Internetvenous Drip, Stat!

Andersen: e-Business could be shot in the arm for healthcare industry

Dallas  June 27, 2001  The healthcare industry could capture as much as $6 billion in value by using e-business tools to eliminate overpayments and reduce rework and manual processes, according to a new study by consulting firm Andersen on the future value of e-commerce in the industry.

The study, conducted by Andersen's pharmaceutical, biomedical and health services (PBH) supply chain practice, measured both the tangible and intangible values of e-commerce in the healthcare supply chain of the future.

Andersen found that in a "fully mature environment," e-commerce could bring 2 percent to 10 percent total benefit, or up to $6 billion in value, to participants across the supply chain in the areas studied.

The study examined areas including product procurement, order management, operational efficiency, invoice processing, systems integration and contract management. Andersen arrived at the potential total benefit by combining a potential 1 percent to 2 percent benefit for providers with a 1 percent to 8 percent benefit for suppliers.

The major potential benefit through e-commerce for providers involves eliminating overpayments and reducing rework and manual processes, the study concluded. The benefit for suppliers involves freeing sales representatives from spending their time on administrative tasks, enabling them more time to sell, providing access to real-time sales information allowing for better management of fill-rates and operational processes, and reducing the level of effort for labor-intensive administrative processes, including contracts, rebates and eligibility.

The study combined an activity-based costing method and interview process to estimate future benefit potential. Andersen conducted on-site analyses at multiple supply chain sites, including providers, direct and indirect manufacturers, distributors and pharmacy wholesalers.

Key findings of the study include:

  • In medical and surgical supplies, providers overpay suppliers from 2 percent to 7 percent based on the available contract price.

  • Different facilities on the same health system pay a different price 40 percent of the time, while price differentials are, on average, in the 1 percent to 2 percent range.

  • Of the eligible provider transactions that are or could be conducted through e-commerce, 31 percent are actually conducted through e-commerce.

  • For manufacturers, sales representatives spend an estimated 25 percent to 49 percent of their time on administrative issues that detract from actual selling efforts. Only 14 percent of medical surgical distributors' sales representative time is spent selling products or educating customers.

  • Among hospitals, an estimated 40 percent of a purchaser's time and 68 percent of an accounts payable worker's time is spent on manual processing and rework. And, 52 percent of all re-work could be eliminated through e-commerce.

  • Real-time visibility of sales transactions would allow suppliers to better fill orders and manage operations.

The study, which began in November 2000, was sponsored by Novation and Academic authorities Charles Horngren from Stanford University and V.G. Narayanan from Harvard University independently reviewed the methodology and study findings.

In a statement accompanying the release of the study, Andersen said it believes that, in order for the value of e-commerce to be achieved, the healthcare supply chain as a whole must accept e-commerce on a mass scale and new technology must be deployed.