Open Letter IX: Bermuda Quadrangle Revisited

I got my first real job in 1978, with IBM. Guess what the company's marketing mantra was, almost 30 years ago? "Turn data into information." It was very cool, the stuff of lively cocktail party conversation, and it helped us sell a lot of monstrous mainframes.

But what was an innovative sales strategy for Big Blue 30 years ago is today a matter of business survival. Case in point: Dell Computer came out of nowhere building computers to order by leveraging unprecedented information transparency among customer, manufacturer, supplier, assembler, shipper, etc. And Dell led the way in forcing my former employer to second tier status and ultimately out of the PC business.

Hospitals epitomize both the value of information and the consequences of not having it. Unfortunately, in the healthcare supply chain the latter case rules too often. I don't think that the GPO's, manufacturers, and distributors actually conspire to keep the hospitals informationally challenged, but the intermixing of their disparate, often conflicting business priorities has the same result.

Dell's affordable, made to order PC delivered to your doorstep was achieved through intense collaboration on a common goal, relentless evaluation and elimination of unnecessary components and steps, and acknowledgement that all participants deserved a fair profit.

Are the same seeds of common cause germinating among healthcare supply chain participants? Here's a sample list of evidence that the answer is "no."

1. Many hospitals rely on their distributor's EDI 832, 855 transactions, even invoices for price updates.
2. Distributors rely on manufacturers to provide timely pricing information for each of their thousands of customers.
3. GPO's negotiate hundreds of multi-source contracts, many with multiple tiers, with hundreds of manufacturers.
4. To take advantage of their GPO membership hospitals must load GPO contract prices into their item file. Rulers and highlighters are standard procedure. Excel's v-lookup is "state-of-the-art."
5. Manufacturers often negotiate their best prices directly with the hospitals based on market share.

Now try to connect the 5 points into a cohesive system. You can't do it.

For example, take #2: Distributors obviously must maintain unique pricing files for each of their customers. Last year, for one of the industry's largest distributors, this meant making some 90 million price updates in their customer order entry system! Now add the fact that manufacturers transmit less than half of these price changes to the distributors using EDI (called an "845" transaction). The rest are sent using CSV / Excel files, or they are faxed! The distributors' workload is staggering and resource intensive.

Now go back to #1: customers rely on the distributor to have their correct prices, at the right time, and they concede any discrepancies that do occur to the distributor. To use a southern phrase, "say what?"

Hospitals must have information and they must have the fortitude to use it. With the right information a hospital can chart its own course to achieve optimal supply chain pricing and fair business partnerships.

President Ronald Reagan's favorite quote was, "trust but verify." Pretty good advice.