved results through saving
on supply costs, reducing reprocessing
costs, reducing inventory, becoming more

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
conscientious about costs and decreasing
expenses related to implants.
Additional savings can be garnered by
establishing trading relationships and
flexible contracts with responsible partners.
And some organizations that are growing in
size have looked to self-distribute.
The Potential is Big
There is much to be gained. A recent
McKinsey reports identified a 12-21%
opportunity for hospitals across the value
chain through hospital supply chain
transformation.vi
Find out how to drive more savings from
the hospital supply chain by downloading
new white paper: Predictive Value
Analysis: “Closing the Loop and Beyond” to
make informed decisions.
The Heroes and the
Villains: 7 Top
Issues for
Healthcare Supply
Chain in 2014
By Todd Tabel
Solutions, McKesson
Healthcare providers may need super
human strength to maintain margins in
2014. On top of existing financial pressures,
the one-two punch of flat/falling patient
volumes and reduced reimbursement will
leave organizations scrambling to lower
operating costs up to 30%vii to replace lost
revenue.
But like the Batman logo shining in the
night sky, there is hope—the healthcare
supply chain. Let’s review…
1. The Supply Chain Comes to the
Rescue

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
The healthcare supply chain has emerged as
the best source of new savings and capital,
helping providers resuscitate their
profitability.
• You’ll see more emphasis on supply chain
savings, especially through enterprisewide
strategic sourcing initiatives
• Value, not cost, will be the key determinant,
with efforts to increase efficiency,
transparency, accuracy and integration all
along the healthcare supply chain
2. High-Cost Physician Preference
Can Dash Needed Supply Savings
Whether the projection of medical supply
expense surpassing labor in 2020viii comes
true, there’s no denying that supply costs
are growing faster than wages or benefits.
The catalyst? Expensive devicesix —AKA,
physician preference items (PPI).
A single item can represent as much as
50%-72% of a procedure’s total costx and
left uncontrolled, can be the Kryponite that
destroys savings.
• The success of healthcare supply chain
initiatives will depend on managing PPI and
engaging physicians
• New procurement solutions will identify
and prevent these high-cost, out-of-system
purchases from being made to begin with
3. Is it a Bird…A Plane…Or the Cloud?
That cloud in the sky could just be the
healthcare cloud market, expected to grow
at a cumulative average rate of 20.5% from
2010-2017.xi Increased adoption stems from
expanded healthcare networks, government
mandates and the advantages of reduced
upfront costs, faster uptime, automatic
updates and a lower total cost of ownership
than on-premise counterparts.
• You’ll see increased adoption of nimble,
specialty SaaS solutions ahead of ERP—
especially for procurement
4. Employee Empowered Savings
New cloud-based, Google-like procurement
systems will empower buyers to make the
best-value purchasing decision every time.
• SaaS procurement systems will drive a
hospital’s formulary by directing purchasers
to the preferred product—before they buy
5. Bad Inventory Management Turns
Good for OR and Specialty Areas
Some of hospitals’ highest cost/impact
areas lack accurate, automated inventory
control and charge capture. Monitoring and
tracking implantable medical devices
(IMDs) is still done manually 70%-73% of
the time,xii causing lost charges, poor data
and lots of paperwork and rework.
• Providers will automate processes
with Point of Use (POU) solutions —driving
savings and improving data
collection/integration
• POU’s low-touch RFID technology will ease
clinician involvement

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
6. Big Data Is Brought Down to Size
Gathering, accessing and drawing
conclusions from big data is a monumental
task. But new procurement systems can
bring in big savings from healthcare supply
chain data.
• Cloud-based procurement systems harness
algorithms and artificial intelligence engines
to help facilitate timely, informed decision-
making and savings identification
• These systems break down data silos
7. The Villains of 2013 Return in 2014
• Slipping margins and weakened
finances will continue through 2014 and
2015xiii
• Tighter reimbursement will cut into
revenues
• Flat volume is the new normal, says
Standard & Poor’sxiv
Conclusion
The supply chain can be your financial hero.
By embracing some of the new healthcare
supply chain trends and technologies, you
can create new efficiencies and savings that
will drive profitability for your entire
organization. Chalk up one for the good
guys.
Download our formulary procurement
white paper to learn more about increasing
the efficiency and profitability of your
healthcare supply chain.
Low Inventory
Automation in High
Cost Areas—It Can
Cost You Big
By Todd Tabel
Solutions, McKesson
It seems counter-intuitive. Some of
hospitals’ highest cost areas—like ORs,
Cathlab or interventional radiology—lack
accurate, automated hospital inventory
management control and charge capture.
These are the areas that house your most
expensive supply items—like implantable
medical devices (IMDs) used in orthopedic
surgeries; and the catheters, stents and
balloons used for angioplasty. A single
device can cost thousands and can
represent 50% to 72% of the total costs for
corresponding diagnosis-related groups.xv
Yet, between 70%-73% of implantable
medical device (IMD) monitoring and

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
tracking is still done manually—even at the
nation’s “Most Wired” facilities.xvi
Manual capture of IMD data during surgical
procedures can cause all kinds of problems:
 Inaccurate data capture
 Poor data sharing between areas
 Lost charges
 Poor hospital inventory management
(leading to stockouts, shrinkage, expired
supplies, theft and compliance issues)
 Higher downstream costs in billing,
accounts payable and other areas due to
manual paperwork and rework
 Valuable clinician time spent on
supply tasks
It’s estimated that the health care market
loses more than $5 billion every year due to
the inadequacy of current solutions in the
implantable device supply chain.xvii
So what can be done to capture charges and
increase the accuracy and sharing of supply
information in these critical areas?
New Point of Use supply cabinets that use
integrated radio-frequency identification
(RFID) technology automate critical supply
functions and integrate process and
information flow between clinical, billing
and inventory systems.
RFID Point of Use (POU) Supply cabinets
for specialty areas come in two varieties:
shelved cabinets that house stents and
balloons, and cath rack cabinets that hold
vertical hanging catheters as well as stents
and balloons. Software integrates the
cabinets to other hospital billing and
materials systems.
Here’s how they work.
A nurse swipes his/her badge and takes the
supplies needed for an upcoming
procedure. The hospital point of use system
automatically tracks the supplies removed.
When the procedure is finished, unused
items are put back. The cabinet
automatically returns unused items to
inventory, bills the correct patient for used
supplies and sends an electronic request to
the materials management information
system (MMIS) to have those items
replenished.
The low-touch RFID technology and
software integration to other systems offers
many advantages:
 Reduces supply spend
 Increases charge capture
 Provides more accurate supply and clinical
data
 Shares data with other systems
 Frees clinicians from supply tasks
 Ensures that the right supplies are available
when you need them
One provider executive for cardiovascular
care and imaging stated that inventory
management is an important component of
healthcare reform. “Automating the

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
inventory management process can reduce
supply costs, increase revenue and
streamline quality control. Inventory
technologies set PAR levels, maximize
rotation of stock and minimize staff time.
The technology also flags products recalled
by the FDA.”xviii
Automating hospital inventory
management in your high-cost specialty
areas can save you big.
McKesson point of use supply chain
solutions have been shown to:
 Reduce unofficial inventory by 30%
 Improve charge capture by 20%
 Reduce staff time by 15%xix
And the labor and non-labor savings can go
straight to your bottom line.
Find out how leveraging the latest RFID
Technology can help support your supply
chain, manage costs and improve clinician
workflow in a no cost webinar from
McKesson.
5 Top Roadblocks to
Healthcare Supply
Chain Savings
By Todd Tabel
Solutions, McKesson
You’ve given it your best shot. New IT
systems, value analysis teams, stricter
contracts, tighter controls. Yet at the end of
the day, you somehow still aren’t achieving
your efficiency and savings goals.
The reason? Because you haven’t yet
addressed the core business issues that
cause the inefficiencies and disconnects.
There are five (5) key areas issues
undermining your healthcare supply chain
savings:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
 Poor data quality and sharing
 Incomplete supply spend visibility
 Lack of information at the time of purchase
 Weak contract compliance
 Inability to easily compare like products
Here’s what you need to do to eliminate
these roadblocks and clear the way for
healthcare supply chain savings:
Improve data quality and remove
data silos: Industry organizations
estimate that 30% of buyer systems are
inaccurate.xx Some estimates put that figure
at 40%—going up to 80% when factoring in
pricing discrepancies.xxi With bad data and
information trapped in silos, savings come
to a screeching halt.
The answer is to integrate all of your
information into one source of data truth—
combining your item and charge masters,
purchase history and contracts with
industry data like vendor catalogs.
Normalize and rationalize the data so it
uses uniform descriptions. Now you’re
talking! You can identify duplicates, and
group like items for standardization. And
users don’t need to hunt around—they can
stop at one place for the information they
need.
Increase supply spend visibility: We
find that typically 40-50% of an
organization’s medical-surgical supply
spend falls outside its materials system.xxii
When you can’t see spend, you can’t
compare or control it.
By implementing a preemptive formulary
procurement system, you can bring your
entire supply spend into view. Every
purchase goes through the system—even
those illusive physician preference items
(PPI). Now you can see what you’re
spending your money on before your folks
purchase it. And that allows you to bring
more purchases under contract to drive new
savings.
Direct users to the preferred
purchase—up front: When Nurse Sally
searches three clinically comparable
catheters, how can she know which one
you’d prefer her to buy?
A preemptive formulary procurement
system stops poor decisions in their tracks.
Using sophisticated algorithms and
artificial intelligence, the system reviews all
the possible choices and suggests the exact
contract line and price that offers the best
value for your organization. Nurse Sally is
directed to your organization’s preferred
choice at the point of requisition—before
she buys.
Increase contract compliance—up
front: Most procure-to-pay systems are
great at analyzing where you went wrong
—which prices and contracts didn’t
match up, and where you missed on
contract compliance. The problem is
you’ve already made the purchases. It’s
like driving by looking in your rear-view
mirror.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
The advantage of a preemptive formulary
procurement system is it stops those off-
contract purchases from being made. This
virtually eliminates all that back-end work
to justify pricing and contracts. Now your
folks can focus efforts on long-range
planning.
Enhance ability to compare: One of the
challenges to successful standardization
and value analysis is how to identify
functionally similar and functionally
equivalent items for comparison.
A preemptive formulary management
system takes all of your purchased items
and uses unlimited attributes to describe
them. These “smart attributes” allow you to
see exactly which items appear to be
functionally equivalent—the system even
identifies opportunities for you. Now you
can work with clinicians to standardize and
limit vendors—especially critical for
policing those high-ticket PPI.
Once you remove these five roadblocks to
healthcare supply chain savings, you’ll find
your information and process flow speeds
along—putting your savings on the fast
track.
Learn more about how healthcare supply
chain solutions can help your organization
streamline workflow and provide
enterprisewide visibility into your supply
chain spend.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
HOSPITAL PROCUREMENT

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
Can the Right
Procurement
System Drive Non-
Labor Savings?
By Todd Tabel
Solutions, McKesson
Things are tight in healthcare. Declining
reimbursement means health systems are
considering all options for margin
management – from testing new revenue
streams to reducing non-labor expenses
20% to 30%.xxiii Optimizing quality and
improving financial performance are
perpetual objectives for any health system,
but at McKesson, it’s become a cornerstone
of our Better Health 2020™ strategy to
adapt to healthcare reform. And in fact,
the healthcare supply chain is one of the
top sources for new savings. Success
depends not necessarily on LEAN revisited,
but heavily on smart system optimization.
What I mean by smart system optimization
is the ability of a procurement system to
help reduce non-catalog purchases, include
physician preference items (PPI), and
ensure purchasers have the information
they need to make the most cost-effective
buying decisions.
Procurement systems fall into two
categories: procure to pay (P2P) and
formulary guided procurement. Most
systems are contract P2Ps; they help justify
invoices to contracts and identify which
items were bought off-contract. Some use
powerful analytics to compare contracts to
output. It’s good information, but you’re
identifying and analyzing off-contract
spend after the purchase is made rather
than before.
Requisitioning P2Ps create a familiar
buying experience, similar to the way we
buy personal goods online. Unfortunately,
these systems don’t do much to help
purchasers find the item they want or make
the best choice — users don’t know if it’s the
right price or even if a contract or formulary
exists.
Contract and requisitioning P2Ps pull
information from only one source: the item
master. Item master data is notoriously
outdated (30% to 40% inaccurate,
according to HFMA’s 2007 “Data Quality:
The Foundation for Significant Supply
Chain Enhancements”), and the cryptic
product descriptions don’t match how users

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
order. When users can’t find a product, they
order offline.
Most importantly, P2Ps miss your non-item
master spend: the 40% to 50% that falls
outside of your current materials
management information system
(according to McKesson/Meperia research).
That means you aren’t capturing your total
spend data because you’re missing high-
cost PPIs.
In other words, with a P2P system you’re
spending lots of money to analyze
incomplete data without preventing users
from making wrong decisions up front.
On the other hand, formulary procurement
systems give you the advantages of P2Ps
without the pitfalls:
• They use your organization’s product
formulary to guide users to make the best
purchasing decision to support your
organization’s business goals.
• They offer the “consumer-simulated” buying
experience users are familiar with and like.
Users can find the product they need thanks
to longer descriptions and recognizable
photos. A nurse and a purchasing agent can
both find the same item, even if the nurse
calls it a “Christmas tree” and the agent calls
it an “airway adapter.”
• They capture that elusive spend outside
your item master (including PPI, self-
contracted items and GPO contracts) to
provide a single, perpetually cleansed
source for your total med-surg spend.
Preemptive formulary guided procurement
systems give you a real difference by
preventing any non-formulary, non-
contract spend:
• They direct users to your preferred product
choice at the point of requisition —
before they buy.
• Through artificial intelligence, the systems
“learn” your products and preferences.
Similar to the way the data engines at
Amazon suggest new books you might like
to read based on your buying history, the
systems suggest the best choice item based
on your formulary and contracts. Currently,
McKesson is the only vendor that can
provide artificial intelligence systems for
procurement.
• They can even identify functional
equivalency to aid your value analysis team
in standardization efforts.
With preemptive formulary guided
procurement systems formulary and
contracts are enforced before the purchase
is made and off-contract spend is virtually
eliminated. Contract compliance jumps,
admin hours drop and your savings head in
the right direction.
Learn more about the benefits of formulary
procurement by downloading our new
white paper.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
Keeping it Clean…
Are Unorganized
Supply Areas
Costing You Money
and Compromising
Patient Safety?
By Todd Tabel
Solutions, McKesson
Do your medical-surgical supply rooms
remind you of a teenager’s messy bedroom
— things hanging out, cluttered shelves and
a look of general mayhem? Unorganized
supply areas are a marker of unorganized
processes and the lack of an automated,
integrated inventory management system.
This negatively impacts your financial and
clinical success through:
Lost Revenue
• Wasted clinician time spent searching for
supply items and manually charging and
ordering
• High supply management labor costs to
manually count, order and replenish
inventory, and manage paper-based AP
processing
• Missed charges, with a higher percentage of
revenue loss in high-cost procedural areas
• Lack of usage/volume data for reporting
and planning, which compromises vendor
consolidation and volume discounting, and
capture of total cost-of-care data
• Too much inventory, which leads to expired
stock, missing items and theft, and takes up
valuable floor space that could be used for
higher revenue-generating services
Compromised Patient Safety
• Stock-outs or wrong picked items with
potential to delay case starts and lower OR
throughput; or worse yet, compromise
patient health and safety
• Diminished clinician time with patients as
nurses attend to low-value supply duties
Unfortunately, lack of automation, and
therefore lost revenue, is most prevalent in
your high-impact specialty areas like the
OR, Cath Lab and IR. Even in the nation’s
“Most Wired” hospitals, 70% of implantable
medical device monitoring and tracking is
still done manually.xxiv
And when that costly consignment item

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
comes up missing — you pay thousands,
whether or not you used it.
An integrated inventory control system can
help you clean up your act. Healthcare
point of use (POU) solutions provide the
following advantages:
• Automates critical supply functions, such as
supply requisitioning, patient charging,
inventory management and information
capture through bar code scanning and
integrated RFID technology. You reduce
errors and eliminate labor on both the front
and back ends.
• Integrates process and information flow
between clinical, billing and inventory
systems. For example, one cardiology and
surgery POU system offers single-scan
integration within the clinical case to capture
charges, charge the patient, decrement
inventory and signal reorders.
• Improves data capture for reporting and
strategic analysis. Usage and price data
integrated to your clinical, billing and
materials management information
system (MMIS) facilitates vendor and
product consolidation, and total cost of care
data for government reporting and
cost-saving initiatives.
• Reduces and streamlines inventory, to
virtually eliminate stock-outs and overstocks,
while offering just-in-time delivery to reduce
carrying/overnights costs and free floor
space for more profitable uses.
• Helps ensure patient safety through
systematic organization, tracking and
ordering of supply items, to help alleviate
using expired or recalled items.
• Generates savings for strategic investments
and improvements. Many customers of one
POU supply solution gained significant
process improvements: a 30% reduction in
unofficial inventory, a 20% improvement in
charge capture, and a 15% reduction in staff
time. This translates to bottom line savings
that can be used for reinvestment in
profitable service lines and capital
improvements.
By automating and integrating supply
functions with the right point of use
systems, you can reduce your supply spend,
increase charge capture, and ensure that the
right supplies are available when needed.
And you can clear supply duties off the plate
of your clinicians so they can focus on what
they do best — take care of patients.
Learn more about how point of use
solutions increased compliance and revenue
for Centra hospital.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
VALUE ANALYSIS

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
Get Your Head into
the Cloud
By Todd Tabel
Solutions, McKesson
The current healthcare climate is cloudy
with a chance of Software-as-a-Service
(SaaS).
In growing numbers, providers are
embracing Healthcare SaaS business
solutions to improve efficiencies, increase
data access, reduce costs and gain new
tools.
The healthcare cloud market is predicted to
grow at a cumulative average rate of 20.5%
from 2010-2017.xxv Accenture believes that
the SaaS market will achieve mainstream
status from 2014-2016, demanding that
healthcare companies develop an
understanding of and a strategy for using
Healthcare SaaS.xxvi
So why the switch to the cloud?
The healthcare IT market has changed:
 Financial pressures demand cuts in
operational costs
 Space constraints limit room for new
servers
 Integrated delivery networks (IDNs)
and partnerships require quick, consistent
software implementation across multiple,
dispersed locations
 The government requires better
tracking and easier sharing of
electronic health data
 Organizations need deep data and
analytics – clinical, financial and supply
chain data, and their value-based
relationships
 People have embraced the cloud, using
computers and mobile devices in their
everyday lives
Healthcare SaaS solutions meet these
demands by providing cost and efficiency
benefits over on-premise offerings:
 Faster uptime and adoption due to
browser access and solutions that mimic
online sites and search engines
 Automatic updates and patches to keep
software current
 Flexibility in scaling, licensing and on-
demand capacity
 Burden lifted from internal IT staff as
software vendor provides the servers,
software and updates

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
 Quick access to vast amounts of data
xxvii
 The bridging of the information gap
executives complain about to their IT
organizations xxviii
And this translates to a big financial upside
for your organization:
 Lower upfront costs due to monthly fees
versus expensive licensed-based, installed
software systems
 Lower total cost of ownership due to
monthly subscription pricing and less
internal staff time
 Faster time to value as the installation
phase is shortened from 3-6 months to as
little as one month, and adoption is more
intuitive
Other industries that have transitioned to
cloud-based ERP solutions, for example,
have demonstrated a 45%-55% cost
reduction from traditional on-premise
solutions for initial set up. Once the
changeover is made, the reported total cost
of ownership is less than what most of the
companies have been paying for ongoing
support of their previous ERP packages. xxix
So what might rain on the parade of SaaS
success?
In some cases, such as with traditional ERP
systems, on-premise solutions are more
feature-rich, so providers must weigh the
financial/time advantage of moving to a
healthcare SaaS alternative.
That said, many new SaaS solutions have
features and functionality on-premise
products never provided. For example,
McKesson Strategic Supply Sourcing
presents buyers with the best product
choice based on your organization’s
contracts and pricing—before they buy. This
promotes organization-wide best
choice/best value product choices and
alleviates the back-end work to justify
invoices, POs and contracts. No on-premise
procurement solution can offer that.
Another concern I hear about is privacy and
security. But cloud vendors have been
addressing these concerns from the very
beginning when web-based applications
were delivered by application service
providers (ASPs). Security is built into the
products as a core attribute. I would
venture to say that Healthcare SaaS
providers are doing a much better job of
protecting data than many other businesses
and department stores. Just saying.
Finally, as for interoperability, many cloud-
based solutions are agnostic. Our strategic
sourcing solution, for example, works with
any ERP software and materials
management information system (MMIS).
The outlook for Healthcare SaaS solutions
is sunny. They address real business issues,

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
and tomorrow’s solutions will do even more
to improve efficiencies and increase
business knowledge. Cloud solutions might
be the silver lining to your financial success.
To learn more about our SaaS procurement
solution, download our McKesson Strategic
Supply Sourcing whitepapers.
Is Dirty Data
Muddying Your
Value Analysis?
By Todd Tabel
Solutions, McKesson
Your item-master data not only supplies
critical information you need for daily
procurement and accounts payable
activities, it’s also the starting point for your
value analysis efforts. But your “source of
truth” may not be so truthful.
The fact is 30% to 40% of buyer systems are
inaccurate.xxx With hospital item-master
files ranging from 18,000 to 100,000+
items,xxxi that translates into thousands of
incorrect, duplicate or missing item
descriptions.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
It’s not that your item master means to lie
to you — it literally can’t help itself:
 10 million US med-surg product listings
change every yearxxxii
 Each GPO makes up to 30,000 contract
data changes each month
 Cryptic, annotated descriptions make items
hard to recognize
 Diverse users in disparate locations cause
multiple listings for the same product
 40% to 50% of your purchases are non-
catalog and aren’t captured in your
item master
An unclean and incomplete item master
prevents users from easily finding the
product they need, leading to them
mistakenly ordering the wrong thing or
buying off-catalog. Whether intentional or
not, off-catalog purchases are usually off-
price/off-contract because you don’t see
them until after they’re made.
Bad data and missing purchases both throw
a wrench into your value analysis efforts.
How can you effectively standardize
product selection and consolidate contracts
if you don’t realize you have five iterations
of the same product and half your purchase
data is missing?
Today’s cloud-based, preemptive formulary
guided procurement systems help you clean
up your act on both fronts, maximizing your
technology spend.
First, strategic sourcing systems help ensure
your data stays clean. They use a cloud-
based virtual item master (VIM) and
artificial intelligence (AI) to normalize your
item-master data against your contract data
and purchase history, as well as industry
data sources, to create a single source of
truth that is perpetually updated (no more
need to outsource data cleansing). Using AI
and expanded descriptive fields, these
systems capture and recognize disparate
listings as the same product. Standardization
becomes easier and more consistent, and
your staff can finally source products with
descriptions they understand and names
they use.
Second, these systems capture those illusive
non-catalog purchases, so your value
analysis team members gain visibility into
your total spend. The team receives detailed
comparison data it can use to make
standardization recommendations and
negotiate with physicians and vendors.
Because these systems automatically present
standardization opportunities based on
functional similarity and equivalence, your
team can focus on the initiatives that offer
the best potential return — before they even
begin.
Third, preemptive formulary guided
procurement systems automatically
reinforce value-analysis efforts on a daily

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
basis. Users are empowered to make the
right choice — on formulary, on price, on
contract — at the point of requisition. They
are even shown the savings.
Having clean data and capturing your off-
contract spend helps you streamline your
value analysis efforts to get a greater return.
And that supports your ultimate business
goals of increasing efficiency and savings.
Learn more about perpetually cleansing
your item master by downloading our new
white paper.
If 2012 was the
“high water mark”
for hospital finances
where will new
savings come from?
By Todd Tabel
Solutions, McKesson
There’s good news and bad news for not-
for-profits. The good news is the operating
performance improved in 2012 and has
looked stable in 2013. The bad news—this
may be as good as it gets for financial
performance.
Fitch Ratings’ states that 2012 may have
been the high water mark, predicting
slipping margins and weakened finances in

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
2013 with S&P predicting this trend to
prevail in the next two years.xxxiii
Why do these agencies think providers will
take on water?
The reasons are multi-fold:
 Reimbursement cuts, with further cuts
scheduled under the Patient Protection and
Affordable Care Act, and 2% Sequestration
cuts for Medicare reimbursement
 Rising expenses, including greater
investment needed for physicians
and technology
 Flat or declining patient
demand/volume becoming the “new
normal”, as patients respond to a slow
economic recovery and higher deductibles,
and hospitals react to payment and
delivery reforms
 Pension obligations and expenses that
are likely to burden non-profit hospitals for
years to come
 Incremental credit pressures, due to
healthcare reform uncertainties and
supplier investment needed to support the
newly insured
 Revenue enhancements and cost-
cutting reaching its limits
So how can organizations turn the tide on
profitability?
Although I have to concede that patient
volumes, credit pressures and
reimbursement cuts don’t look to improve
short-term, I have to disagree on the
dire prediction that revenue
enhancements and cost cutting have
reached their limits. There are still
plenty of savings to be had in the healthcare
supply chain.
Many healthcare organizations have yet to
harness the full potential of today’s strategic
sourcing strategies and solutions—which
can bring significant dollars to their bottom
lines. And remember, it’s a whole lot easier
to save money than to make it. Driving a 2%
savings in your supply chain/bottom line
has the same impact as a 24% increase in
revenue.
To capitalize on these available savings,
organizations need to expand the scope and
improve the efficiency of data and
procurement processes through
comprehensive strategic sourcing that
enables them to:
 Pre-empt bad buying decisions –
Traditional procure-to-pay systems focus on
automating existing processes AFTER a
purchase is already made. Providers need a
strategic sourcing solution that enforces the
best value choice at the point of
requisition—BEFORE users buy—to prevent
off-contract, off-price buying decisions from
being made in the first place.
 Engage the entire organization in
value-based purchasing – Cloud-based
procurement systems offer easy-to-use,
uniform access to all employees at all

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
locations, so each user can be empowered to
make the right choice—with the system
presenting the preferred, best value choice
based on each organization’s contracts and
pricing.
 Create a single source of truth –
Healthcare organizations need visibility into
their entire med-surg spend—not just what’s
in their item master. Capturing non-catalog,
non-file spend, especially for high-cost
physician preference items (PPI), will help
orgs obtain the best tier-level pricing and
support standardization efforts.
 Focus value analysis efforts on the
best savings opportunities – Identify
potential savings opportunities up front
through a strategic sourcing system that
automatically finds and presents cost
savings and product standardization
opportunities through its ability to identify
functional similar and functional
equivalent items.
To learn more about the benefits of
formulary procurement, download our
new whitepaper.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
i Where can hospitals find labor costs savings?; Molly
Gamble, October 15, 2013; Becker’s Hospital Review.
ii Supply chain savings; Chelsey Dougherty; Healthcare
Finance News; posted on July 25, 2013;
http://www.healthcarefinancenews.com
iii How Much Do Medical Devices Cost? Doctors Have No
Idea; John Tozzi; January 23, 2014; Business Week;
http://www.businessweek.com/articles/2014-01-
10/how-much-do-medical-devices-cost-doctors-have-no-
idea
iv Supply chain efficiency trends: Hospitals continue to
seek strategies to squeeze more efficiency out of their
supply chain; Rodney J. Moore; Healthcare Finance News;
posted Nov 26, 2013.
v Salary/Career survey: Increased patient safety, cost
savings head list of overall accomplishments; October
2013; OR Manager Newsletter; Vol 29, No 10.
vi Building New Strengths in the Healthcare Supply Chain:
Pharmaceuticals and Medical Products Operations;
January 2013; McKinsey & Company.
vii Supply Side Economics: Purchasing practices at
hospitals and health systems continue to evolve, with the
supply chain continuing to be a target for large non-labor
savings; Jaimy Lee; posted on August 18, 2012;
http://www.modernhealthcare.com/article/20120818/M
AGAZINE/308189932
viii Strategic Supply Chain Management; Hospitals
&Health Networks magazine; December 2011.
ix Controlling Supply Costs: Supply Expense growth
outpacing all others; The Advisory Board Company;
website accessed Jan 13, 2014;
http://www.advisory.com/Solutions/Spend-
Performance-Solutions/Controlling-supply-costs
x Controlling Implant Costs: HFMA Roundtable; 2006.
xi Healthcare Cloud Computing Market – Global Trends,
Challenges, Opportunities & Forecasts (2012-2017) Report
July 2012 summary; www.marketsandmarkets.com
xii Seeing Device Costs Clearly; Research by Bob Kehoe,
Hospitals & Health Networks; 2011 (as part of their Fiscal
Fitness / Supply Chain series).
xiii U.S. Not-For-Profit Health Care Stand-Alone Ratios:
Operating Pressures Led to Mixed Results in 2012; August
8, 2013RatingsDirect® Standard & Poor’s Rating Services.
xiv The new normal? Shift to outpatient care, payer
pressure hit hospitals; Beth Kutscher and Melanie Evans;
August 10, 2013; Modern Healthcare.
xv Controlling Implant Costs: HFMA Roundtable; 2006.
xvi Seeing Device Costs Clearly; Research by Bob Kehoe,
xvii Seeing Device Costs Clearly; Research by Bob Kehoe,
xviii Inventory management: cutting costs (but not care) in
the Cath Lab; Clinical Innovation And Technology;
http://www.clinical-innovation.com
xix McKesson Website; http://www.mckesson.com/
providers/health-systems/department-solutions/supply-
chain-management/mckesson-point-of-use-supply/
xxAssociation of Healthcare Resource & Materials
Management (AHRMM)/Global Data Synchronization page
of website; www.ahrmm.org/ahrmm/ext/standards/
gdsn.html; and “Data Quality: The Foundation for
Significant Supply Chain Enhancements,” Supply Chain
Solutions, Healthcare Financial Management Association
(HFMA), 2007.
xxi 30% figure is from Global Data Synchronization
Network, Current Facts about Data/Data Synchronization;
AHRMM Website; 3/14/2012. 40% and 80% figures are
from Why the Item Master is the Center of Your Universe;
white paper; Global Healthcare Exchange; page 3; 2013.
xxii McKesson/Meperia healthcare marketplace data.
xxiii Supply-side Economics; Jaimy Lee; August 18th, 2012;
Modern Healthcare; http://www.modernhealthcare.com/
article/20120818/MAGAZINE/308189932
xxiv Seeing Device Costs Clearly; Bob Kehoe; Hospitals &
Health Networks.
xxv Healthcare Cloud Computing Market – Global Trends,
Challenges, Opportunities & Forecasts (2012-2017) Report
July 2012 summary; www.marketsandmarkets.com
xxvi The Next Healthcare IT Trend: Making Software as a
Service for ERP; Accenture; 2011.
xxvii Cloud Computing for Healthcare: Just what the Doctor
Ordered; DeDe Stokely; October 2, 2014; SaaS Markets;
http://saasmarkets.com/cloud-computing-for-healthcare-
just-what-the-doctor-ordered/
xxviii 5 Reasons to Consider SaaS for Your Business
Applications; Datamation Executive Brief; Oracle; accessed
online 3-6-2014, publication date not known.
xxix The Next Healthcare IT Trend: Making Software as a
Service for ERP; March 8, 2011; Accenture;
http://www.accenture.com/us-en/Pages/insifht-next-
heatlhcare-it-trends.aspx
xxx Global Data Synchronization Network, Current Facts
About Data Synchronization; AHRMM Website; accessed
March 14, 2012; and Why the Item Master is the Center of
Your Universe; Global Healthcare Exchange (GHX) white
paper; 2013.
xxxi The Value of Cleansing Data; John Cashmore; Materials
Management in Healthcare; 2005.
xxxii Why the Item Master is the Center of Your Universe;
Global Healthcare Exchange (GHX) white paper; 2013.
xxxiii 2012 May Have Been ‘High Water Mark’ for Hospital
Finances, Fitch Says; Melanie Evans; August 13, 2013;
Modern Healthcare; http://www.modernhealthcare.com/
article/20130813/NEWS/308139965#
CITATIONS

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For more news and insight from the
supply chain industry, visit
McKesson Healthcare Supply Chain Talk.
http://healthcaresupplychaintalk.com

eBook

Recommended

Recommended

More Related Content

What's hot

What's hot (19)

Similar to eBook

Similar to eBook (20)

More from Todd Tabel

More from Todd Tabel (12)

eBook