[From iSource Business, July 2001] Healthcare is one area of business that touches us all. You might not buy computers, build homes or forecast stock trends, but we all get sick. Or we all try to not get sick. Probably the only industry with more built-in market share is the funeral industry.
Healthcare is big business. While wonder drugs that cost thousands add to the shock value of checking out of a hospital, there are also the thousands of tongue depressors, disposable needles and near-useless gowns that must be kept in stock. And since all those items have to be bought and sold, sometimes from a sea of suppliers, it makes sense that moving healthcare procurement online promises great dollar savings.
One of the major problems with enabling the healthcare supply chain is that it's not easy to take a field that predates even medieval barbers and plop it online in a fortnight. Mike Davis, vice president, research area director at research firm Gartner Inc., says this is especially true given the privacy that medical records require. He says that the healthcare industry is trying to employ the ability to extend existing systems or capabilities to the Web so that they can do a better job of interacting with the consumers and the patients. That's not going to happen, says Davis, until patients feel confident about the security of the information they're putting on the Web. Today, nobody can tell you it's secure.
He speaks the truth. Consider Microsoft, one of the prime movers in proclaiming Internet security, which recently saw its Web presence brought to its knees by a hacker attack. A hacker learning your clothing preferences is one thing. Having a hacker find out your medical history is a quantum leap in violation.
Test Results are Negative
Another factor standing in the way of enabled healthcare is what Davis calls a risk-averse business climate. He explains that Gartner segments the market into Type A, Type B and Type C organizations. Type A organizations are very aggressive with technology. They use technology to a competitive advantage. They know there will be mistakes made, but they're aggressive in the adoption of new technologies.
Type B organizations will adopt new technologies once they're proven. Type C organizations will only adopt new applications when they reach the lowest quartile of pricing, if they're driven by competitive pressures or if they're driven to adopt new technologies due to government regulations.
According to Davis, less than 1 percent of organizations in the healthcare marketare Type A. About 15 percent are Type B and 84 percent are Type C. To say there's inertia in the segment is somewhat of an understatement. And that inertia will likely remain in place. Most suppliers enter this market and they don't understand that they have to prove themselves, that they have to create a really good reference client basis, and, until they do that, they're not going to get a lot of penetration, says Davis.
It Hurts When I Do That
Possibly more so than any other industry, healthcare has information-management needs that are positively epic in scale. Not only are there seemingly endless categories of supplies, but the need for accuracy is paramount. Given a shipment of the wrong nails, a construction company might still find a use for them. But the wrong medication, or the right medication in the wrong dosage, is pretty much useless. No one wants a GP making do when it comes to one's health.
Yet Lauri Ingram, senior program director of Insurance Information Strategies at META Group, explains that healthcare providers can have a hard time grasping the usefulness of information applications. She says, The biggest struggle the suppliers will have is really explaining what ERP [enterprise resource planning] is and how it applies to healthcare. I think there's a sense that it doesn't have any applicability in that industry."
Ingram believes that, to enable their supply chains, healthcare institutions will have to radically change the way they do business. It really means they have to re-architect their data and their information around a consumer. Now, it's very disparate, based on the application. She goes on to say, If they're really going to connect with the end consumer, track the consumer's preferences and make business decisions based on end-consumers' use, they've got to take a whole new look at the way they manage information, the way they disseminate it and how they make it available through different channels.
Make a Fist for Me
One way that the face of healthcare is changing is the aggregation of the purchasing power of smaller clinics and physicians' offices. The Medical Group Management Association (MGMA), an organization of 6,000 healthcare organizations and 18,000 individuals, has allied with marketplace esurg.com in order to give its members purchasing clout they wouldn't otherwise be able to negotiate as individual entities. David Mayer is a M.D. and the president of esurg. He says he has firsthand experience with the difficulty smaller entities can have managing their spend. In a hospital you've got a warehouse that can accept pallets of products. In an office you've got a closet or supply cabinet that takes eaches versus cartons. It's different mechanics and different economics. There's precious little economy of scale if your employee count is in the single digits.
esurg.com hopes to ease the little guys' pain, and they have verifiable results to prove it. Mayer says, We saved over $3,000 a year just in gloves for a multi-site urology center in Texas. We suggested a better value glove and they switched over. It was about a 12 percent difference from the glove they were previously buying.
Organizations using esurg save money both by wielding aggregated buying power and by the reduction of what has long been a labor-intensive way of doing business. Mayer says, When you look at what that office administrator was doing, it was days of outdated catalogs without any prices in them, fax machines, phone calls ... faxing in an order, getting the order two days later, and finally finding that three out of the 20 items you want were back-ordered. It's a frustrating system of time and cost inefficiencies.
But online capabilities are changing all that. Now, customers go online and see the prices without having to wonder if they've changed since the last time they ordered. For other industries this is called convenience, but in the medical field it's almost a matter of life and death.